I recently sent this letter to Lee Scott, CEO of Wal-Mart. This is a modification of that letter.
I've been a shareholder of Wal-Mart since the 1980's. For most of that time, it was an excellent investment decision.
However, as the chart below shows, since 2000, holding Wal-Mart has been a bad investment decision
(Click for Chart).
Mr. Scott, I'm tired of the excuses, the whining about our customers being financially debilitated by rising gas prices, aboout our profits being hurt by rising health care costs and the like. Are Target's customers so much more affluent than Wal-Mart's that they shrug off rising gasoline prices and other increasing household expenses and just keep buying? I don't think that is likely. Yet Target's comparable store sales continue to rise, while Wal-Mart struggles to post small positive growth.
The harsh truth is that Wal-Mart has lost its way.
Wal-Mart has issues in fundamental operating standards. There is a Wal-Mart and a Target near my home here in PA, as there were in Leesburg, VA where I recently moved from. I've So, I have current experience with two competitive pairs.
The differences are painfully obvious. I park at the local Wal-Mart, dodge the chewing gum build-up on the parking lot on my way to the front door where I'm met at the front door by overflowing garbage cans. When I make my way to the check out, I'm invariably confronted by long lines and indifferent checkout associates.
At Target, the parking lots are clean, the store is better lit, the aisles seem wider and clearer, and they either have more checkouts open or a better way of managing, because the lines are never as long.
Sam's Club vs. Costco is more of the same. The products are basically identical - the stores are laid out largely the same way, and the prices seem the same to me. But, again, Sam's has concluded that it is OK to make me wait in a slower-moving line than Costco management believes is the appropriate way to treat a customer.
These operational problems are being compounded with an obsession with unit growth. While it appears that you are finally slowing down new U.S. openings, I think that you should freeze them altogether for at least a year. Take that capital and employ it in remodeling and updating those tired and rundown stores. There is plenty of unit growth available in China, where you don't have to waste resources on battling zoning boards and anti-growth city councils.
Let's summarize: clean 'em up, paint 'em up, fix 'em up, staff 'em up. No more whining.
That concluded the letter.
While it's hard to understand how Wal-Mart got this far off course, they still dwarf everyone else, and to achieve 3% comparable store sales requires delivering an $9 billion increase. Said differently, growing 3% requires adding enough revenue that the increase would rank about 265 or so on the Fortune 500.
However, I'm still skeptical of K-Mart and Sears resurrection - I would think that Wal-Mart could peel a billion or two from that. And, despite the hoopla, it doesn't look like Macy's is exactly taking share from anyone - so another place to go grab some growth.
Finally, Lee Scott has got to be as tired of watching Target grow faster than his business....