Riff Raff, by Michael Tilley
Like those deranged cult leaders who every so often convince a handful of shaved-head nitwits that the world will end via some cosmic oddity or the loyalty-blinded Razorback fan who sees a path this season to a prominent bowl game, now comes again the crowd suggesting that the future of Wal-Mart Stores is one of decline.
The smart kids in the class at Goldman Sachs recently downgraded Wal-Mart shares from “buy” to “neutral.” Such a downgrade essentially means the price of Wal-Mart shares – which closed at $73.54 on Aug. 4 – is not likely to appreciate in the near term. The analysts at New York City-based Goldman Sachs – a company that did not see coming the financial collapse in 2007 – would politely encourage you to save money and live better with another equity investment.
It did not take long for the business media world to ponder the many ways in which Wal-Mart’s impending demise would occur. Forbes, Business Insider, CNN, CNBC, Bloomberg and the Wall Street Journal were on top of it. Headline after headline told us that Wal-Mart faces a growing number of more sophisticated and well-capitalized competitors, including the soon-to-be merged Dollar Tree and Family Dollar. There is Amazon with a nimble and relatively low-margin sales and delivery process that, for crying out loud, may one day include drones. And Costco can do no wrong, best I can tell from the reporting, which means Sam’s Club is also doomed to be purchased for pennies on the dollar by one of them adult product stores. The new owners may not even change the name.
It gets worse. Those baby boomers who rewarded Mr. Walton’s “stack ‘em high and let ‘em fly” approach to retail are dying off. They may all be gone before the holiday shopping season, if not next Saturday. Baby boomer tombstones are, apparently, granite nails in the Wal-Mart coffin.
Seeking Alpha posted commentary that included this subhead: “Can Wal-Mart Bounce Back?” This assumes the company is flat on its back. Another Seeking Alpha commentary posited that the “darker side” of Wal-Mart corporate practices and its $2.34 billion dip in cash flow are “signs of demise.”
This talk of demise and darker sides came just a few days after the surprise news that Walmart U.S. CEO Bill Simon was stepping down/asked to leave and would be replaced by Greg Foran, a Wal-Mart international exec from Australia with no experience in U.S. retail. Some saw this as a move of desperation; that Walmart U.S. earnings – set to be released Aug. 14 – are going to be so bad that Wal-Mart Stores CEO Doug McMillon needed to take a pre-emptive move. Others saw it as a bold move by McMillon to shake things up and put his stamp of change on the global retailer. But moves of desperation make for better headlines.
What must Wal-Mart do to prevent 8th and Walton from becoming the zombie core of a ghost town before millions of NASCAR fans rush out to buy new t-shirts and caps for the 2015 racing season? (It helps if you read the previous interrogative with panic.) Again, the smart kids point to several things.
Wal-Mart should buy Dollar General with its 11,000 small store locations. This would counter the Dollar Tree acquisition of Family Dollar. Wal-Mart should do more to boost its inventory of private label products. Surveys, we are told, indicate that consumers are more comfortable with the off-brand versions of everything from coffee to butt wipes. And the private label brands come with better margins.
Others have suggested that McMillon and Foran reverse the trend of reducing labor to cut costs. Some stats suggest Wal-Mart has cut the number of U.S. employees by more than 20,000 while at the same time opening almost 700 new stores. That certainly explains Walmart’s either real or perceived inability to keep aisles from looking like store shelves in post-apocalyptic movies.
As to Wal-Mart being on an inevitable and unstoppable decline, I’m not buying it, not even at their every day low prices. As noted earlier, these Wal-Mart death watch things come in phases. There was much speculation about the retailer’s future when Sam died. And then we were told Wal-Mart had tapped out its rural markets and would not be able to make it work in the more urban markets. There was the time CEO David Glass abruptly walked away from a national television interview when he was challenged with child labor issues among overseas suppliers. We were all supposed to turn away from a company that had allegedly turned away from its “Made in the USA” campaign.
And remember when it was all but certain that the rise of Target would push Wal-Mart to the sidelines? Or was that Amazon? Now it’s the big Dollar Tree-Family Dollar merger that we are told could slingshot the perfect stone on a fatal trajectory to what was once the squiggly between Wal and Mart. (By the way, the combined top line of the two soon-to-be merged dollar stores in the most recent fiscal year was around $18.23 billion, just slightly ahead of the more than $16 billion bottom line for Wal-Mart Stores.) Tomorrow the threat could be from a yet-to-be incorporated operator of millions of semi-trailer trucks that sell whatever their 3-D printers can crank out, and bacon.
Nothing, not even Wal-Mart, is forever. However, the company will remain a global powerhouse for several more decades. The retailer’s near term may not be pretty – especially when the foreign corruption probe wraps up – and McMillon may indeed face the retailer’s most serious threats in its more than 52-year history.
But “signs of demise” and “darker sides” are a bit much. Let’s save the knee-jerk hyperbole for where it belongs – Razorback football.