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Thursday, February 25, 2016

Walmart's Reign As "King of Retail" In Jeopardy

There was a time when I would have thought, hey, Walmart is an unstoppable force. A company that could only go up in value, and that would continue to be the price leader in the retail sector. But what I am thinking now about Walmart is that since Sam Walton died, I think he took his company to the grave with him, and while the company has still grown considerably following his loss, the company now faces a plethora of challenges ahead, and same store sales are abysmal compared to years past.

The truth is that it seems to me that Walmart is failing in every way possible, and I think that makes Walmart not only go down in value eventually, I think it leaves open every single possibility for competing retailers to pick up the slack. And there's a ton of slack to pick up mind you. It's almost as if Walmart thinks its brand is too strong to fail.

I think they're dead wrong.

Besides the fact that most Walmart stores are cluttered and dirty, there is the issue of customer service which is seriously lacking. But rather than place the blame entirely on the employees, I think a large part of the blame should be directed at management. It's no secret that Walmart employees are not necessarily treated well. When it comes to cost cutting, the first order of business is to sock it to employees. Hours are cut, benefits are cut or non-existent, and while Walmart still enjoys nice margins and is still one of the largest—if not the largest—employer in the United States, employee wages are just slightly above the minimum wage.

Normally I don't complain about wages. You get what you earn and companies pay what they feel an employee is worth to the value and profitability of the business. But in a world where the focus has shifted from manufacturing to retail and service sector jobs, with Walmart being the leader in retail, I think that Walmart could have done a lot to prove the point that we could actually move into this kind of an economy and actually survive. But that has not happened. And I'm not sure it's entirely for lack of ability to do so.

I can find no reason why Walmart, being that is the largest employer in the country, could not have found a way to make its business model a powerhouse and take care of its employees as well with liveable wages, strong 401k plans, health benefits, and other fringe benefits similar to what manufacturing jobs may have offered.

And no, I am not suggesting that Walmart should have unionized, or that it needed to follow the path of unionized manufacturing. We see what happened with that.

But one thing that stands true for me is that when you are a company that relies, in large part, on the customer experience, the front line handing over that experience are the people who work in the stores. Friendly faces and helpful presence, and of course happy employees are going to work harder every day to keep the customers, a retailer's and retail employees' bread and butter, as happy and satisfied as possible. With Walmart's current—and really it has never actually been good mind you—state of employee relations, there are a good many employees who are simply punching the clock, collecting their paycheck, and going home. It's a job. There is no connection with the company's needs, and there is no connection with the consumer's needs either. And that's a huge problem.

The bottom line is that if you are a Target, a Dollar Tree, hell even a Kmart for that matter, all they need to do is examine where Walmart is going wrong, and close the gaps. If they do that customers will flock to their stores and Walmart will get trounced. What's more, a small and emerging company would be well positioned to take the reigns—although certainly a smaller company will have difficulty being price competitive.

But speaking about price, fortunately Walmart is making it easier these days for customers to try other places to shop because for a guy like me who knows what things cost, Walmart is no longer the price leader, and more and more items I buy wind up in other store's carts than in Walmart's. Whenever I step into a competitor's store it is their opportunity to win me over on other benefits like customer service. And in some instances, on some items, I may actually also be willing to pay a slight premium for that.

What's more, one day the economy will get better. In fact, I actually believe that we are on the cusp of something big in terms of jobs and median income, especially considering the jobs market has been so bad over the last 30 or so years. Employees are getting restless, that is unquestionable, and I don't think the status quo will be able to remain much longer. Companies are going to have to change their employee relations, and as the jobs market heats up not only is a company like Walmart going to have to ramp up their customer experience, they are going to have to ramp up their employee relations in order to find and retain a workforce that helps them achieve their goals.

Long and short for me here is two-fold. I don't like the future prospects for Walmart as a company and therefore I see no reason to own stock in them. As well, I can find many reasons to also avoid shopping in their stores.



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