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Wal-Mart Stores: Fighting Back

Oct. 12, 2017 9:28 AM ETWalmart Inc. (WMT)AMZN, NVDA12 Comments
Sherli Looi profile picture
Sherli Looi
42 Followers

Summary

  • In a world spiraling towards e-commerce which is dominated by Amazon, Wal-Mart is fighting back by reinventing itself as a technology company with physical stores.
  • Wal-Mart’s secret weapon is its Data Café: a state of the art, analytics hub which is the world's largest private cloud.
  • Wal-Mart will enjoy PE expansion if it succeeds at this transformation.

Leverage 55 years of Experience and Assets

Wal-Mart Stores (NYSE:WMT) is the world’s largest retailer with $485 billion revenue in its fiscal year 2017, $14 billion profit after tax, and an operating cash flow of $31 billion. It has over 11, 600 stores in 28 countries. In U.S. alone, it has 4,700 stores which is located within a ten-mile vicinity of 90% of the U.S. population. Effectively, this is a very powerful and cost-effective delivery network as it expands its e-commerce platform.

For the past 55 years, when Sam Walton first founded this discount store in 1962 and disrupted the entire retail industry then, it has grown in financial strength by disciplined growth, capital allocation and delivering an EDLP (Every Day Low Pricing) policy for its customers. Over the past decade, as buying habits are dramatically remolded by online e-commerce, Wal-Mart has lost market share and its revenue growth declined. But it is not dead. On the contrary, it has quietly been amassing assets to fight this inevitable battle for customers’ dollars.

Goal: Transform into a technology company

Big Data and Data Café is at the heart of this transformation. Wal-Mart now can chew and spit 40 petabytes of data, and to give its management and associates “real time” solutions to complex business problems, which in the past, would have taken weeks to compile, compute and analyze. This ability has far reaching benefits: from increased sales, more efficient inventory control, supply chain management, merchandising, efficient delivery options, and climate control and the switching of lights in the stores.

Wal-Mart is using technology both online and offline to maximize the seamless experience for its customers. For example, customers can elect to pick up their online orders at a Wal-Mart location. Instead of having to go inside the store, customers can pick up their order at

This article was written by

Sherli Looi profile picture
42 Followers
I have always been engaged in the finance world. Since graduating with a Bachelor of Commerce and Administration and a Chartered Accountancy from New Zealand, I dived into the esoteric and fast-paced world of foreign exchange trading. That successful work experience took me to Malaysia, Singapore and New York. Armed with a freshly minted MBA, I had a front row seat at the theater of the 2008 financial crisis. I remembered thinking that Alan Greenspan was so out of touch with reality when he said that the options ARMS mortgages are good things: they enabled lower income people to own their own homes. To me, these ARMs, in the lower income group, were time bombs, when they could not afford to pay the higher mortgage payments when the interest rates reset. Unfortunately many people were blind-sighted by this and together with CDS (credit default swaps) and Greed, we had the 2008 financial meltdown.Since then, I have been thoroughly enjoying my multi roles of equity trading, investment research and managing portfolios for Garrison Bradford & Associates, a well established RIA. We have been successfully managing wealth for high net worth individuals for over 40 years. Our investment philosophy is simple: invest in companies with a secular growth story. Since I enjoy writing, I sometimes share my investing ideas with Seeking Alpha. Ah! I remembered my very first article written on February 23, 2016. Oil Poised for $60. You may recall that oil was trading around $30 at that time. I received many "hate mail" which effectively say, "You are an Idiot". Haha, I admit I got the time wrong ---but oil is trading above $60 now. I bring up this article as an example of how I think - I look at the big picture as well as the company fundamentals. Thank you for reading. Have a great day!

Analyst’s Disclosure: I am/we are long WMT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (12)

P
Congratulations on a very well written and thoughtful article. They are an incredible competitor now with both training and technology to compliment their vast distribution presence and buying power. Thank you...
Wiseyou profile picture
@Sherli Looi

Thank you for an insightful analysis and a lot of very useful information about the management. Ultimately, the management and culture of a company is the most important determinant of its business model. By hiring a CEO of its digital Enterprise unit, Walmart transformed itself into a digital retail powerhouse.

