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3 O'Clock High: Can Wal-Mart Learn New Tricks?


"It's Wal-Mart's world; other retailers are just shopping in it."


It's impossible to even begin sizing up the retail holiday season without taking the pulse of Wal-Mart (WMT). The company does nearly $1-Billion per day in sales. The stock has a market cap of $200-Billion and constitutes nearly 20% of the Retail Hldrs Trust (RTH) index. By comparison, Target (TGT) does less than 1/6th of Wal-Mart's sales and has one-quarter of Wal-Mart's market cap.

There's a very good reason Wal-Mart gets so much press; in terms of relative size, Wal-Mart is King Kong sharing a cage with Bubbles.

With the traditionally press-shy Wal-Mart now crying out they "want to get to know the media" let's meet them half-way by reviewing the company, the stock and see if we can't come to some (rash and unfair) conclusions about them for ourselves.

We'll focus on background and Wal-Mart's initiatives today, reserving our blurry look into the company's future for Tuesday.

The Primer

I've taken up plenty of Internet with previous Wal-Mart writings. For those who are catching up, and as another step towards my long-standing goal of writing a whole column with nothing but links to prior works, let's review:

  • Misery Loves Company, from November 30, 2004, examines Wal-Mart's public vow to cut prices to rock bottom in the wake of weak '04 post-Thanksgiving sales.
  • Is the Street Confused or Simply Unimpressed? from February of '05 runs through some comparable stock multiples and explores the long-term challenge to create margins at Wal-Mart. It also illustrates some of Wal-Mart's early efforts in communication.
  • A Minyanville Mailbag regarding Wal-Mart's media woes before Wal-Mart's recent efforts to take the reins of public opinion.

Where they are now?

After spending years in a PR posture resembling a punching bag, Wal-Mart began striking back this year.

Judging by some leaked internal memos, the company is working with McKinsey Consultants and possibly others to help shape company policy in the context of societal pressures. Said another way, the company finally recognized that the pressures from increasingly savvy "grass-roots" protestors was crimping their growth and Wal-Mart thought it politically (and financially) expedient to take their message to the masses.

Towards that end the company held a forum (with real economists!) to discuss the economic implications of Wal-Mart's growth. Of course, Wal-Mart knows the economic impact when they enter a community: the smaller retailers get crushed, people who work behind the scenes at retailers in the area get lower wages and prices drop.

It's an utterrly disingenuous conversation inasmuch as everyone knows the above effects. Indeed, the general conclusions emerging from the conference were little more than common sense with some numbers added.

Of course, intellectual curiousity wasn't Wal-Marts goal (if I may be so cynical). The company instead had the desires to a) appear concerned b) take control of the tone of the debate in the media c) Drown out the coverage of "Wal-Mart: The High Cost of Low Price", a would be "Roger and Me"-esque depiction of a corporate Goliath.

Wal-Mart arguing that they are in favor of higher wages is akin to Nike arguing that they want to pay shoe workers more: it sounds good but it flies directly in the face of their actual business model.

Wal-Mart knows the impact they have on communities because that impact is exactly what the company does well and has been doing for years. It's exactly how they got this big in the first place.

Of course, the question around here isn't so much purity of motive as it is whether or not Wal-Mart can sell it and, presumably, drive the stock. For Wal-Mart investors, who have been sitting on dead money since the dawn of the current century, it's a question that is being asked more loudly all the time.

We'll take a look at whether or not I think Wal-Mart is finally going to break out of the Big Grind tomorrow!

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No positions in stocks mentioned.

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