News
Where Walmart, Amazon and Target are spending billions in a slowing economy
Published
2 years agoon
By
New Yorker
A Walmart employee loads up a robotic warehouse tool with an empty cart to be filled with a customer’s online order at a Walmart micro-fulfillment center in Salem, Mass. on Jan. 8, 2020.
Boston Globe | Boston Globe | Getty Images
When the economy slows down, the classic response for consumer businesses is to cut back: slow hiring, maybe lay off workers, slash marketing, or even slow the pace of technology investment, delaying projects until after business has picked up again.
But that’s not at all what America’s troubled retail sector is doing this year.
With the S&P Retail Index down nearly 30% this year, most of the industry is boosting investment in capital spending by double digits, including industry leaders Walmart and Amazon.com. Among the top tier, only struggling clothier Gap and home-improvement chain Lowe’s are cutting back significantly. At electronics retailer Best Buy, first-half profits fell by more than half – but investment rose 37 percent.
“There is definitely concern and awareness about costs, but there is a prioritization happening,” said Thomas O’Connor, vice president of supply chain-consumer retail research at consulting firm Gartner. “A lesson has been taken from the aftermath of the financial crisis,” O’Connor said.
That lesson? Investments made by big-spending leaders like Walmart, Amazon and Home Depot are likely to result in taking customers from weaker rivals next year, when consumer discretionary cash flow is forecast to rebound from a year-long 2022 drought and revive shopping after spending on goods actually shrank early this year.
After the 2007-2009 downturn, 60 companies Gartner classified as “efficient growth companies” that invested through the crisis saw earnings double between 2009 and 2015, while other companies’ profits barely changed, according to a 2019 report on 1,200 U.S. and European firms.
Companies have taken that data to heart, with a recent Gartner survey of finance executives across industries showing that investments in technology and workforce development are the last expenses companies plan to cut as the economy struggles to keep recent inflation from causing a new recession. Budgets for mergers, environmental sustainability plans and even product innovation are taking a back seat, the Gartner data shows.
Today, some retailers are improving how supply chains work between the stores and their suppliers. That’s a focus at Home Depot, for example. Others, like Walmart, are driving to improve in-store operations so that shelves are restocked more quickly and fewer sales are lost.
The trend toward more investment has been building for a decade, but was catalyzed by the Covid pandemic, Progressive Policy Institute economist Michael Mandel said.
“Even before the pandemic, retailers were shifting from investments in structures to active investments in equipment, technology and software,” Mandel said. “[Between 2010 and 2020], software investment in the retail sector rose by 123%, compared to a 16% gain in manufacturing.”
At Walmart, money is pouring into initiatives including VizPick, an augmented-reality system linked to worker cell phones that lets associates restock shelves faster. The company boosted capital spending 50% to $7.5 billion in the first half of its fiscal year, which ends in January. Its capital spending budget this year is expected to rise 26 percent to $16.5 billion, CFRA Research analyst Arun Sundaram said.
“The pandemic obviously changed the entire retail environment,” Sundaram said, forcing Walmart and others to be efficient in their back offices and embrace online channels and in-store pickup options even more. “It made Walmart and all the other retailers improve their supply chains. You see more automation, less manual picking [in warehouses] and more robots.”
Last week, Amazon announced its latest warehouse robotics acquisition, Belgian firm Cloostermans, which offers technology to help move and stack heavy palettes and goods, as well as package products together for delivery.
Home Depot’s campaign to revamp its supply chain has been underway for several years, O’Connor said. Its One Supply chain effort is actually hurting profits for now, according to the company’s financial disclosures, but it’s central to both operating efficiency and a key strategic goal – creating deeper ties to professional contractors, who spend far more than the do-it-yourselfers who have been Home Depot’s bread and butter.
“To serve our pros, it’s really about removing friction through a multitude of enhanced product offerings and capabilities,” executive vice president Hector Padilla told analysts on Home Depot’s second-quarter call. “These new supply chain assets allow us to do that at a different level.”
The store of the future for aging retail brands
Some broadline retailers are more focused on refreshing an aging store brand. At Kohl’s, the highlight of this year’s capital spending budget is an expansion of the firm’s relationship with Sephora, which is adding mini-stores within 400 Kohl’s stores this year. The partnership helps the middle-market retailer add an element of flair to its otherwise stodgy image, which contributed to its relatively weak sales growth in the first half of the year, said Landon Luxembourg, a retailing expert at consulting firm Third Bridge. First-half investment more than doubled this year at Kohl’s.
