Yahoo: Walmart’s Fall
3 Signs Walmart’s Best Days Are Behind It
Walmart (WMT) bills itself as a company that sells goods at the lowest prices but the empire was really built on controlling costs.
Founder Sam Walton built massive, inexpensively constructed stores in rural areas where the land was cheap. To fill those stores he bought from vendors in bulk quantities, demanding that they give him discounts. The vendors were happy to comply because they knew Walton would come back with more huge orders.
With the money Walton saved by wringing the costs out of the system he was able to charge customers less. The customers were happy to drive a little farther to get the better deals. “Mom and Pop” local small town merchants may be romanticized but the truth is everyone wants to a bargain and Walmart had better prices.
With this formula Walmart has grown beyond anyone’s wildest dreams. In 51 years Walmart has grown into the greatest force in retail the world has ever known. Last year the company had revenues of $470 billion. That works out to $1.3 billion every day. In the time it will takes to watch the attached clip, Walmart will book more than $150 million in sales.
Walmart now employs more than 2 million people, by far the most of any company and behind only the U.S. Department of Defense, the Chinese Army, and China’s state owned railway system.
Not all of those employees are happy. Walmart has been dogged by charges of unfair labor practices for years. The tales of alleged abuse are legendary including multiple charges of locking employees in the stores overnight to clean. In some cases those workers have proven to be illegal immigrants.
As the company has grown so has resentment. The vendors who once so happily accepted Walton’s huge orders now complain that the company has monopoly-like power over them. Small town residents love the low prices but local merchants have been put out of work.
Some of the allegations are fair and others are simply backlash against the company’s success. Either way growth has slowed to a crawl and international expansion efforts are meeting stiff resistance.
Like every empire to come before it, Walmart (WMT) is beginning to rot from the inside out. It may appear to be rolling but under the surface the Walmart empire is in rapid decline.
Here are three of the dozens of headwinds the company is facing:
1. The stores are a mess
The average Walmart store takes up more than four acres of land. The Walmart protest website MakingChangeatWalmart.org says the company’s Supercenter stores occupy 20 to 30 acres of land, including the parking lot.
Retail is a game of endless upkeep. Clothing racks, bathrooms, produce sections and an endless number pegs holding things like batteries and socks all require constant attention. Even with an unlimited budget for maintenance keeping a store the size of four football fields would be a challenge.
Walmart’s dedication to cost control often comes at the expense of basic upkeep. Store managers, forced to keep expenses at a minimum per Walmart tradition occasionally go rogue and get lax on hiring and labor practices in the name of saving a few bucks.
Walmart has a well-earned reputation for being rundown with poor displays and empty, mislabeled shelves. Dirty stores are an insult to customers. Sloppy shelves imply a fundamental lack of respect.
When the only competition was a hodgepodge of inefficient local stores with much higher prices, customers were willing to suffer a little abuse. Now that companies like Family Dollar (FDO) have closed the price gap it’s becoming apparent that shoppers prefer to spend their money in tidier, less confusing places when given the choice.
Brian Sozzi of Belus Capital Advisors says it’s going to be all but impossible for Walmart to revamp the stores on the fly. “It takes 10 days to update a Family Dollar,” Sozzi notes. “To update a Walmart it can take months.”
2. The Walmart business model doesn’t translate
Reuters is reporting that Walmart might make a bid for Chinese grocer ParknShop. If they do, they would finally get a foothold into China. International growth has been one of Walmart’s biggest challenges.
With the U.S. market largely saturated, Walmart has occasionally resorted to underhanded methods to achieve international growth. Last year The New York Times ran a series of articles detailing bribery attempts by Walmart in Mexico and their plans to build stores on ancient ruins.
Perhaps because they’re outsiders, Walmart’s labor practices are, if anything, even more harshly criticized abroad than in the U.S. “I think they’ve created a whole bunch of militants,” says Sozzi. “A militant workforce rising against Walmart because of their low wages, because of the way they treat people.”
3. Big cities aren’t welcoming
The rap on Walmart is that the chain grew at the expense of mom and pop stores throughout the country. The reputation haunts the company as it tries to scale down its stores and expand into urban areas.
Taking a stand against Goliath is a time-honored political strategy, and local protestors have effectively stymied Walmart’s efforts to scale down its stores and move into big cities.
Current Boston mayor Thomas Menino goes so far as to refuse to allow Walmart to donate to a program providing summer jobs for kids, accusing the company of trying to buy its way into town to exploit workers. “Walmart should settle some of the social issues they have to deal with first before they come to our city and throw money around like sewer covers,” Menino declared in 2011.
“The average Boston consumer has access to 30% less supermarkets, and Walmart can’t even get in there,” Sozzi points out. “They can’t get access to Walmart which offers 20% lower prices.”
Regardless of the economics, Walmart protests aren’t going to go away, calling into question whether expanding into urban areas is even worth the effort.