February 22, 2022
Last week, Walmart announced financial results for the fourth quarter of 2021. For the first time, the retailing giant broke out revenue for its Walmart Connect advertising program. For 2021, worldwide ad sales totaled $2.1 billion – up more than 130 percent compared to 2020. While that figure is small in comparison to the firm’s total revenue, which exceeded $150 billion for the period, it signals a significant change for the company and for the industry.
Like other big-box retail chains, Walmart has implemented advertising programs on its website designed to entice suppliers to advertise directly to the consumers who shop there. With more and more consumers shopping online, competition among vendors seeking to capture eyeballs and sales is intensifying. That has led many vendors to invest in ads on retailers’ sites, including walmart.com.
Last year, Walmart CEO Doug McMillon explained, “Selling advertising is another important piece of the flywheel because it helps suppliers and marketplace providers sell more, while creating a new profit opportunity for us.”
During the company’s fourth-quarter earnings call with stock analysts, Brett Biggs, Walmart’s Executive Vice President, Chief Financial Officer, commented, “Walmart Connect advertising experienced robust sales growth this year with a strong pipeline of new advertisers and large growth opportunities ahead. In fact, the number of active advertisers using Walmart Connect grew more than 130% year over year.” He went on to share that, “We expect Walmart Connect to continue to scale over the next few years with plans to become a top 10 ad business in the midterm.”
Still, Walmart’s ad revenue pales in comparison to that of Amazon, which recently reported 2021 ad sales totaling $31 billion. Nevertheless, Walmart-Connect revenue gains come at a fortuitous time. The company faces mounting pressure on profit margins tracing to the rising cost of labor, supply-chain disruptions and significant investment required to build infrastructure for more home delivery.
The company expects Walmart Connect will help relieve some of the pressure on profit margins, along with increasing emphasis on adding more third-party sellers to walmart.com. Whereas a Walmart supercenter typically carries tens of thousands of SKUs (stock-keeping units), the number of SKUs offered by third-party sellers on walmart.com exceeds 100 million. Having more third-party sellers translates to having more advertisers, and more ads means higher profit for Walmart.
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