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3 O'Clock High: WalMart Q & A


I'm afraid to shop at WalMart and I'm 600lbs with great big claws!

An atypically cheery Minyan Kneel! Writes:

"Just got through your 'Lending Aid to WalMart' article.

Now my question, let's assume WalMart (WMT) hired you to do the thing you did very well. Let's assume you presented your report to WMT management, albeit a little more professionally. Would a company like WMT (by that I mean, a major retailer) actually listen to your advice, much less act on it? What typically happens in that type of situation?"


Good questions, as usual.

The well-grooved path stumbling giants follow is this:

  1. Pretend the problem doesn't exist.
  2. Listen to the CEO's proposed solutions, logical or not. "That's why we hired him, to make decisions like [insert Doomed Turnaround/ Growth Strategy Here]
  3. Wait for the problem to become acute (a sharp stock drop usually gets everyone's attention best)
  4. Fire the current CEO... which buys the BOD enough time to work their way, collectively, back to step 1.

Now, there are very good reasons for companies to fall into this rut. Boards don't let flailing CEO's survive for all the cynical, Old Boy's Club reasons so often given these days. Boards let CEO's have some rope on these things because the cost of flipping management is high. It introduces acute threats into a situation where it seems plausible that not even a chronic threat exists.

Whatever the WalMart BOD may think of Lee Scott and the job he is doing, there hasn't been an enormous catalyst to make replacing him a priority. Yet. Until the company starts missing numbers in a big way and/or the stock implodes, rather than grinding lowerish, the board is going to be inclined to keep Scott around as CEO.

There's a related but much greater pressure on Scott himself, which makes the prospects of WalMart righting the ship under his tenure an even bigger longshot. Scott would, in effect, have to tell his team that he's been leading them down the wrong path and directly into their greatest threat.

He needs to walk in and say something along the lines of "Folks, I've spent the last month touring stores all over this country. What I have seen leaves me concerned for us, not just as a business or a stock... this a threat to our standing as our proud merchant to the folks who do the real work of this country. We've been too focused on saving a buck. We've been spending too much time and money trying appease 'Wall Street analysts' [sneer] on a quarterly basis. We've forgotten how to respect ourselves and our customers. We haven't been the kind of organization we want to be and we haven't returned all of the trust our customers have given us through the years.

"We have been wrong and I take full responsibility for that fact. Well... it changes today. We shall take whatever pain this decision causes us in the short term because it is the right thing to do. We will restore America's belief in this company by once again earning that trust on a day to day basis, right out there in our stores."

Now... the last leader to pull off an about face of this magnitude was Richard the Lion Heart during the Crusades prior to the one we have going now (relax, I voted for W twice). As it stands now, if Mr. Scott went to his company and told them he was going to stop throwing up stores for a couple years and start putting money into the stores they have the reaction would be concern for the effect on the stock. It would be an admission of failure on Scott's part and, I'm willing to guess, he has enough faith in the grocery and trendy fashion ideas to stick with them until the grizzly end.

Eventually, I think the folks running WalMart will understand that they have a problem running beyond "spin control". When they do, they'll most likely hire a replacement. The advantage the new guy will have over Lee is that he'll get some relief from Wall Street, in terms of hitting EPS targets for a couple years.

As it is with all problems involving under spending too little on infrastructure, it will cost much more to fix with every passing month. It's a slow-bleed which, as usual, is leading to band-aid solutions.

Minyan Lynch "Mob" writes:

You hit the bullseye on your WalMart piece. While I shop there for cheap pharma items, the store reminds me of Kmart (SHLD) in the 80's. Pathetic.

"Kmart in the 80's"?!

And people say I'm harsh.
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