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Davidowitz: This Is What’s Wrong With Wal-Mart

Daily Ticker

Wal-Mart is just too darn big!

You've heard that line before from Wal-Mart opponents who say the superstores threaten the livelihoods of local mom and pop shops around the country, which can't compete with the megachain's rock-bottom prices.

There is no dispute that Wal-Mart is the world's largest retailer. The company operates 4,300 U.S. stores and more than 4,000 stores globally in 15 different markets. Last year alone the company posted $405 billion in sales.

Retail expert and The Daily Ticker regular, Howard Davidowitz of Davidowitz & Associates, calls Wal-Mart a "retail miracle" and one of the greatest American success stories. However, he agrees that the company has gotten too large. What's key is that his reasoning is a bit different: The company has grown too big for its own financial good.

"Wal-Mart's increase in sales in an average year is more than the whole ... Macy's [sales figure]," he tells Henry with amazement in this interview. "[But] they're down [comparable] store-sales seven straight quarters, and the stock has done nothing for a decade."

So, what's wrong with Wal-Mart?

The company has made a number of huge financial mistakes because it has lost touch with its customers, Davidowitz says. The company is trying to be something that it's not by remodeling stores, upgrading apparel, reducing assortments, as well as allowing other low-cost retailers to offer better prices.

Its customers aren't looking for luxury. Most just need to the basics, even on the apparel side, he says.

The fundamental reason Wal-Mart and its shoppers have grown apart is largely due to the centralization of management in Bentonville, Ark., where the company is based. "There is a fundamental problem about centralization when you get to a certain size," says Davidowitz. "What they've got to do is look to decentralize the business."

But there is hope. If Wal-Mart can regionalize the management of its stores and reconnect with its customers, Davidowitz strongly believes the company can boost U.S. sales again and give new life to its stock price.

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