What's causing Wal-Mart's woes

While more focused and higher-end rivals posted positive earnings surprises, Wal-Mart fell short of expectations.

By The Fiscal Times Feb 24, 2012 11:58AM
WalmartBy Suzanne McGee, The Fiscal TimesThe Fiscal Times

Wal-Mart (WMT) may promise "Low Prices. Every Day. On Everything," but it was particularly aggressive about offering discounts at holiday time -- and now it's paying the price.

While more focused and higher-end rivals like Macy's (M), Saks (SKS) and Home Depot (HD) posted upside earnings surprises and were rewarded by investors, Wal-Mart fell short of expectations, reporting net income for the fourth quarter of $1.50 a share, down from $1.70 in the year-earlier period, and sales that also disappointed retailing analysts.

After reporting those numbers Tuesday, Wal-Mart stock retreated 2.45% on Wednesday, bringing its loss this week to 6.2%.

It's not all bad news in Bentonville, Ark., though: Wal-Mart's sales, while disappointing to Wall Street, are still higher than they were last year. It remains a huge global player and its international operations are doing well. But it's being squeezed by other retailers, from direct rivals like Costco (COST) and Target (TGT) to Dollar Tree (DLTR) and other discounters. Nor can it innovate its way out of trouble. It had tried to improve performance by de-cluttering stores and trimming the number of products it sold but was forced to reverse those decisions last year after the changes hurt sales. So while the company may be in better shape now, it is still working on fixing up its stores and implementing its revised strategy – and its results will continue to reflect that. "There is no doubt that we are reducing expenses and investing in lower prices for Wal-Mart customers. You can expect margins to decline as we put these initiatives into place," CFO Charles Holley told analysts on the earnings call this week.

In the era of the Internet and tools that allow customers to check out your prices and compare them to those of your rivals before ever setting foot in a store, there's not much a budget retailer can do beyond slash prices to the bone, like Wal-Mart did. But these days, its customers – those same hurting lower middle-class consumers whose votes politicians are appealing for – aren't feeling affluent enough to indulge in the kind of sudden splurges or impulse buys that might add up to big gains for Wal-Mart.

Analysts have jumped on the earnings announcement as a reason to cut their ratings on the stock, and that's probably the right thing to do. The retail industry overall is still trying to recover, and it isn't the Wal-Marts of the world that seem to possess the secret of thriving in the 21st century.

Most investors would be better off finding a way to build a retail portfolio that includes some niche bricks and mortar retailers  (like Home Depot, whose earnings soared 32%) or those that have combined a strong online presence with some other edge, such as being able to appeal to more affluent consumers. Adding a Saks stock to a share of Dollar Tree might get you a similar demographic exposure (at least conceptually!) as well as stronger financial results. Throw in some online retailers -- a bit of Amazon.com (AMZN), perhaps – and the result likely will continue to do better than a behemoth like Wal-Mart in the current market environment.

The one advantage Wal-Mart can provide is a healthy yield, one that the recent slump in the company's share price has made still more alluring. But a 2.5% annual dividend isn't likely to compensate for earnings growth and a higher stock price, except in the eyes of the most fearful and risk-averse consumer, especially if stock prices continue to march generally higher. Wal-Mart's earnings release has offered investors shopping for stocks a new kind of consumer warning: "Buy at your own risk."

