Market Mad House

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

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What Is Going On at Walmart?

Some really weird stuff is going on at Walmart Stores Inc. (NYSE: WMT) right now. The retail goliath suddenly shut down five stores in Texas, California, Florida and Oklahoma and laid off 2,300 employees without warning on Monday, April 13, CNN Money reported.

What’s truly bizarre is the reason a Walmart spokesperson gave to our friends at The Consumerist for the closures: plumbing problems. Okay, that might be plausible at one store but at five in four separate states?

Some news outlets speculated that a store in Pico Rivera, California, was shut down because it is a hotbed of union activity. That’s plausible too because Walmart is a notoriously anti-union company. Yet that does not explain the shutdown of stores in anti-union right to work states like Texas and Oklahoma.

Same Store Sales Have Walmart Running Scared

My guess as to what’s going on here is that Walmart is shuttering the stores so it can give them a makeover. America’s largest retailer has been struggling with comparable store sales that have remained flat or, worse, declined for some time. Walmart’s own statistics paint a very depressing picture for same store sales in 2014.

Highlights include:

  • Same store sales fell by .1% for the 13 weeks that ended on May 2, 2014.
  • Same store sales remained flat for the 13 weeks and the 26 weeks that ended on August 1, 2014.
  • Same store sales increased by a dismal .5% for the 13 weeks that ended on Oct. 31, 2014, and .1% for the 26 weeks that ended on Oct. 31, 2014.
  • Same store sales did go up slightly over the holidays by 1.5% for the 13 weeks that ended on Jan. 30, 2015. Same store sales increased by a paltry .5% for the 52 weeks that ended on Jan. 30, 2015.

Get the picture, folks; Walmart’s sales have stalled, indicating that the retail giant has lost its momentum. It’s management team is running scared; as I noted earlier, Walmart U.S. President Greg Foran actually admitted to analysts and reporters that Walmart is a lousy place to shop when compared to competitors like Kroger (NYSE: KR) and Costco Wholesale (NASDAQ: COST).

My guess is that Foran is shutting down those stores so they can be remodeled. The closed Walmart locations will be used as laboratories to test new concepts and changes to Walmart in order to make the chain competitive. One possibility will be to revamp grocery departments to make them closer to industry leaders like Kroger, Costco and Whole Foods Market (NASDAQ: WFM).

Another is that Walmart will turn some of the locations into combination stores and distribution centers for Walmart to Go. Walmart to Go is the chain’s home delivery service designed to compete with Amazon Fresh Prime and Kroger’s Shop at Home. Walmart is currently testing such delivery services and a pickup service in San Jose, Denver, Phoenix, Huntsville, Alabama, and its hometown of Bentonville, Arkansas. Walmart’s grocery home page promises that more locations are coming soon.

Naturally, some of you will be wondering is Walmart is a good investment. My answer would be yes; Walmart’s revenues are still huge and growing at a healthy rate. Between January 2014 and January 2015 Walmart’s TTM revenue grew by $9.36 billion. As you can see from the chart, Walmart reported a TTM revenue of $476.29 billion in January 2014 that grew to $485.65 billion in January 2015.

ycharts_chart (53)

The only U.S. retailer that reported more TTM revenue growth than Walmart was Inc. (NASDAQ: AMZN). The online giant’s TTM revenue grew by $14.45 billion between December 2014 and December 2015. Amazon reported a TTM revenue of $74.45 billion in December 2014 that grew to $88.99 billion by December 2015.

Walmart is still making a lot of money; it just isn’t making money as fast enough as some of its management team would like. My guess is that Walmart’s management team is afraid of facing the kind of obsolescence that hit Sears (NYSE: SHLD) in the 1980s.

It is probably hard for a lot of Americans under 50 to believe, but back in 1980 Sears was the cutting edge of American retail. Sears was the largest retailer in America and the middle class’s favorite shopping venue, attracting a cult-like following among customers similar to that at Costco today. Yet by the early 1990s Sears was overtaken by Walmart, and by the early 2000s the chain had been left in the dust by Walmart and Target (NYSE: TGT).
Today Sears is the subject of constant speculation about the death spiral from stock writers, including your blogger. The company is closing stores right and left and struggling to maintain revenue. Walmart is still in a very strong position; it is has massive amounts of revenue and an incredible amount of leverage over suppliers. The Cincinnati Enquirer’s Alexander Coolidge crunched a few numbers and demonstrated how big a stick Walmart has to use on suppliers. Despite its problems, Walmart is still of vital importance for some of the most important names in American manufacturing. Here are Coolidge’s estimates of the percentage of products Walmart buys from top suppliers:

  • 26% of Kraft Foods’ yearly revenue is from Walmart.




  • 21% of cereal icon Kellogg’s revenue comes from Walmart.



  • 30% of jam maker J.M. Smucker’s revenue can be traced to Walmart.



  • 12% of PepsiCo’s revenue originates in Walmart’s cash registers.



  • Clorox is dependent on Walmart for 26% of its revenue.



  • Hillshire Brands definitely needs Walmart; 27% of its revenue comes from the Bentonville behemoth.



  • Coffee cup creator and value investor favorite Keurig Green Mountain (NASDAQ: GMCR) depends on Walmart for 17% of its revenue worth 1.1 billion.



  • The Energizer bunny might stop if Walmart pulled the plug. The battery maker gets 17.2% of its revenue from the nation’s largest retailer.



  • Tootsie Roll also needs Walmart for 23.7% of its revenue.

Not even Procter & Gamble is immune. The Enquirer reported that Walmart buys $12 billion worth of merchandise from P&G every year.

The bottom line is that Walmart is still a great company in a fantastic position. It is still making a lot of money, and it has the resources to remain on the cutting edge of American retail for a long, long time to come if its management team plays its cards right.

 Disclosure your blogger owns shares of Kroger and has no time to sell them anytime soon.