Walmart (WMT) shares closed slightly higher on Wednesday, up roughly 2%, after the retail giant shared its plans to invest in supply chain automation to boost its profits, drive top-line growth, improve operating margin, and improve returns.
At its investor meeting, the company said that by the end of fiscal year 2026, it aims to have 65% of its stores be serviced by automation, approximately 55% of the fulfillment center volume to move through automated facilities, and as a result, predicts unit cost averages could improve by roughly 20%.
CFO John David Rainey weighed in on the plans, saying automation will improve “how merchandise arrives at stores.” As far as the impact on the top line, he said, “Our targeted 4% compounded growth implies that over the next five years we’ll add more than $130 billion of sales on top of our $600 billion base today.”
As Walmart looks to compete with Amazon (AMZN), known for fast delivery, the retail giant thinks that its automated fulfillment centers could set a new precedent.
At the meeting, U.S. President and CEO John Furner said he thinks these new fulfillment centers “can double the number of orders we are able to fulfill in a day, which means packages arrive at customer’s doorstep faster than ever before.”
This announcement comes after Walmart recently went through layoffs at five of its U.S. e-commerce warehouses, affecting more than 2,000 positions.
Walmart is trying to make the case that this major investment in automation will actually results in more, higher-paying jobs and keep its headcount nearly flat.
Furner said automation will result in less manual labor. “Over-time, we’ll have the same number of associates, possibly even more, but we’ll have a larger business and they’ll be new roles that’ll emerge that are more technical…and they’ll pay more,” he said.
CFRA Analyst Arun Sundaram (who holds a Buy rating on the stock) said Walmart will likely try to turn the job cuts in its favor.
“A lot of these lower-level jobs will be cut, but they’ll redirect these employees to other jobs that require less manual labor. They’re expecting, also, to increase their employee retention, now that less strenuous jobs, less manual labor and more of those higher paying jobs will be available.”
Meanwhile, labor costs remain a pressure point for the retail giant, according to D.A. Davidson Senior Research Analyst Michael Baker, but “less so this year than they were last year.”
Furner said over the last five years, its hourly wage is up approximately 30%. At the end of January of this year, Walmart announced plans to increase its average hourly pay to more than $17.50, making the range now $14 to $19 per hour.