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276Comments
Feb 24, 2012 5:17PM
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i worked for walmart 25 years ago. i had to wear slacks, a dress shirt and dress shoes. i had to be shaved, no long hair or tattoos or piercings. and i had to help everyone who asked no matter what they ask. now days 75% of walmart employees look they were hired out of an after market freak show.  i know i do not like being waited on by a 300 lb. freaky woman with tattoos on her neck and piercings in here face. I know if Sam Walton's kids would have stuck to his beliefs, walmart would not have became the cesspool it is today.   
Feb 24, 2012 5:13PM
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Walmart has 20 cash registers and 3 people working. Get ready to wait in line.
Feb 24, 2012 5:10PM
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Sam Walton kids messed up Wal-Mart! 
Feb 24, 2012 5:27PM
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The problem with Walmart is a 5 letter word -  c h i n a
Feb 24, 2012 3:08PM
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We're trying to buy American made.  When Walmart first opened, they advertised everything in the store is American made.  Now you can't find any American made items in Walmart.  They sold out.
Feb 24, 2012 3:18PM
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Walmart's problems are caused by greed. They treat employees as if they were slaves and import their goods from China, where children are forced to work in inhumane conditions.  Even bargain hunters won't buy from Walmart because of their corporate philosophy.  I'd rather pay double for a similar item at another store than to give Walmart a dime.  I actually drive 30 miles to go to a Target store instead of shopping at the Walmart that is 10 minutes away...

 

  If they want my American-made money, they need to sell American-made items and pay their workers a decent wage.  They also need to quit enslaving poor Americans with their "quick free credit" cards, where they charge the poor 30% interest to buy their inferior goods.  Shame on Walmart.  Sam is rolling over in his grave. 

Feb 24, 2012 3:49PM
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You get what you pay for.  Cheap prices equal inferior products from countries using basically slave labor

Feb 24, 2012 2:34PM
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Wal-Mart may have another problem - one that it will have difficulty pulling out of over the long term. It's marketing, labor relations and public relations strategy, while generally enticing to lower income households, has been off-putting to households where incomes are higher. There isn't an "American Economy" anymore in the way there was when Wal-Mart was founded. There are two economies, with those who are prospering in one camp, and those whose incomes are stagnant or declining in the other. Some of Wal-Mart's business practices have been so repugnant that those with choices actively avoid their stores. Thus, Wal-Mart's economy is tried to people with fewer dollars and fewer choices. As the manufacturing base and other traditional middle class sector jobs continue to shrink...
Feb 24, 2012 3:38PM
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Walmart was better when small andSam was alive.   As soon as Sam passed fireworks,alcohol and more came in.     Its all about greed, pretty soon they are going to start putting there own stores out of business.   I,m glad to see some towns refuse them building permits.    And what about Thanksgiving eve trying to open b4 anyone else,  they really dont care about there employees and family, let alone causing people, getting serious hurt  because of limited quanity at ridiculous prices.  Walmart has driven several companys to go overseas or go bellyup.  Sam must be spinning in his grave.  Walmart is headed for an iceburg.
Feb 24, 2012 6:01PM
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Maybe Walmarts troubles are because they thought we are all stupid and wouldn't notice that for the same price that we used to pay for decent quality stuff we are now getting junk.  I think we are all waking up to the fact that they sucked us in by selling us stuff cheaper than we could get it anywhere else, which for those of us with limited means was good, and then they did the old switch-a-roo.  Now the quality of nearly everything in Walmart is poor and most of the time you can't find what you want in there anyway and then try to check out promptly...so why do they have all those check out stations, has anyone ever seen all of them or even one fourth of them manned at one time.  How much money have you saved if you purchase something cheap only to have it fall apart promptly and have to be replaced versus going somewhere that you can buy quality stuff that lasts even if you have to pay a little more for it.  I have to admit that I still shop at Walmart because I have to but I limit my purchases to only what I can't buy somewhere else in town and that includes resale stores, I can buy better clothes in resale stores than I can at Walmart. It's a little insulting that they think we are so stupid that we wouldn't notice that they are trying to sell us junk.
Feb 24, 2012 6:22PM
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Well lets see, crappy imported merchandise, lines all the time at the checkout, very narrow selection in many categories, NO sales people on the salesfloor, I could go on, but there is no point. I do everything in my power not to go to Wal-China.
Feb 24, 2012 5:32PM
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I do everything in my power to not buy Wal-Mart, but then I am married so I do not always get my way, I love Price cutters here in my area and buy all I can there and love the folks that work there. I also buy from all my local stores, from folks I have known all my life and will always give them my business first even when their prices are a little higher. I believe in supporting all the locals so down town and small business are not run out by the Wal-Marts of this world. I have been buying GAS from a friend of mine for a life time, he is the only full service around, I can't even tell you what his price is on gas and do not care, I buy from a good man and pray he can always be there for us. Folks stay true to your home town, do all you can to keep it alive, the Wal-Marts of this world will kill small towns and a very special way of life that once lost  never comes back. Think smart, not low dollar, low dollar is not the way to go in life, it will most always cost more than you will be able to live with in your near future. These words come from a oldman that has traveled, worked, lived and know a few things about the way of life and the good and bad we suffer when we make mistakes and bad choices that we really can't afford. Life is not about money, the greatest part of life is the happiness of family, friends, neighbors and the peace of mind of knowing we lived and helped others and hurt no one, especially those we care about.   
Feb 24, 2012 3:26PM
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Buy and sell American made products. Thank you.
Feb 24, 2012 3:28PM
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Part of Wal-Mart's strategy is to pay wages that place its employees below the poverty line required to receive public assistance.  In CA a few years back, WM employees used an estimated 40% more in publicly funded health care than the average employee at other large retailers. And their families utilized an additional $54 million in non-health related federal assistance, including food stamps, the Earned Income Tax Credit, subsidized school lunches, and subsidized housing.  WM's personnel depts help employees apply for and access public assistance programs.  On top of that, they negotiate hard bargains with cities for infrastructure and sales tax credits.

