- Walmart faced numerous challenges throughout the past year due to inflation and supply chain issues.
- Analysts expect the retailer to work through excess inventory in 2023, but obstacles may arise.
- Heading into the new year, analysts are keeping a close eye on two of Walmart's ambitions: healthcare and banking.
Vast amounts of unwanted inventory choked store aisles. Ambitious e-commerce efforts came up short. A healthcare push faced a major hiccup.
Walmart certainly saw some tribulations in 2022 in the face of rampant inflation and supply chain issues. And in 2023, customers should brace themselves as the retailer tries to capitalize on e-commerce, healthcare and banking plans, among other things – all while facing another potentially unpredictable year, analysts say.
"They're certainly not putting all of their eggs in one basket," said Mari Shor, a research analyst with Columbia Threadneedle Investments.
Here are four major Walmart challenges to watch in 2023.
1. Trying to 'enter the new year clean' without much excess inventory
Excess inventory has been Walmart's boogie man in 2022.
Supply chain and inflation issues led the retailer to have way more supplies on hand than consumers were buying – leading to unwalkable backrooms packed with full pallets.
Walmart has said since May that it would make a concerted effort to get through excess inventory, and, to its credit, it has kept its word. In its first-quarter earnings call in May, the company reported a 32% year-over-year increase in inventory; in the latest earnings call in November, that increase was only 13%.
"I feel good about their ability to enter the new year clean," Shor said.
The caveat: On the other hand, Walmart's worst-case scenario for 2023 is if any of the unpredictable problems from 2022 arise again, such as supply chain disruptions or changes in consumer behavior caused by a potential recession, according to Michael Rofman, a partner with Mazars: "They could be in a period where they have, again, too much inventory."
2. Continuing e-commerce savings growth while mitigating costs
Walmart struck gold with its online sales at the start of the pandemic, as it experienced as much as 97% year-over-year growth during the second quarter of 2020.
But despite major efforts – ranging from pushing membership platform Walmart+ to offering early online Black Friday sales – the retailer hasn't recaptured that same magic this year.
Walmart saw an 8% decline in average daily visits to its website this year through November compared to last year, according to data from Similarweb, a web analytics company.
The best-case scenario for Walmart with its e-commerce plans in 2023 is to have "continued measured growth" in home delivery and curbside pickup sales, according to Zain Akbari, an equity analyst for Morningstar.
The caveat: But according to Shor, the worst case scenario for Walmart in 2023 would be if the retailer struggles to roll out cost-saving initiatives, like its planned automated fulfillment centers, and e-commerce growth continues to dip.
3. Expanding clinic presence is a 'must' to create major healthcare gains
Healthcare remains one of the most lucrative fields that Walmart has hardly touched to date. The retail giant currently only has 32 clinics across five states.
In 2022, Walmart saw competitors like Amazon make major healthcare splashes. 2023 is going to be an uphill battle for Walmart, as Dr. Cheryl Pegus, Walmart's executive vice president for health and wellness, left the company in November for a health venture at JPMorgan.
Walmart "must expand its clinic presence and solve the operational challenges many of its clinics have faced," said Sari Kaganoff, general manager of consulting at Rock Health Advisory.
Part of expansion has been announced for 2023, as Walmart plans to launch 16 more clinics in Florida by the end of the year.
The caveat: On the other hand, Walmart healthcare's worst case for 2023 would be a scandal either coming from a data hack or through mistreating a patient, according to Natalie Schibell, a research director with Forrester: "An egregious case of medical malpractice or a major data breach would paralyze" Walmart's goals.
4. Rolling out new customer banking services
Of all Walmart's big initiatives for 2023, its foray into banking may just be the most secretive.
After the Walmart-backed fintech Hazel acquired neobank One and adopted its name at the start of this year, the company has worked quietly to recruit top talent from Goldman Sachs and Apple to build out financial services.
Though current and former customers of One have experienced issues with the bank, Walmart has pushed forward in trying to sign up employees for a bank account. And One's work is just beginning: the group reportedly plans to offer buy now, pay later services for Walmart customers as soon as next year.
The caveat: According to Akbari, One "has a lot of upside" in 2023 and Walmart should focus on helping build out the infrastructure for it: "They tend to just focus on making sure that they have things as close to right as possible and then go forward rather than trying to be overly experimental with how they approach things."
Got a tip about Walmart? Ben Tobin can be reached by email at [email protected] or via the encrypted app Signal or text at (703) 498-9171.