Will Walmart Retain Affluent Shoppers as Inflation Subsides?

Bill Simon, the former president and CEO of Walmart U.S., believes Walmart’s service proposition still isn’t where it needs to be to hold on to the higher-income customers that have traded down to the chain during the inflationary cycle.

“The Walmart experience is better than it used to be, but it’s still not a premium experience,” he recently told CNBC’s Fast Money. “Walmart is built on convenience, cost and assortment. Not on service. As the economic challenges abate…service will become more important than convenience and price. And we’ll see a shift back of some of the consumers. That’s the bubble.”

He still called Walmart a “great investment” over the next 12 months as he suspects inflationary pressures will continue. However, within two years, he believes Walmart could face trouble as food inflation subsides.

Simon added, “When inflation abates and service becomes more important than price, some of those tailwinds will become headwinds,” Simon said.

His comments arrived as Walmart last week reported that wealthier shoppers flocking to Walmart helped drive better-than-expected first-quarter results.

The upside was led by better-than-expected growth at Walmart U.S., which saw same-store sales grow 3.8%. John David Rainey, Walmart’s CFO and EVP, said on the company’s analyst call, “We’re seeing higher engagement across income cohorts with upper-income households continuing to account for the majority of the share gains.”

When asked what Walmart is doing to be more attractive to higher-income households, Rainey said, “The word we’ve been using here is convenience.”

Convenience not only includes one-stop shopping ease but investments in curbside pickup and delivery, which skews toward higher-income consumers.

E-commerce at Walmart U.S. climbed 22% in the first quarter, led by store-fulfilled pickup and delivery along with the company’s expanding third-party marketplace. The first quarter marked the first time delivery orders exceeded pickup in the U.S., boosted by the ability to offer additional items online, including third-party Marketplace items, as well as continued double-digit growth for Walmart+, its membership program that offers unlimited deliveries.

Walmart also introduced on-demand early morning delivery to customer doorsteps as early as 7 a.m. and as quickly as 30 minutes. Overall, Walmart also continues to shorten average delivery times. In the Walmart U.S. segment, 4.4 billion items were delivered the same day or the next day over the last 12 months, with about 20% of those delivered in under three hours.

Rainey said the amount shipped is “on par with any e-commerce player in the world.” He added, “That shows that customers are coming to us and we’re a consideration where we haven’t been before. And convenience matters to someone irrespective of what your paycheck is.”

John Furner, current president and CEO of Walmart U.S., also cited “quality improvements” in fresh food, including produce and meat, as another reason for Walmart’s newfound appeal with wealthier shoppers.

Additionally, Furner pointed to the potential of bettergoods, Walmart’s new chef-inspired yet affordable line. The range, the chain’s largest private-label food brand launch in 20 years, centers on better-for-you, free-from, and plant-based foods with 70% of the items priced under $5. Doug McMillon, CEO of Walmart, said on the call, “This is the type of quality and value that will resonate with customers across income spectrums.”

Walmart’s stores are also undergoing remodels, according to Bloomberg, that include brighter lighting, wider aisles, and the addition of mannequins to complement elevated assortments.

“This is about modernizing the brand and making it seem chic and cool,” Oliver Chen, an analyst at TD Cowen, told Bloomberg. “Walmart is good at basics and wants to be known for more than that — and sell more than that.”  

In the Q&A session, McMillon cautioned that while expanded online assortments and elevated convenience have helped Walmart better connect with upper-income households, value holds broad appeal. He said, “We’re not trying to chase higher-income cohort sales. We just offer value. If you look at what’s happened historically, people with higher incomes have shopped Walmart. They’ve just been selective in the categories that they buy and the items that they buy. So, if we offer them the right items at the right prices whether that’s in-store, first party or marketplace, they’ll respond to that.”