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When prices of basic necessities surged two years ago, more higher-income shoppers turned to Walmart Inc. to ease the strain on their bank accounts.
Now, as those price increases start to cool, one analyst believes the big-box discount retailer
WMT,
can hold onto those customers, as the chain, known for its lower prices, gains a bigger reputation for offering convenience.
“A key question is if [Walmart] can maintain those customers in a less inflationary environment,” D.A. Davidson analyst Michael Baker said in a note late Tuesday. “We believe [Walmart] can, as consumer perceptions of the brand have evolved from one focused on value to a brand now thought of as both offering value, but also convenience.”
He continued: “We think this convenience aspect, driven by their omnichannel model, will resonate with higher end consumers as value may become less important for that customer with less inflation.”
Shares of Walmart were up 1.2% on Wednesday. The stock is up 10.3% over the past 12 months.
Baker made his assessment in conjunction with this week’s ICR Conference, which included a presentation by Walmart and other meetings with the company, including a one-on-one session with D.A. Davidson.
And at the CES consumer-technology show this week, Walmart announced plans to dive deeper into artificial intelligence and drone deliveries.
Walmart’s chief executive, Doug McMillon, said in November that the U.S. “may be moving through a period of deflation in the months to come.” But Baker said that in fact, while the company acknowledged the possibility of falling prices, it “sees a low probability of full-year deflation,” as other grocery stores try to keep prices higher. Walmart gets a majority of its sales from groceries.
Still, Baker said that Walmart was content with where its prices stood in relation to its rivals, and that it was ahead of the curve as inflation eases.
“Thus, as vendors are pushing through fewer price increases, if at all, and in some cases, lowering prices, that should help [Walmart’s] margins as they do not need to invest in price,” he said. “Or, [Walmart] could pass the savings on to consumers, while still maintaining the price gaps, thereby driving more share gains.”
He also said that Walmart, like other retailers, likely got a holiday-season bump on Black Friday, followed by quieter demand through early December that picked back up as Christmas approached. More midweek shopping visits at Walmart, he said, suggested the chain could be drawing customers away from the dollar stores that depend more on those smaller “fill-in” shopping trips.
Baker also said that Walmart still had room to perfect its online-ordering and curbside-pickup options, and that the chain’s grip on the e-commerce market would only strengthen as it developed those services.
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