Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Walmart Feels the Heat

 The leadership at Walmart Stores Inc. (NYSE: WMT), America’s largest retailer, seems to be running scared these days. Walmart’s U.S. president has even come out and admitted to investors that his chain’s stores may not be competitive in today’s retail business.Get a FREE Gemstone Ring from Holsted Jewelers valued at $50! Click Here to find out how!

Walmart’s management team has figured out what all the shoppers defecting to Costco Wholesale (NASDAQ: COST) and Kroger (NYSE: KR) have known for some time. Its stores offer such a poor shopping experience that they drive customers to the competition.

Executive Admits Walmart Is a Lousy Place to Shop

Greg Foran actually told investors that many of his company’s stores are lousy places to shop that might actually be driving customers away, The Washington Post reported. He also came out and admitted that many stores will need to be remodeled in order to lure customers back. Foran even ticked off a laundry list of problems with Walmart locations he had visited that included:

  • Poor lighting.


  • An inventory of merchandise that did not meet the community’s needs.


  • Stores that were simply hard to navigate and poorly designed.


  • Stores that were too hot or cold.

So what is Foran so worried about? After all, Walmart is still America’s largest retailer. Walmart reported a TTM revenue of $485.65 billion on Jan. 31, 2015. The charts indicate that Walmart’s TTM revenue increased by $9.36 billion between January 2014 and January 2015, meaning that Walmart’s position as the biggest retailer in the universe is safe for the foreseeable future.

What Foran and company are worried about is the rate of revenue growth; Walmart reported a quarterly year to year revenue growth rate of just 1.43% on Jan. 31. That’s pretty pathetic considering the retailer reported a growth rate of 5.85% as recently as January 2012, just three years ago. Costco reported a TTM revenue growth rate of 4.36% on Feb. 28, 2015, and Kroger reported a TTM revenue growth rate of 8.55% on Jan. 31. The company that most worries Walmart: Inc. (NASDAQ: AMZN), which reported a revenue growth rate of 14.62% on Dec. 31, 2014.
Even dollar store operators Dollar Tree (NASDAQ: DLTR) and Dollar General (NYSE: DG) reported significant revenue growth. For the record, Dollar Tree’s revenue growth rate was 10.77% on Jan. 31, and Dollar General’s growth rate on Jan. 31, 2015, was 9.9%.

Why Walmart Is Losing the Retail Wars

Walmart is no longer on the cutting edge of retail; it cannot even compete with bottom-feeding dollar stores. The Behemoth from Bentonville still makes a lot of money; it just cannot attract any new customers. What is going on here?

Basically, the retail industry has changed against Walmart in three important ways. These ways are:

  1. Other chains, particularly Kroger, have figured out how to match Walmart’s prices and ability to deep discount. That means Walmart often no longer has the lowest price, which puts it at a disadvantage.

 Walmart Inside

  1. Retailers like Costco and Kroger have raised the bar in terms of offering a quality shopping experience. These chains offer nicer stores, higher quality merchandise, better selections, and better customer service than Walmart does at a competitive price.


  1. Consumers want to spend less time shopping. They are pressed for time and are no longer willing to drive a few extra miles to save a couple of bucks on toilet paper. Today’s consumers are also no longer willing to put up with a lousy shopping experience even if it saves them money.

“The three things that matter most to customer are clean, fast and friendly, and we’re adjusting the way we operate to make sure we make those real priorities,” Foran said.

Naturally, many people will be wondering if Walmart is still a good investment. I would say yes because the company has great management. They’ve realized something is drastically wrong, and they’re trying to fix it. They are adapting to deal with changing conditions, which is what good companies do.

Walmart has even managed to abandon some of its historic policies, such as paying extremely low wages and adding new products in an attempt to put pressure on suppliers. Walmart has added the German laundry detergent Persil in an attempt to differentiate itself from Kroger, offers consumers a choice, and snubs Procter & Gamble (NYSE: PG), maker of Tide, which has been trying to build up a sweetheart relationship with Amazon.

Walmart’s stock numbers also look really good. It still managed to deliver investors a dividend of 2.43%, a return on equity of 21.11% and a diluted EPS of 5.051. Despite its slow growth, Walmart is an extremely healthy company and will remain that way for a long time to come.


My prediction is that Walmart will turn itself around and recover its momentum, but that will take time. Those who expect that to happen overnight could be disappointed because like Amazon, Walmart is a company that invests and plans for the long term. Its management watches the big picture and often ignores the immediate news.



It’ll probably take a few years, possibly until 2018 or later, for some of Walmart’s current initiatives, such as the neighborhood markets and the online retail push, to pay off. My prediction is we’ll see big new growth at Walmart in three or four years.

View Daniel Jennings's profile on LinkedIn

Disclosure: your friendly neighborhood Blogger owns shares of Kroger and plans to keep them for a long, long time.