As we noted last month, Walmart has finally passed a major milestone with its e-commerce operation finally turning a profit. According to the company’s latest earnings report, that applies globally as well as to Walmart US. Walmart disclosed last week that global growth for e-commerce is currently running at 22% per annum.

One of the barriers to profitability for e-commerce in the past - and the company isn’t yet confident enough to disclose just how high the losses were from this part of the business - was related to logistics and delivery costs. While one of Walmart’s proudest boasts has long been the close proximity of its physical store network to most of continental North America, getting goods into the hands of remote customers was a burden too far, a problem most definitely not limited to Walmart.

But the firm has continued to “densify” its last-mile deliveries and increase speed of delivery, with  items delivered same or next day increasing by 35% year-on-year and around 45% of those delivered in under three hours. According to John Furner, CEO of Walmart US, this is a result of investments made over the past decade:

Those investments would include getting our applications to a single app, building new fulfillment centers, enabling stores to be part of the omni solution. The speed of delivery has been encouraging the last year. Our sub three-hour deliveries are up about 91% year-on-year. 

This provides customers with flexibility to be served when they want to be served, the way they want to be served, he adds, the Holy Grail of omni-channel retail:

So a Walmart customer can shop at the counter, they can shop with curbside pickup. We have in-home delivery, our first and third party delivery options, including fulfillment services for our sellers. This has been on a strong growth rate for the last few years and that has resulted in lower delivery costs due to density and frequency. 

We want to be flexible for our customers and deliver what they want, when they want it, however they want it to be delivered. And so what you'll see in the coming months, quarters, and years is a continued focus on expanding our assortment to be able to deliver our customers what they're looking for without the need of looking at another app or going to another location. 

Our supply chain capabilities that include our new next-generation fulfillment centers, our ability to use our stores for delivery in a very dense local, low-cost way are all parts of the solution to be able to serve customers flexibly. 

There is a second objective - to have the right suite of services available to sellers. Furner explains:

Our sellers need to know where their inventory is, their rate of sale. We have an application they can look at on their phone that tells them a lot of the critical information that they're going to need.

Sellers who are launching brands, developing brands or selling someone else's product, are looking for ways to connect to relevant customer cohorts that are interested in their products, he notes:

Being able to use our data to help them access cohorts who are interested in their categories and then advertise through Walmart Connect is a big part of the solution that all of our sellers are going to need.

Being on top of supply-chain management is going to be particularly important in the coming months if Trump 2.0’s threatened tariff wars kick off. Walmart’s CEO Doug McMillon, along with his counterpart at Target, was given credit last month for talking down the more extravagant tariff proposals by seemingly warning the President that store shelves would soon be empty, not a politically-comfortable photo opp in a social media age.

But the company has apparently gone too far by warning that tariff costs will inevitably be passed on to the US consumer, contrary to the MAGA narrative which says that countries like China will pick up the extra tab and no-one on Main Street will notice any difference. That led to Trump raging on ‘The Platform Everyone Still Calls Twitter’:

Walmart should STOP trying to blame Tariffs as the reason for raising prices throughout the chain, Walmart made BILLIONS OF DOLLARS last year, far more than expected. Between Walmart and China they should, as is said, “EAT THE TARIFFS,” and not charge valued customers ANYTHING. I’ll be watching, and so will your customers!!!”

McMillion is undeterred in his analysis of the realities of the situation however: 

The immediate challenge is obviously navigating the impact of tariffs here in the US.

Walmart is better placed than many to cope with upcoming turbulence, he adds:

In retail, managing inventory is always important. In this situation, it's even more important and even more challenging. It's helpful that we're entering the second quarter with well-managed inventory. It's helpful that we're crossing the threshold of profitability with e-commerce globally and that we have these newer, higher margin businesses growing like membership and advertising…As we continue to diversify our profit streams through our e-commerce offering, our marketplace and membership and advertising, we have some room to absorb costs.

It’s helpful that we sell a broad assortment that includes food, consumables and general merchandise. It's helpful that more than two-thirds of what we sell in the US is made, assembled or grown here. In recent years, our US percentage has grown. Last year, we purchased $296 billion in the United States and we made a commitment back in 2021 to add another $350 billion in incremental US volume over the following 10 years. 

But he still comes to a grim conclusion:

Given the magnitude of the tariffs, even at the reduced levels announced this week, we aren't able to absorb all the pressure given the reality of narrow retail margins

There may will be trouble ahead.

Target reports its latest earnings later today. It will be interesting to see how far it backs up McMillon’s downbeat assessment.