Is Walmart in Trouble?

Jessica is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Walmart (NYSE: WMT) shares took a hit recently due to a leaked in-house memo by mid-level executive Walmart VP Jerry Murray, describing the mega-retailer’s February's sales as, "are a total disaster," and that February’s results were Walmart’s worst for any month in the past 7 years.

Is Wal-Mart in trouble, or is this just a case of, as Wal-Mart's PR department claims, delayed tax returns due to deadlock over the fiscal cliff pushing back tax filing dates and subsequently tax refunds for Wal-Mart's target demographic?

In this article we'll examine The House That Walton Built. We'll dig through the company's strengths and weaknesses, and note the opportunities and threats facing the biggest of the Big Box retailers.

Strengths

  • Being the biggest single privately owned bulk buyer of many unprocessed and finished goods throughout the world results in the world's lowest prices in bulk.
  • If there were a “Republic of WalMart”, its revenues would make the corporation the 32rd largest country in the world, larger than Sweden. WalMart accounts for approximately 10% of US retail sales and is the largest employer in the U.S., employing roughly 2.5 million associates.
  • To give you some idea of how Wal-Mart can pressure a sector, in the early 2000's, management decided to start selling groceries, which are now almost half of the expected $473 billion in annual sales, or $236 billion in annual grocery sales.
  • Walmart has thousands of enviable locations, and its negotiating leverage with suppliers give Wal-Mart great pricing advantages over its rivals. Walmart U.S. stores were the #1 holiday retail destination in fiscal 2013.
  • Walmart has consistently outperformed both its peers and the S&P 500 over the last 5 years. 

 

Weaknesses

  • In 2000, Walmart was sued 4,851 times - about once every 2 hours.
  • Unions are to Walmart what green kryptonite is to Superman. The Mega-Retailer's aversion to even the possibility of unionized labor has led Walmart to become increasingly politically active. While the Supreme Court has ruled that corporations are technically people, a more apolitical, hands-off approach would suit the company better in terms of public presentation, especially during a period of generational replacement and shifting demographics. This would also give the company's lobbyists a stronger hand to play in Washington, regardless of which party occupies the White House.
  • When journalists opine as to whether your image as corporate evil incarnate is “deserved” or not, you've got an optics problem. Local businesses put out of business by the arrival of a new Walmart Supercenter are alienated.

 

Opportunities

  • In an effort spearheaded by none other than the World's #1 retailer, the soon-to-be World's Most Populous Country has recently decided to allow foreign Supermarkets to operate in the country. This is a huge win for the company.
  • Last year's $300 million purchase of social media platform Kosmix, now the heart of Walmart labs, is beginning to pay dividends. In particular, Kosmix's Social Media Analytics software allowed Walmart to take the pulse of social media during Black Friday, allowing Walmart a unique glimpse into not only what the customers bought, but how many more customers were out there waiting to buy.
  • Ultimately, Social Media Analytics will pave the way for with decision making on aspects like what inventory to stock in advance. Kosmix technology is now the heart of Walmart Labs.

 

Threats

  • WalMart is being simultanously squeezed between high end competitors Target (NYSE: TGT) and low-end stores like Family Dollar. Target, in particular, grew same store sales at 2.9% in Q3, compared to Wal-Mart's SSS of just 1.9%. Target's Q4 guidance blew past Wall St.'s consensus estimates without looking back, despite a 1% decrease in November same store sales.
  • Naturally, when you're the biggest, there's no shortage of competitors nipping at your heels. Walmart's competitors include Safeway, Kroger, Walgreens, Home Depot and Lowes (home & garden), Toys R Us (toys), Best Buy (electronics), Old Navy/Gap/TJ Maxx etc. (clothing), Bed Bath & Beyond (housewares), Dick’s, Cabela’s (sporting goods), even PetSmart in dog and cat food.
  • Yet, WalMart's #1 threat at the moment has no current address. In fact, it doesn't exist anywhere, exactly. Amazon (NASDAQ: AMZN) is already more popular than WalMart among wealthier shoppers.
  • Walmart proven strategies are being imitated, to various degrees, by other brick-and-mortar retailers. This will likely make the market for the "big box" retailers more competitive over time. 

Conclusion

Today, Walmart dwarfs nations. Its annual $400 billion in revenue is the GDP of 170 countries. It's 2.2 million employees would form one of the largest standing armies on the planet. It's CEO makes $16,827 an hour. 60% of the population lives within 5 miles of a Walmart Supercenter. 96% live within 20 miles. It accounts for 15% of all Chinese imports. Impressive statistics, all.

Unfortunately, Walmart's profits tend to track those of the broader U.S. economy. The “Walmart moms” aren't shopping yet, though it's not for lack of trying. Refund anxiety has become so pressing that the IRS is imploring the public not the government's online refund status checking tool “Where's my refund” more than once a day, lest the sheer number of inquiries take down the site.

All that pent up demand isn't a threat to Walmart. In fact, it may very well be a boon for the company's quarterly results going forward.


JMcCann1 has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus