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Lending Aid to Wal-Mart


Don't Shoot the Messenger, Lee. Please.

To: H. Lee Scott
CEO WalMart (WMT) Inc.

From: Jeffmacke
West Coast Editor of Minyanville
Occasional Short-Seller
Former Retail Industry Consultant
Helping Helper
H. Lee Scott's new best friend

Dear Lee,

As the result of an unpleasant epiphany last week, I've been forced to change my formerly "Black & White", "Right & Wrong", "ME & otherpeople" way of characterizing the world. I'm now adopting a policy of karmic balance in my public musings; giving out Hugs with the Slugs. Warm Fuzzies to go with the all the Cold Pricklies I dish out so freely.

I'm new to this, Lee. I still forget the Fuzzy part and sometimes even my most earnest plans to be more gentle in my phrasing go horribly wrong. It's like I'm Lenny in Of Mice and Men, Lee. I start playing with the cute little puppies and, BOOM, next thing I know I've clumsily snapped their necks, one by one, and the lynch mobs are after me and George all over again.

But maybe you aren't a "book" person. Regardless, what I'm saying is this, whether you know me or not, I've been less than generous with my views on the state of Wal-Mart and your managerial efforts.

Why, even non-readin' types have been exposed to my abuse of your once-proud company. Just last week on free, basic cable television, I called Wal-Mart "the retail version of Mike Tyson in 1998." I said every retailer on earth should be begging to fight you at this point. I said Wal-Mart was a shell of its former self, getting openly punked by chains who would once have been terrified to operate anywhere near a WalMart market.

To be frank, I didn't mean it in a nice way.

Live For the Now

Water under the bridge, my man. I said we were friends and now I'm going to prove it by telling you two things you need to hear:

1. You are a dead exec walking.

You're going to get whacked, in an executive sense, and it's going to happen sooner rather than later. You took the reins of Wal-Mart on January 12, 2000. You've made an average salary of $22.7 Million per year since 2003. You took in $17.5 Million for 2005 and, I gotta be honest, you didn't exactly have a great year.

But it's not the money that's going to get you whacked, Lee. Sam Walton (a name I'm guessing you grow rather tired of hearing) became a tremendously wealthy man without ever becoming loathed. But Sam was fun and the company was doing well, making the shareholders rich along with him.

Here's how Wal-Mart (in black) has done since you took over, compared to the S&P 500 (in gold) since January 12 of 2000:

You're down nearly 30% compared to a drop of 10% for the S&P. A harsher man than I, the one I have recently become, might suggest that you've been grinding up shareholders the way Starbucks (SBX) grinds beans.

The current initiatives aren't going to save you. You have the company fighting for share in grocery and electronics even as you expand into "fashion apparel" for teens, where Target (TGT) has been crushing WalMart for years. You think grocery is a victory because you are driving revenues but those revenues are low margin. The apparel idea started poorly and is in turnaround mode less than a year after launch (which came shortly after the back to school season).

Did I mention the scandals during your tenure? Let's not even go into those, partner.

Let's just leave it at this: You don't have enough Wins to offset your Defeats and it's going to get you fired.

2. The One Thing you can do: Grab a mop.

You need to start cleaning your stores.

Your problem is as obvious as the potholes in your lots, the broken fixtures in your aisles and rips in your clerk's dirty jeans: you don't respect your customers.

You think they'll buy anything you throw in your stores, as long as it's cheap. You think "Wanting the lowest price" means a person is willing to humiliate themselves by searching an enormous, filthy store for a quart of milk to save a nickel. You think it means shoppers will blithely load-up on tee shirts because they cost 50-cents per than not do the math when the shirts disintegrate after one wash.

Lee, it just doesn't look right when a guy making $22 million per runs a place that treats people like that. It feels like a con. Frankly, you make it worse when you treat the rotting store base as a PR problem. I don't care what kind of press coverage you thought you got from the hyped debut of WalMart sushi ("Look, heyseeds, we're all fancy-like!"). From where I'm sitting I felt like I needed a tetanus shot without even being in the store, such was my revulsion at the idea.

I'm not alone on that reaction, partner. I just care enough to tell you the truth.

Honestly, I'm not sure if you can save yourself by ditching the headless chicken strategy and spending money on the store base. The first reaction of your analysts would almost certainly be negative as it would seem to sacrifice WalMart's once-legendary growth rate. Look at your same store sales, your single digit top-line growth and your profitless land-grab in the grocery space. You don't run a growth company, brother, and people who tell you otherwise are selling you something. You're fiddling with stretching EPS numbers while your physical plants burn.

Like I said, it may be too late to save your tenure. All I can tell you this, I'm pretty confident about #2 and I consider #1 to be an absolutely certainty. Think of your position as that of Bob Dole in the 1996 election; you have almost no real chance of winning. You need to do something dramatic, something visionary. Truthfully, you'll probably still lose but at least you'll go down swinging, rather than mouthing the same old blather about watching out for dropping prices (and pickpockets and crumbling shelving).

I'm not short your stock and not looking for a place to take a bet on your ouster. I'm just a buddy, telling a new pal the straight skinny.

Take it how you will, I think I've done my part. It's the gift of Truth from a guy who used to able to bill Top-Dollar for that kind of thing. Not $22 Million or anything, Lee, but still, it's gotta be worth something.

For me, it's worth my freedom to resume ladling out the abuse and buying the stocks of your competitors. I'll stop when I'm no longer afraid to send my wife and kids into your stores without me.

Your Pal,

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No positions in stocks mentioned.

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