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Walmart's halt on gun, ammo sales could woo socially minded consumers, investors

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Walmart's halt on gun, ammo sales could woo socially minded consumers, investors

Walmart Inc.'s move to stop selling certain guns and ammunition could benefit the retailer as consumers and investors continue to seek out socially conscious companies, industry experts said.

The company announced on Sept. 3 that it will stop selling handgun and short-barrel rifle ammunition nationwide following deadly shootings at two of its stores, in addition to halting handgun sales in Alaska, the only state where Walmart sells the guns.

The retail giant's moves, which came after it received mounting pressure from its employees and the public to stop the sales of firearms, comes during the renewed debate on the issue of gun violence and could encourage other companies to engage in a public conversation about gun policy in the U.S., experts said.

While the move riled gun advocates who say other retailers will replace Walmart, others believe the company could sidestep any backlash as the new policies more closely align with American consumer sentiment and the continued call for corporate social responsibility.

"All the stakeholders, like an employee and even the investors, are expecting companies to take a stand on critical societal issues where they would not in the past," Governance and Accountability Institute Chairman and CEO Hank Boerner, said in an interview. "[Investors are] saying these societal or environmental or governance issues are important to us because they are risk factors and we want you to be competitive and an outstanding example of companies that we can invest in."

Walmart expects its recent moves to reduce its ammunition market share to a range of approximately 6% to 9% from about 20%, according to a company statement. The retailer did not respond to requests from S&P Global Market Intelligence seeking additional comment.

In a September statement, Walmart also asked most customers to stop openly carrying guns in its stores, and CEO Doug McMillon called for stronger background checks for gun purchases.

"We encourage our nation's leaders to move forward and strengthen background checks and to remove weapons from those who have been determined to pose an imminent danger," McMillon said.

Federal law requires federally licensed sellers to run a background check before selling a firearm but unlicensed private sellers are not required to take these precautions before making a sale.

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Background checks for firearms spiked in 2016 during the Obama administration, reaching a peak of 27.54 million, according to data from the FBI from the National Instant Criminal Background Check System. Background checks remained high in the following years and now stand at 18.3 million year-to-date in 2019 through August.

Walmart's stance on gun safety is in line with the views of a majority of Americans seeking "common sense" reform and therefore is not likely to result in an economic backlash, said Jeff Fromm, a partner at consulting company Barkley.

"For every person who says 'I'm boycotting,' I think there will be more people who give more share of wallet to Walmart for taking a stand in a responsible way," Fromm said.

But the renewed stance on its gun policies has had some vocal critics including the National Rifle Association.

"It is shameful to see Walmart succumb to the pressure of the anti-gun elites. Lines at Walmart will soon be replaced by lines at other retailers who are more supportive of America's fundamental freedoms," the National Rifle Association said in a statement.

However, surveys by research company Civic Science point to possible favorable consumer reactions to Walmart's moves. A poll of 1,471 Walmart customers found that 28% are more likely to shop at the retailer after its decision to cease selling certain ammunitions, while 20% are less likely to shop at the retail chain.

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A separate Civic Science survey of 1,380 Walmart customers showed that 29% are more likely to shop in Walmart because of its changed position on the "open carry" policy, while 19% are less likely to shop at the retailer, according to Civic Science.

Because Walmart was directly affected by the two shootings, it puts the retailer in a "unique" situation, according to Bryan Gildenberg, Chief Knowledge Officer at Kantar Consulting.

"I'm not a hundred percent sure that if this had happened in somebody else's store whether Walmart would have had the same reaction," Gildenberg said.

Walmart's decision could push customers away but the value and breadth of the company's products and services are unmatched by other retailers, Raymond James analyst Bobby Griffin said.

"In addition, we would also point out that Walmart has slowly been de-emphasizing its guns and ammunition sales for years, and its recent results within the U.S. have been excellent," Griffin said in a Sept. 4 research note. Walmart's net sales in the U.S. grew 2.9% to $85.20 billion, while its U.S. e-commerce sales climbed 37% in its second quarter, according to the company's most recent earnings report.

Walmart's policy change also makes the retailer more attractive to ESG focused investors, Griffin said.

"Frankly, we think the short-term focus on what the impact could be on profits ... misses the larger and more important takeaway. From an investment standpoint, we think the move also highlights how Walmart continues to take a bigger role in the wellbeing of its associates, customers and the communities it operates in. This is considerably important for ESG investing," Griffin wrote.

It is too early to determine what impact Walmart's decision could have on consumer sentiment, the Governance and Accountability Institute's Boerner said. He noted that the company has grown to become a national retailer but its customer base of rural Americans is still important.

"This is a dramatic move for Walmart and it will be interesting to see what their customers think about it in small-town America where there are a lot of gun owners," Boerner said.

Following Walmart's announcement, other retailers such as Kroger Co., Walgreens Boots Alliance Inc. and CVS Health Corp. also requested customers refrain from openly carrying firearms in their stores.

"We are also joining those encouraging our elected leaders to pass laws that will strengthen background checks and remove weapons from those who have been found to pose a risk for violence," Kroger said in a statement.

Since 2009, more than 5 million guns are manufactured annually in the U.S. In 2016, that figure peaked to 11.5 million before declining to 8.3 million in 2017.

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