 

So Wal-Mart's 'competitive' pricing structure is achieved in part on the backs of the American taxpayer.  If you added what taxpayers chip in to shore up the sub-par wage and benefit structures to get the "true" cost of an item at WM, maybe it isn't such a huge bargain after all.

Feb 24, 2012 6:25PM
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I believe one MAJOR problem with WalMart is their greed. Every one of the Waltons is a billionaire tens of times over and yet they insist on selling goods made in foreighn countries, most notably China. Since they are already so incredibly wealthy I cannot help but wonder why they do not use their wealth and influence to support manufacturing jobs right here in the country that made them all so wealthy. One thing in their defense - they are not the only company that does this. Most major retailers in this country are guilty of the exact same thing.
Feb 24, 2012 6:17PM
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Perhaps.....people are tiring of Chinese crap....Read labels people,,dont buy the junk they sell..It costs us jobs and after the history they have with powdered milk and other products ...Dont trust them..Sam Walton had the right idea...buy and sell american..he's gone and so is that process..Little that can be made in the USA is sold there....
Feb 24, 2012 3:40PM
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The concept of Walmart seems to have been for years to have the cheapest prices going on everything. It's no longer true. Everyday items can be picked up for a lot less at other stores, including the supermarket it you watch the ads. I've gotten to where I dislike even having to go there for anything.
Feb 24, 2012 2:48PM
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WalMart pretty much sucks, as far as I am concerned.  I do not shop there.  I live in a community that actually was able to prevent WalMart from setting up shop here.  I am so happy to be a part of that, and continue to support our smaller, nicer, friendlier, cleaner stores in this community.
Feb 24, 2012 3:10PM
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Walmart is not what it was when Sam Walton was alive. They carry junk now and a limited supply of everything. Also, their prices are not all that competitive any longer. I can shop at Target for within pennies of Walmart and have a better experience. Walmart stores are filthy and have unhappy people working in them. All in all I go in there as little as possible. It is no wonder they are suffering.
Feb 24, 2012 3:37PM
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The problem with Walmart is that it has outgrown itself. The central message and core values are weak and unclear. Everyone who is an managerial position is only out for personal gains and what the can get out of the company. Meanwhile the company is falling by the wayside because no one is looking out for it.

 

Plain and simple nothing else matters if the values and beliefs I mentioned above dont change.

 

love to debate it...but the problem goes back to the basics

 

 

oh and yeah I actually was just a manager at walmart and quit because of what I witnessed above

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