Walmart has sent a warning to the retail industry.
Shares at the world‘s biggest retailer plunged by their most in over 15 years after the company said that spending on ecommerce and staff wages would affect profits in 2017.
The retail giant has been injecting money into its workforce and e-commerce capabilities as it attempts to boost sales – investments that will continue in fiscal 2017. Walmart raised its basic employee wage to $9 an hour in April with plans to increase it to at least $10 next year. The initiative, paired with an extensive training program, added around $1bn in costs this year and will add roughly $1.5bn next year.
The American chain has taken initiatives to attract customers by enhancing the shopping journey, expanding its online grocery pickup service, and launching addition small-format stores called Neighborhood Markets. It has also been put $1bn into improving its website and opening new distribution centers, aiming to speed the delivery of online orders. In spite of these improvements, investors are dubious as to whether sales will increase dramatically.
“There is no way they can continue to grow, they are just too big,” Ivan Feinseth, Chief Investment Officer at Tigress Financial Partners, told Bloomberg before Wednesday‘s forecast.. “They do $500bn worth of revenue — how are you going to grow that?”
At an analyst event on Wednesday, CEO Doug McMillon said that employees deserve the wage uplifts announced earlier this year, but Walmart might not have been clear enough in outlining the costs. McMillon said he still believes it was “the right decision to make”.