The many moats of Walmart

I'll never forget my first Walmart (WMT) deal as a commercial real estate (CRE) developer.

It was actually a mixed-use project of about 100 acres in Hartsville, South Carolina, that the retail giant agreed to anchor. And, man, did I work for that project.

It took over two years of negotiating with local officials and coordinating the infrastructure to get that thing up and operating… all while traveling back and forth since I didn’t live there.

Yet as frustrating as all that could be, I knew it would be worth it. Having Walmart as a client was a very big deal back then.

It still is today. Because Walmart means practically guaranteed traffic and therefore practically guaranteed rental checks – not just from it but also from fellow tenants that benefit by proximity.

That was such a tried-and-true rule that I even applied it to my efforts for other companies. I would look for the local Walmart, then find available land as nearby as possible. That’s how powerful Sam’s store was.

And still is. Even all these years after I’ve traded my hard hat in for an analyst cap, I haven’t forgotten its appeal. Or its power.

We all know that Walmart is a big-box discount retailer, but the truth is that it’s so much more. It’s a sophisticated ecosystem comprised of physical stores, e-commerce, logistics, advertising, and more.

It’s hard to beat Walmart at that game. It’s one of the best at it I’ve ever seen.

But does that “best” translate into buyable shares? That’s the question we’re exploring today.

Walmart is an enormous international company with massive scale. That’s its most obvious competitive advantage, so let’s start there.

As of July 31, this retail behemoth operated about 11,000 stores and clubs across 19 countries, consisting of:

Apparently, around 90% of the U.S. population lives within 10 miles of a Walmart store or Sam's Club. And, all told, Walmart serves around 280 million customers every week.

That kind of scale gives it near-unbeatable supplier relationships. It’s hard – even impossible – for smaller companies to offer the low prices that Walmart does.

And it benefits from those discounts every bit as much as its customers do. They attract more than enough customers to give it purchasing power with vendors, who would rather cut their own prices to stay in Walmart’s good graces.

Add in how its scale can and does spread operating costs out in ways that boost its bottom line, and you’ve got one mean retail machine.

I might have built for Walmart and even rented to it a time or two. But it actually owns the majority of the real estate it operates out of.

The company has spent decades building out its enormous network of retail, distribution, and transportation centers. And the result is a physical and logistical network that would be exceptionally difficult and expensive for a competitor to replicate.

The land costs alone would be overwhelming, to say nothing about construction expenses or the time and expertise needed to navigate zoning restrictions and red tape.

Yet Walmart doesn’t rest easy on that assurance alone. It’s keeping up with the times by turning its stores into fulfilment centers as well, allowing customers to order online, then either pick it up locally or have it delivered to their doorstep.

That gives it a very important appeal to consumers who, as it turns out, like omnichannel options. Sometimes they want to buy in person. Sometimes they want to skip both the in-store experience and shipping fees by picking their orders up in the parking lot. And sometimes they want the sheer convenience of opening their front doors to scoop up the products in question.

One way or the other, Walmart has what it takes to meet them where they want to be.

Amazon (AMZN) has definitely changed the shopping game, posing a continuous threat to traditional retailers.

But Walmart has more than held its own. In fact, it brings in more retail-specific revenue than Amazon. A few hundred billion dollars more, in fact.

That’s because, as mentioned above, Walmart has figured out how to change with the times.

These changes include Walmart+, a loyalty program that strengthens customer engagement. This paid membership service, launched in 2020, has grown increasingly more intuitive – especially now that AI shopping assistant “Sparky” is activated.

Sparky makes it easier for members to find what they want when they want it. And according to recent reports, this results in orders that are about 40% larger than they otherwise would be.

Clearly, this bot can bring home the bacon.

Admittedly, larger shopping carts don't automatically translate into proportionately higher profits. But that’s something we’ll discuss further two segments down.

Despite all that impressive retail presence online, offline, and in-between, Walmart isn’t just a shopping center anymore. Not since it launched Walmart Media Group in 2019, which has since been renamed Walmart Connect.

This platform allows companies and brands to pay for advertising space in its digital ecosystem. And considering how many people it reaches online, people are willing to pay top dollar to access them.

As archcompetitor Amazon knows, advertising can generate much higher margins than selling groceries and household products. So not only is this a great way for Walmart to diversify its earnings, it’s also one step further into safeguarding its profits…

And keeping its investors happy.

If the retail giant can maintain its traditional retail appeal while growing its advertising clout, we could see it reclaim its place as the world’s largest company by sales – a position it lost to Amazon earlier this year.