Wal-Mart (WMT) has been working hard to counter its widespread reputation as an environmentally destructive business that exploits its labor force. In doing so, I believe that it is building up expenses for itself, because taking care of the environment and the community can cost money. On the flip side, if it fails to actually fulfill its promise, the company risks losing customers around the world. In this way, I expect to see the stock dip down in the near future, and only if the company has adjusted to its new ethical procedures can rise back up as strong as ever, in my opinion. For investors, this means that a window of opportunity is coming up to get into this stock, if they are willing to take the risk that it might never return to its former glory.
Recently, Wal-Mart teamed up with United States Secretary of State Hillary Clinton to launch a program aimed at getting Latin American women involved in their own entrepreneurial enterprises. The company is putting $12 million into the program, which could greatly improve its overall image among those who do not analyze the program too closely for flaws. I think that this is a smart move on the part of the company, which can easily afford to give away that much money. Thus, it is hardly a loss to the bottom line, and it will help draw in the many people who have avoided the store in the past due to unfavorable reports about its practices. However, I doubt that it will be enough on its own to fully counteract the negative impression the company has created for itself.
Meanwhile, Wal-Mart is also trying to clean up the way it is perceived in terms of the environment. For the past seven years, the company has been trying to work its way toward a sustainability program, including various environmental groups and organizations in the process. Although this strategy is arguably winning over some hearts, many still believe that the push for more and faster consumption and purchasing of products that Wal-Mart stands for is really incompatible with any sort of sustainability. At the end of the day, I believe that enough consumers will continue or begin to shop at Wal-Mart that the stock will remain competitive for a while, but its long-term viability will depend on whether or not it can prove that it is truly changing its ways.
The company has been making an effort to expand its hold on the international market as well. Although Wal-Mart already dominates the market around the world, it has been struggling to take over China. The people in charge may have come up with a plan to bring in new management and a new online advertising campaign that the company hopes will boost its profitability in that country, in spite of the poverty of most of the population. While this effort might make sense to some investors, I wonder if it is not time for the company to pull out of that region entirely, instead of wasting time and money banging its head against a wall.
It might do well to learn from the example of Target (TGT) and its pop-up store model. This strategy entails setting up shop in a temporary location while the market is hot, and then dismantling that store and moving on to another hot spot. However, even with the success it has accrued from the pop-up model, this store is having problems of its own as it also tries to move into new international markets. Target is spreading into Canada, but not without a few hiccups. The federal government might not accept its standard products as meeting the country's standard for Canadian content. Additionally, Wal-Mart is poised to prevent Target from encroaching on "its" territory by pushing down prices.
I think that this battle is going to be detrimental to both companies, and investors should beware. While Wal-Mart's offensive might very well keep people out of Target stores when it opens in Canada next spring, I believe that this is going to create a difficult situation for Wal-Mart itself as well. The only way that it can realistically slash prices even further is by cutting costs elsewhere, in all likelihood. Many already skeptical consumers will realize this fact, which will drive them away from the store, since they will not want to be complicit in reduced wages for sweatshop workers, as they are likely to perceive it.
In my opinion, the consumers lost by Wal-Mart are likely to flock to competitors like Family Dollar (FDO) and Costco (COST). Reports on Family Dollar's expansion are favorable throughout the media, and new openings are met with approval, such as the upcoming addition of a store to St. George, Utah. Instead of the skepticism and criticism that often accompanies a Wal-Mart opening, this store seems to be raising hopes for new jobs in the area. This makes Family Dollar a more likely option for investors in the retail industry, in my opinion, since it has not yet made people angry in the same way as some of its competitors.
Costco has not been so lucky, with some of its expansion efforts being greeted by unhappy citizens and residents of areas directly affected by its actions. This was the case for a Costco gas station in Wheaton, Washington, where residents and politicians have been fighting it for two years, due to its proximity to homes and the health concerns that this location entails. Meanwhile, the company is entering a court case brought against it by a family who lost a relative after he choked to death on a steak sample at a Costco outlet. Although the verdict could swing either way, the very fact of the case itself could leave a blemish on Costco's reputation. Thus, I would advise investors to wait this one out to see how it ends. If it ends badly, my suggestion would be to take one of two paths: either hold on until the incident is forgotten and Costco possibly revives itself, or consider selling as soon as the price starts to dip.
Wal-Mart has made a lot of mistakes since the beginning, and I feel that its reign may be slowly coming to an end. With fewer positive opinions being expressed about the company in general, I believe that competitors will make better investments at the moment. Costco and Target are not the best choices, though, according to my analysis, since they have their own struggles. Conversely, Family Dollar could be well worth considering.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.