I did not know that Walmart built the world’s largest data processing center and that they are now forcing all their suppliers to leave Amazon. With nearly half a trillion in sales from these suppliers, this must really be hurting Amazon’s AWS and at the same time boost Walmart’s digital enterprise revenues. It nor often one can make billions at the expense of your most vicious competitor,

I like Walmart’s innovative approach to delivery. First, the concept of providing free delivery if people order over $35 will persuade people to buy more. Second, the idea of an automated pickup system in the form of a tower in the parking lot is great. Third, the concept of providing interactive intelligent routing of deliveries for customers is brilliant.

The delivery system provide flexible and the lowest cost shipping solutions for the customers. If they live within 10 minute of a Walmart, which 90% of Americans do, many will want to just pick up without having to park. For the 10% that live further away, they can work with Walmart to figure out the best delivery route at the lowest cost. This is so much better than Amazon and Costco.

In my opinion, Walmart is Amazon’s and Costco’s real competitor. They have the size, the purchasing power, the commitment to lower prices, and the intelligence to go toe to toe with Amazon and take business away. By having nearly 5000 stores that is close to where 90% of Americans live, they have a much more efficient and flexible delivery system. They also have lower cost and therefore lower prices than Amazon.

I agree with your comments about Amazon’s purchase of Whole Food. Why did Jeff Bezos buy Whole Foods? With only 470 stores, WF does not give Amazon infrastructure they need for more efficient and lower-cost delivery of food. Amazon lowered prices on staple foods in Whole Food but I am skeptical that this would increase the revenues or earnings. Whole Foods also caters to customers who really don’t care about the price as much as they prize freshness, quality, and special foods.

With Walmart and Costco offering food at much lower cost, I don’t think that lowering prices at Whole Foods will attract customers that shop based on prices. Until they revamp their expensive delivery model, I suspect that Amazon cannot compete on price alone. Costco’s Instacart and GoGrovery cannot compete with Walmart’s powerful computer algorithms.

I recently went shopping at Walmart to see how the food section of their stores are now organized. I bought about 12 items and was pleased to find that the total amount that I paid was less than $20. I used a self-checkout counter and was out of the store in 15 minutes. In terms of convenience and pricing, Walmart cannot be beat.

Finally, I am glad the Walmart is investing in academies to train their store managers. The managers will be the future of the company. They are the ones that have interact with the neural network and be technologically empowered to manipulate and understand the massive data flowing through the system for their decisions.
c
I added WMT shares in late 2015 to my dividend portfolio and I think that their business, at those discounted prices, will provide a solid return over the coming decades. They're like McDonalds, every now and then they get into a rut and need to reinvent and realign themselves with what their customers want. Looks like they pulled it off this time. However, this isn't a business that I consider to be a generational holding, because their competitive moat is not very big or very deep, and the general opinion of WalMart is still very poor due to store issues and their rather eclectic customer base.
Hillbilly Stock Star profile picture
I bought $WMT my bet is higher in 12-18 months! Long.
ajny profile picture
ajny
13 Oct. 2017
You nailed it.
v
Hey Wolfman 105, I knew someone was missing at WMT but I didn't realize it was you. To be truly relevant, as an investment, IMO a company should throw off some dividends & growth. I will admit AMZ has the growth thing down pat. But do you really believe they will continue that 40% growth rate, especially with the Wolf ( I meant WMT) knocking at the door. My wife started her position at $50.11. I got started a bit later. VMG - Long WMT,
GoLongWithMe profile picture
Long WMT. Glad I got in earlier this year at $69
timcos profile picture
I am a online Walmart shopper I noticed the improvement in delivery times several months ago. local store pickup and home delivery was disappointed years past but not anymore great improvement! I dipped my toe in and brought some shares last week at 79 very happy now.
w
poor walmart..attempting to be amazon. i dont shop walmart..because well it's walmart.
L
i think the article's point is WM is a discount store focused on brick and mortar but expanding into e commerce at a rapid rate. Will its customers prefer its e commerce over Amazon? My guess is yes.
s
BUT Walmart has targeted 40 billion in share buy backs . That shows they have little interest in
pouring money into growing the company by expansion or inovation. Walmart is a discount store. It is a Sunday outing for many families in America , mom & pop can shop and the kids can
run around. Walmart doesn't need drones or UPS types to ship purchases , buyers show up in
their own vehicles. Walmart just needs to squeeze their suppliers a bit more.
NYC1965 profile picture
I suggest that you look at how much of AMZN is actual e commerce, not as a filler for others or the cloud (AWS)which they do very well. Then look at how WMT is ramping up with JET.
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