- Walmart became the largest grocery retailer in the United States in 2001, with grocery sales reaching $56 billion.
- The company has seen its profits decline this year due to inflationary pressures.
- The Bentonville, Arkansas-based retailer is focusing on higher-margin categories to help.
Although Walmart launched its first store in 1962, it wasn’t until 1988 that the Bentonville, Arkansas-based retail giant opened its first fully-stocked grocery store in the form of a Walmart. Supercenter. But by 2001, Walmart had become the largest grocery retailer in the United States when its sales of groceries – which are the company’s staple today – hit $56 billion.
Today, the retailer mixes sales of high-margin items like electronics and furniture with those same groceries. Sales of these high-margin items surged in 2020 and 2021 when customers weren’t spending money on travel and entertainment and stimulus checks kept rolling in. But times have changed, especially for the value-conscious shoppers Walmart caters to.
Walmart’s profits have fallen for two straight quarters as low-margin groceries generally sell out but little other movement.
With high inflation driving up the prices of essentials like food and gasoline, many Americans have been less inclined to buy general merchandise. Walmart’s general merchandise sales fell 3% in the latest quarter from the first quarter of the year, the company said on an earnings call in August.
The shift in sales created a problem for the mega-retailer’s bottom line. While net profit margins for furniture sold in the United States can be as high as 50% to 60%, analysts say, that total typically hovers around 1% to 3% for grocery items.
In an effort to boost furniture sales and generally raise the profile of its products beyond the grocery store, Walmart has introduced new augmented and virtual reality technology features to its app.
“I don’t think they just want to be the biggest grocer in the world,” said Paula Rosenblum, managing partner at consultancy RSR. “The races are a pain in the neck – they wear bupkus in the margin. There’s a lot more margin in the furniture.”
Walmart has always paid attention to its home decor and fashion businesses, said Edward Jones analyst Brian Yarbrough. He told Insider that a further push into these categories makes sense for the company now “to help offset some of the pressure they’re seeing with groceries.”
“At the end of the day, focusing on furniture and apparel “helps the profit margin profile for the whole business because those are higher-margin categories,” he said.
Will technology help Walmart increase its furniture and apparel sales?
Brock McKeel, Walmart’s senior vice president for site experience, told Insider in July that the company’s furniture segment was a “sticking point” in terms of sales. “We know we can improve it for our customers,” he said. He did not say how much Walmart earned in revenue or profit from furniture sales in 2021.
To help improve the customer experience, Walmart rolled out an augmented reality feature on the Walmart app in June that lets users visualize what furniture the company sells would look like in their space. Furniture retailers like Wayfair and IKEA have had a similar feature on their apps for years.
Judy George, a retail consultant who founded her own furniture store, Domain Home, before selling the company, told Insider that augmented reality is a “brilliant strategy” for Walmart because it “simplifies” the furniture selection process and gives customers the quality service it previously lacked with furniture.
“But they need a good solid marketing plan around their furniture products,” George said. “If they don’t take that into account, they can overlook the potential success.”
Walmart also unveiled a “be your own role model” feature on its app this month, allowing users to try on more than 270,000 clothing items on their own bodies. Retailers like Macy’s and Adidas had already launched this virtual feature on their apps.
While other companies are using augmented and virtual reality features, Yarbrough said Walmart doesn’t have a “first-mover advantage” with these initiatives, but they put the retailer “on par with many other players.” .
“Maybe they were losing customers to other retailers offering these services, but overall I’m not sure it’s a game-changer in the end.”
Rosenblum is more bullish on the moves.
“They have demonstrated that when they focus on something, they can really win,” she said. “I mean, somehow they became the biggest grocer in the country in about a decade.”
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