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Many retailers see declining net income in 2022. Capital spending on technology is still a priority, and if the economy slows in 2023, they may cut other spending, according to analysts at Telsey Consulting Group.
The analysts also said that retailers are spending on storefronts. They are being given more technology to enhance the shopping experience, which could be beneficial as future market share could benefit if the economy slows in 2023.
In the year One doesn’t have to look far to see the dismal performance of the retail sector in 2022. The S&P retail index is down more than 30% this year, but capital spending at the most popular retailers, Walmart and Amazon, has doubled. Figures.
In August, Walmart cut its revenue guidance for the balance of the year but raised capital spending by 50% to $7.5 billion in the first half of its fiscal year, which ends in January. According to analysts, the capital expenditure budget is expected to grow by 26% to 16.5 billion dollars this year.
When Amazon reported a first-quarter loss of nearly $4 billion in April — its first quarterly loss since 2015 — the company said it had underestimated the pace of e-commerce growth and overstretched its logistics network. With dozens of new fulfillment center projects and 370 million square feet of leased industrial space, it doubled in size during the pandemic.
In the second quarter, Amazon leased up to 30 million square feet of newly constructed warehouses and terminated some leases, reducing unnecessary warehouse space. At the time of the outbreak, Amazon canceled several expansion projects for new fulfillment centers on 4,000 acres of land.
After reporting a $2 billion quarterly loss in August, Amazon said it would build more data centers and a few warehouses by the end of next year. Amazon CFO Brian Olsavsky said the company has scaled back its plans to expand operations until next year and is shifting the focus of capital spending to its technology infrastructure. He said that more than half of the total capital investments this year will be in technology.
Through June, capital spending at Amazon rose to $15.7 billion from $14.2 billion in the same period last year.
Research analysts with Gartner say retailers are concerned about increased spending, and are prioritizing where to spend. Thomas O’Connor, vice president of supply chain and consumer retail research at consulting firm Gartner, said investments by big-spending retailers like Walmart and Amazon could take customers away from weaker rivals next year.
Gartner studied 1,200 companies following the 2007-2009 recession and found that 60 companies showed “efficient growth” after investing in the crisis. The companies doubled their revenue between 2008 and 2015 while other companies struggled to grow revenue.
Gartner also recently surveyed finance executives in a variety of industries, including retail, and found that investments in technology and workforce development are the last costs companies plan to cut amid other economic struggles. Budgets earmarked for integration, environmental sustainability plans and product innovations are taking a backseat to technology investments, the study found.
Walmart has invested in operational efficiency with technology applications like VizPick. Last year’s acquisition of ZeeKit allowed Walmart to offer virtual fitting rooms to shoppers who upload photos from their smartphones and then let them know how the clothes look on their bodies. The announcement of Walmart’s virtual experiment comes as clothing sales have retreated in recent months amid rising costs for food and non-essential goods and services.
Walmart said in August that shoppers are becoming more budget-conscious, and the retailer is drawing in more households with incomes above $100,000. CEO Doug McMillon said Walmart will work to maintain its low price points for those looking for value, while also offering a wider selection of designer fashion options online and in select stores for those who spend more but still want value.
“The pandemic has clearly changed the entire retail landscape,” said Arun Sundaram, retail analyst at CRFA Research.
Walmart and others have had to become more efficient in their offices and embrace online shopping and in-store pickup options, he said.
That’s why Walmart continues to invest in technology, taking an 11% stake in artificial intelligence startup Symbiosis in June for an undisclosed amount. The investment comes a month after Walmart announced it will add Symbotic’s automation technology to all 42 regional distribution centers over the next eight years. The system reduces time-consuming, labor-intensive operations such as truck unloading, increases inventory accuracy, and increases the warehouse’s ability to ship products to and from storage.
In August, Walmart acquired Vault Systems, a technology company that provides suppliers with on-demand visibility into merchandise inputs. The retailer did not disclose the cost of the acquisition, but said the technology will help improve operational analytics and shelf information to optimize out-of-stocks.
Earlier this month, Amazon announced its latest warehouse robotics acquisition, Belgian company Klostermans, which provides technology to help transport heavy pallets and goods and packaged products. Klostermans is seen as a good complement to Amazon’s in-house Proteus robot technology, which was unveiled in June.
Target is spending more in a tough year. The retailer announced $5 billion in capital expenditures this year to grow the business, improve digital experiences and help leverage the retailer’s growing online business. Most of the $5 billion will be spent on store remodeling and 30 new locations. Target said it will continue to invest in technology that builds on its digital capabilities, such as the Rundel internal media platform. Target said Roundel will use ad spaces on Target.com to deliver a more relevant, personalized guest experience and create value for partners. Roundel was valued at more than $1 billion last year, a target it expects to double in a few years.
Walmart’s investments in its digital advertising firm, Walmart Connect, generated $2.1 billion in revenue last year. Walmart’s recent foray into the fintech (financial technology) space also came with a Bloomberg report this month that the retailer plans to offer digital banking services in beta testing to employees and some online customers. This is possible thanks to two fintech acquisitions Walmart made in January and the new startup “One” to test and develop digital banking products using Walmart’s technology and recent acquisition.
Editor’s Note: of Supply side section Talk Business and Politics focuses on companies, organizations, issues and individuals offering products and services to retailers. The supply side is managed and sponsored by Talk Business and Politics. Propack Logistics.
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