Thread: Woes mount for Wal-Mart

Woes mount for Wal-Mart
David Olive
Business Columnist
Aug 12, 2007 04:30 AM

It was business as usual for Wal-Mart last Tuesday for a superstore opening in Peru, Ill., which is to say the mood was of righteous self-assuredness. A marching band played "The Star-Spangled Banner," store manager Mitch Lippert whipped up his troops ("Who's fired up!"), and Rev. Oscar Shepherd of Christ Family Foursquare Church sought the Almighty's blessing "as we interact with each other in the marketplace."

You'd never know Wal-Mart Stores Inc. was in a heap of trouble.

The company's growth rate has slowed to a crawl, overtaken by rivals once thought to be no match for the "beast of Bentonville." Average annual profit growth lags that of Target Corp., Costco Wholesale Corp. and other competitors. Wal-Mart's repeated efforts to push upscale merchandise have ended in tears. Expansion at home is still thwarted by hundreds of U.S. communities; and several forays abroad are struggling or have been scrapped. The stock price is down 32 per cent since the turn of the century, when CEO Lee Scott took the reins, while the Morgan Stanley retail index has soared 180 per cent.

If Wal-Mart wasn't 40-per-cent controlled by the heirs of founder Sam Walton, an "activist investor" like Carl Icahn or Kirk Kerkorian would be calling for Scott's head and the spin-off of Sam's Club, an also-ran to Costco.

As it is, many on Wall Street are convinced Scott will be out of a job come next year if he can't show some progress over the next six months in breathing new life into the world's largest retailer. He isn't given much hope of doing so. "[This] is the end of the age of Wal-Mart," Richard Hastings of U.S. retail ratings agency Bernard Sands told Business Week in April. "The glory days are over."

At 45, Wal-Mart is showing its age. With sales of $345 billion (all figures U.S.) last year at 6,779 stores in 13 countries employing a total of 1.9 million people, Wal-Mart still has the clout to dictate pricing and package design to giant suppliers like Procter & Gamble, Campbell Soup Co. and Dell Inc., which rely on Wal-Mart's 3,443 U.S. stores and thousands more abroad as one of their biggest, if not their largest, distribution channels.

But last year, Wal-Mart eked out same-store sales growth, at outlets open at least a year, of just 1.9 per cent, a mighty comedown from the routine double-digit increases of the 1990s. Scott has responded with top-level management shuffles, an overdue store-remodeling campaign, and a renewed determination to crack foreign markets. Yet Scott has not been able to budge the needle.

Last week, Wal-Mart reported anemic same-store sales growth of 1.9 per cent for July, the kick-off of the important back-to-school season, trailing the industry average of 2.6 per cent. Wal-Mart blames financial pressure on shoppers from high fuel prices and a weak housing market. Yet those factors didn't hobble Target, which posted a same-store sales gain of 6.1 per cent, Costco (up 7 per cent) or J.C. Penney Co. (up 10.8 per cent).

Probably more ink has been spilled on Wal-Mart's phenomenal success than any firm save Microsoft Corp. But the firm turns out to be a one-trick pony. It's a discounter that thrives on selling high volumes of low-margin goods at knock-down prices in small-town monopoly or near-monopoly markets.

As it has tried to move into higher-margin apparel and other goods, and expand into large urban markets in the U.S. Northeast, upper Midwest and the West Coast, and into Europe and Asia, far from its U.S. flyover territory origins, Wal-Mart has run into every kind of trouble imaginable.

Wal-Mart's vaunted logistics prowess, the advantage for which it is most feared, is no longer able to keep the fastest-moving inventory reliably in stock. Discriminating shoppers in its newest, urban markets are accustomed to higher standards of quality, selection and customer service than Wal-Mart has ever had to offer. And the firm, as it tries to retain its profitability of old, has shown a curious response to that challenge, recently capping wage increases for clerks who already are underpaid, scarce and lacking in product knowledge.

Many Wal-Mart outlets remain an aesthetic dead zone. The company's belated store-remodeling efforts have been half-hearted, even though an alarming internal Wal-Mart survey in late 2005 found that one-quarter of the company's U.S. stores fall short of minimal standards in everything from adequate lighting, prompt check-out time and even cleanliness – standards few Wal-Mart observers would describe as especially high in the first place.

Foreign expansion has borne scarcely more encouraging news than the home front. Fifteen years after first venturing outside the United States, Wal-Mart garners only 22 per cent of its total sales abroad, and a far smaller percentage of profits. And most of that business comes from Canada and Mexico.

Those few Wall Street analysts who anticipate a Wal-Mart renaissance pin their hopes on international growth. But Wal-Mart last year quit Germany and South Korea, and has made little headway in other giant markets including China and India. In Japan, the company has lost money five years running.

At home, meanwhile, Wal-Mart is caught in a squeeze between "cheap-chic" merchants like Target, H&M and Zara, whose higher-income clientele it has not been able to lure; and the proliferation of "dollar stores" and convenience marts nibbling away at its core customer base of 42 million lower-income shoppers.

Wal-Mart has trouble holding on to executives initially touted as architects of a coming transformation. Senior marketing executive Julie Roehm was fired in December, accused by Wal-Mart of an improper romantic involvement with a subordinate, taking gifts from suppliers and misusing her expense account. Roehm disputes the allegations, claims her famously conservative employer resisted her fashion-forward sensibilities, and has accused Scott and other top Wal-Mart executives of indulging in the same practices of which the company accuses her.

And last month, Claire Watts, head of apparel merchandising, abruptly quit after Wal-Mart appeared to be scaling back its upscale-product strategy.

A more fundamental problem is Wal-Mart's paucity of high-level merchants. Scott, 58, a Wal-Mart lifer, came up through the company's logistics and trucking ranks. (Wal-Mart owns the U.S.'s second-largest private trucking fleet.) And Eduardo Castro-Wright, who has so far failed to impress in his mandate to fix the core U.S. operations he has headed since 2005, is a veteran of tobacco giant RJR-Nabisco and defence contractor Honeywell International Inc.

Wal-Mart seems to be its own worst enemy in public relations. Already the target of class-action lawsuits from employees claiming to have been locked inside stores after closing time to perform extra work without pay, and the biggest sexual discrimination class-action suit in U.S. history, Wal-Mart's Threat Research and Assessment Group – set up to curb "shrinkage," or employee theft, and pro-union sentiments among employees – was found to have spied on company critics including consultants, irate shareholders, financial reporters and even members of the company's own board.

In May, Human Rights Watch, better known for raising alarms about civil-rights abuses in repressive regimes, accused Wal-Mart of violating labour laws.

In fairness, Wal-Mart is confronted with the daunting law of large numbers. It has to grow by $35 billion this year just to post a respectable growth rate of 10 per cent, which means finding new revenues equal to the total sales of Walt Disney Co. or Intel Corp.

The keys to a Wal-Mart revival include adjusting to local customs abroad – Germans were put off by its overly familiar greeters – and wringing more profits from its core operations at home.

It's actually good news that Wal-Mart's 800 best-run stores boast sales growth 10 times higher than its 800 worst-run outlets – a shocking revelation the firm made a year and a half ago. And it's good news that Wal-Mart has bungled in so many different ways this decade – in rushing into upscale merchandising without realizing you don't roll out an ad campaign until the advertised goods are in the stores; and that failing to rehabilitate shabby stores is an expensive bargain. Good news, because those are fixable issues that offer significant growth prospects.

But the long-term dilemma for Wal-Mart remains that its reputational damage runs so deep that any reclamation project will come too late. In a damning 2006 report for Wal-Mart by the firm's former ad agency, based on interviews with scores of customers, rival merchants with superior product selection and customer service were identified as the preferred choice over Wal-Mart in dozens of categories, including apparel, electronics, prescriptions, home décor and even groceries, where Wal-Mart is the U.S. market leader. "Shop there if you must" seems to be Wal-Mart's unofficial tag line.

If Wal-Mart is not to go the way of General Motors Corp., Sears, Roebuck or Xerox Corp., whose long success bred an arrogance that blinded them to changes in the market and doomed them to fail at reinventing themselves, the company will need a top-to-bottom cultural makeover that rejects shoddy stores, outlets understaffed by poorly paid employees with little product knowledge, and a consistent drive to somehow upgrade its merchandise without alienating its base of low-income consumers.

It's a tall order that may require divine intervention. It might help if Rev. Shepherd remembers the beleaguered Wal-Mart CEO in his prayers.

http://www.thestar.com/Business/article/245470

I DONT SHOP AT WALMART ANYMORE AND HAVENT FOR A LONG TIME. AS FAR AS I KNOW JUST ABOUT EVERYONE IS BOYCOTTING THEM.

If ya want cheap goods imported from China; chances are an illegal allien ringing you up at the register ... It's a good place to shop...

But you do get what you pay for :P

Originally Posted by redpony353

I DONT SHOP AT WALMART ANYMORE AND HAVENT FOR A LONG TIME. AS FAR AS I KNOW JUST ABOUT EVERYONE IS BOYCOTTING THEM.

Not in my area. The only people who don't shop there are the ones who can't find a parking spot.

I find it amusing they mentioned every possible influence on their negative profit position...
and drug out every media nightmare WalMart has suffered...

EXCEPT their employment of illegal aliens!!

I'm kinda stuck in one of those 'rural' areas Walmart targets so well, and although it eats in my craw - I won't apologize for still shopping there. I know they're hiring illegals, especially in this area!!!

I knew when I started shopping there 12 years ago I was sacrificing my standards for customer service or the convenience of location. Although we have another grocery store in town - nobody there speaks English either!

We're minimum 45 minutes away from the next closest store selling housewares, or clothing, or electronics, or small appliances, or books, or gardening supplies, or toys - or a respectible chain restaurant!! WalMart provides me a one-stop-shop for small appliances, linens, cheap casual clothing, garden supplies, the latest books, movies/DVDs, a birthday gift for my granddaughter, fresh towels, and my groceries in one stop, without the minimum 1 1/2 hours of driving. I still gotta take the hike to go out for dinner!

I keep hoping we'll get something else out here to compete with WalMart -- but for the 14 years I've been here WalMart's had the corner on the market - and grudgingly - my business.

Is it just me or am I seeing something ... I avoid Wal Mart, but sometimes need something bad. The past 4-5 times, I have been able to find something labelled 'Made in the USA". Ditto for the local dollar store. Even cheap stuff. It stands to reason that with rising fuel prices, hauling everything over from China will become less of a bargain, maybe it's starting to happen????

There's many reasons I don't shop at Wal-Mart anymore. They took "cheap" to a new low, that has made shopping a nightmare. Not to mention how they treat their employees and to what level they wil exploit people. I won't go unless I have to. They're re-vamping their stores here and opening another one.......none is a joyful experience unless you find getting rammed by carts and standing in line and not finding anyone to help you a good time. There's been a few stores that are so 3rd world I'm expecting a goat or something to come down the isle.

Seems to me what Wal-Mart's original idea was to "buy American". Seems when people drift from our American values.....they eventually fail.

You don't have things locked up or stacked 20 ft high to where assistance is required and not have anyone there to help you or even be able to answer basic questions. After a nightmare experience.....I sure don't want to wait 30 min. in line waiting for my escape from the place either.

I hope they sink. Honestly, I won't ever shop there again.

The kicker here is the mom and pop dollar stores are taking a piece of their action. Boo Hoo! What comes around, goes around!

Hope everyone continues to boycott.

Is it just me or am I seeing something ... I avoid Wal Mart, but sometimes need something bad. The past 4-5 times, I have been able to find something labelled 'Made in the USA". Ditto for the local dollar store. Even cheap stuff. It stands to reason that with rising fuel prices, hauling everything over from China will become less of a bargain, maybe it's starting to happen????

WHAT PISSES ME OFF IS THEY HAVE EVEN BASTARDIZED THE "MADE IN USA" TAG.

YEAH IT CAN BE MADE IN USA.....BUT BY ILLEGALS. THAT IS NOT MY IDEA OF MADE IS USA. WE NEED A NEW TAG. OR BUSINESSES SHOULD HAVE TO GET A VERIFICATION NUMBER TO USE THE MADE IN USA TAG.

LIKE THIS "MADE IN USA" 8859996. MEANING THEY HAVE VERIFIED THAT ALL OF THEIR WORKERS ARE CITIZENS. AND I DONT MEAN VISA HOLDERS. AMERICAN MADE SHOULD MEAN AMERICAN MADE.

OTHERWISE THEY SHOULD NOT BE ALLOWED TO USE THE TAG.....ESPECIALLY SINCE MOST WHO USE THE TAG HAVE THE AMERICAN FLAG AS THE LOGO. AND THEN THEY USE ILLEGALS?

It couldn't happen to a more deserving 'thing'.

With me it isn't Wal Mart employing illegals, since I think they are a drop in the bucket compared to others as far as employing them. It is the fact they, and they alone, are to blame for so much of our bad trade deals with China.

Also, they have taken good lines of clothing and caused them to become cheap, shoddy, poorly made merchandise.

I remember when White Stag was a quality line of clothing - just trash now.