Hoping to put several years of controversy behind it Walmart (WMT) recently announced the appointment of 47-year old former head of international operations Doug McMillon to to the role of company CEO. Despite having worked for Walmart his entire adult life, McMillon’s relative youth and energy are being seen by some as evidence that the world’s largest retailer is trying to shake off some of the torpor that’s made the company synonymous with faceless, slow-moving, corporate America.
The truth is McMillon has bigger concerns than Walmart’s image. There’s ample evidence the company’s become a rotting shell of its former self. Where once stood a devastatingly efficient retail machine, there is now a rapidly aging corporate empire being brought down by internal rot and external attacks from scores of hungrier, more nimble competitors.
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According to Brain Sozzi of Belus Capital Advisors, Walmart is in a fight for its very existence. Unless McMillon is able to make drastic strategic and cultural changes, Walmart as we know it will be a thing of the past in the next 15 years. If that seems impossible, consider that Sears (SHLD) was the country’s top merchant from 1950 until 1988. Today Sears is the 41st largest retailer by revenue and was recently named the 7th worst company to work for in the U.S.
Fortunately for Doug McMillon, Walmart’s 25-year run at the top doesn’t have to end anytime soon. In the attached clip Sozzi names three things Walmart can do to save it from Sears’ ignominious fate.
1. Start Closing Stores
According to the Walmart protest group MakingChangeatWalmart.org, the company’s Supercenters are large enough to contain four entire football fields and occupy 20 to 30 acres of land including the parking lot. The sheer enormity makes visiting a Walmart a baffling ordeal for customers who can often be found roaming the aisles in desperate search of the items on their shopping list.
Walmart may still be pulling in more than a billion dollars a day in revenue, but that’s masking the fact that five-acre stores are ill-suited to American’s becoming ever more accustomed to immediate shopping gratification. When Walmart legitimately offered the lowest prices on virtually any good it made sense to have more than 600,000,000 square feet of selling space in the US. Those days are gone.
Sozzi thinks Walmart’s first step should be closing the 300 U.S. locations producing negative sales growth of 5 - 7%. Conceding that closing 300 stores isn’t going to happen, Sozzi suggests McMillon close 50 stores “as a show of good faith to Wall Street.”
2. Become America’s Grocer
To make up for lost revenue from closing non-performing traditional stores, Sozzi recommends a more aggressive roll-out of something Walmart is doing already. “The next area of Walmart is what they call the neighborhood market concept. They need to be thinking ‘how do I put Safeway (SWY) out of business? How do I put Kroger (KR) out of business? How do I put Target (TGT) out of business?’ That’s their next growth area. That’s what they need to do (instead of) rolling out more shrines to retail.”
For the record, Walmart is already doing a pretty good job killing the supermarket industry. According to a study by the government’s Capacity Building Initiative, the total U.S. grocery industry was over $1 trillion in 2009, $557 billion of which consisting of supermarket sales. Of that total Walmart had a 38% share.
Regardless of that already massive share, the grocery industry overall is slow-growth and inefficient. Not at all unlike the mom-and-pop stores Walmart so effectively rolled-up on its way to becoming the largest company in the world by revenue.
3. “Show some love to employees”
Sozzi’s last suggestion is the most difficult but potentially the most rewarding. “2013 has been the year of the employees coming back to Walmart and saying ‘you’re not treating us right’... if you work in Walmart but still have to use food stamps, something's wrong.”
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Here’s the biggest challenge facing McMillon. With 2.2 million workers, Walmart is the third largest employer in the world. The only institutions with more employees are the U.S. Department of Defense and the People’s Liberation Army of China. More than 1% of all working Americans have jobs at Walmart.
That size makes Walmart an easy scapegoat for everything wrong with the employment situation in America. It also makes it easy to ignore the amazingly progressive things Walmart is doing on behalf of American workers. In the last year Walmart has paid $8 billion in taxes and has 1.4 million Americans on its payrolls. The company offers benefits to same-sex partners in all 50 states, no questions asked despite only 16 states recognizing gay marriage. In terms of upward mobility and opportunity, the new CEO himself started at the the company by working on the shipping docks as a summer employee.
None of that matters because it’s easier to blame Walmart for being evil than it is to pay attention to what really ails America. Walmart isn’t a charitable organization. It’s never claimed to be. Whether or not paying more to workers would do anything to improve Walmart’s reputation, or for that matter, really make workers lives better on a net basis, is very much open to debate. Regardless, Sozzi says the company needs to try.
“You’d be surprised if you give a worker an extra dollar or two dollars an hour it will solve some of the problems you’re starting to see in the stores,” Sozzi claims. “Suddenly you have a Walmart employee emotionally connected to the brand and driving better operations, instead of picketing outside the store.”
Maybe. What’s undeniable is that Walmart has problems and injecting fresh blood into the corner office barely scratches the surface. It may not be apparent now, or become clear next week, but Walmart can and will fail just like Sears and every other corporate empire to come before it. Doug McMillon has a chance to delay the threat if not reverse the trend entirely. The question is whether or not he realizes just how troubled his empire is.
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