Roughly $220 million of the increase in Kohl’s spending was related to investment in beauty inventory to support the 400 Sephora shops opening in 2022, according to chief financial officer Jill Timm said. “We’ll continue that into next year. …We’re looking forward to working with Sephora on that solution to all of our stores,” she told analysts on the company’s most recent earnings call in mid-August.
Target is spending $5 billion this year as it adds 30 stores and upgrades another 200, bringing its tally of stores renovated since 2017 to more than half of the chain. It also is expanding its own beauty partnership first unveiled in 2020, with Ulta Beauty, adding 200 in-store Ulta centers en route to having 800.
And the biggest spender of all is Amazon.com, which had over $60 billion in capital expenditures in 2021. While Amazon’s reported capital spending numbers include its cloud computing division, it spent nearly $31 billion on property and equipment in the first half of the year — up from an already record breaking 2021 — even though the investment made the company’s free cash flow turn negative.
That is enough to make even Amazon tap the brakes a little bit, with chief financial officer Brian Olsavsky telling investors Amazon is shifting more of its investment dollars to the cloud computing division. This year, it estimates roughly 40% of spending will support warehouses and transportation capacity, down from last year’s combined 55%. It also plans to spend less on worldwide stores — “to better align with customer demand,” Olsavksy told analysts after its most recent earnings — already a much smaller budget item on a percentage basis.
At Gap — which has seen its shares declined by nearly 50% this year — executives defended their cuts in capital spending, saying they need to defend profits this year and hope to rebound in 2023.
“We also believe there’s an opportunity to slow down more meaningfully the pace of our technology and digital platform investments to better optimize our operating profits,” chief financial officer Katrina O’Connell told analysts after its most recent earnings.
And Lowe’s deflected an analyst’s question about spending cuts, saying it could continue to take market share from smaller competitors. Lowe’s has been the better stock market performer compared to Home Depot over the past one-year and year-to-date periods, though both have seen sizable declines in 2022.
“Home improvement is a $900 billion marketplace,” Lowe’s CEO Marvin Ellison said, without mentioning Home Depot. “And I think it’s easy to just focus on the two largest players and determine the overall market share gain just based on that, but this is a really fragmented marketplace.”
Source: CNBC
Wander Franco Taken Off Rays’ Roster—But He’s Still Getting Paid
Comer urges President Biden to testify in impeachment inquiry
The Bachelor's Kelsey Anderson Addresses Limo Moment With Daisy
50 Cent Is Seeking Sole Custody of Son With Daphne Joy Amid Diddy Lawsuit
Commanders owner Josh Harris promises change after failing grade in NFLPA survey
Baltimore Lost More Than a Bridge
King Charles Is ‘Utterly Determined’ to Show Unity Among the Royal Family Amid Health Battles
Los Angeles Theatre Week Provides Access to Affordable Productions
Living with an anti-reunification North Korea – Asia Times
Thousands of phones and routers swept into proxy service, unbeknownst to users
Martha Stewart’s Straightforward 14 Words of Advice for Meghan Markle and American Riviera Orchard: ‘That’s What It’s All About’
Erdoğan’s gain as Turkish vote coincides with Ramadan? – Asia Times
‘Quite on Set’: Drake Bell Slams Nickelodeon’s Response: ‘I Find It Pretty Empty’
Gangs, kidnappings, murders drive Rohingya from camps – Asia Times
When Russian cyber operations targeted the West – Asia Times
Trending
-
Tech22 hours ago
Thousands of servers hacked in ongoing attack targeting Ray AI framework
-
News24 hours ago
Kate Middleton’s Cancer Battle Has Prince William Feeling ‘Helpless and Scared’ — Report
-
News22 hours ago
Bridge collapse brings stark reminder of migrant workers’ vulnerabilities
-
News23 hours ago
Pictured: Scene where Gogglebox and Celebrity Big Brother star George Gilbey, 40, fell to his death in ‘work accident’ with images showing building materials on 35ft warehouse’s roof – as probe is launched and heartbroken friends pay tribute
-
News17 hours ago
Ex-Buccaneers tight end, Rob Gronkowski, visits veterans in Tampa
-
Tech20 hours ago
Event Horizon Telescope captures stunning new image of Milky Way’s black hole
-
News22 hours ago
‘Sister Wives’ Star Meri Brown Reflects on ‘Roller Coaster’ of Grief 3 Weeks After Garrison Brown’s Death
-
News17 hours ago
Should you feed your husband beetroot to have better sex? Mother of four and GP Clare Bailey dispenses her advice