Consider this: For Wal-Mart’s annual revenue to grow by just 1 percent, the retailer would need to add the revenue of a Fortune 500 company.
The Bentonville retailer was No. 1 on the Fortune 500 list with revenue of $485.7 billion for the fiscal year that ended Jan. 31.
That was up 2 percent from the previous year.
But some retail watchers wonder whether Wal-Mart’s massive size has made it too big to manage.
Earlier this month, Wal-Mart laid off 450 workers from its home office.
It then warned the investment community on Oct. 14 that its earning per share could fall 6 to 12 percent in the next fiscal year, which will start in February. The earnings announcement sent shock waves through Wall Street. Wal-Mart’s stock price tumbled 10 percent that day and closed at $60.03. The price was $58.64 at the end of the day on Oct. 21.
“Wal-Mart is a total mess,” said Howard Davidowitz, chairman of Davidowitz & Associates Inc., a national retail consulting and investment banking firm in New York. “This company is too big to manage.”
Davidowitz said Wal-Mart’s management problems are not new. He pointed to the company’s foot-dragging before focusing on online sales. Now the retailer is spending billions to catch up with the online sales leader, Amazon. But it’s also behind in online sales to Apple, according to the Top 500 Guide from Internet Retailer, an online trade magazine that covers the e-commerce industry.
Wal-Mart’s 180,000-SF Supercenter model also is generating criticism from retail experts.
Supercenters have become “passé,” said Rajiv Lal, an author of “Retail Revolution” and the Stanley Roth Sr. Professor of Retailing at Harvard Business School.
“The consumer does not want to wander around in a 200,000-SF store,” he said.
Nevertheless, Wal-Mart announced in its meeting for analysts on Oct. 14 plans to add 50 to 60 Supercenters, a figure that includes relocations and expansions in the coming fiscal year.
“When you look at the future, they’re building 60 more Supercenters,” Davidowitz said. “Why aren’t they looking at closing bad stores?”
Wal-Mart opened 79 Supercenters in the U.S. during the fiscal year that ended in January, bringing its total to 3,407.
Doug McMillon, Wal-Mart’s CEO, said at the meeting — a transcript of which was posted on Wal-Mart’s website — that the company isn’t opposed to closing stores.
“We have closed stores across several markets, and we will continue reviewing our fleet in a disciplined way,” McMillon said.
“And we’ll close the stores that should be closed.”
Despite the criticism, other analysts aren’t too worried about the company.
“The Street has overreacted here in that the sky is not falling in Bentonville, no matter how much people want to say that it is,” said George Anderson, editor-in-chief and associate publisher of RetailWire, an online trade publication. “I think it’s probably unrealistic to expect Wal-Mart’s business to be growing at a 10 percent year-over-year clip anymore.”
Davidowitz, the retail consultant, said one of Wal-Mart’s problems is competing with Kroger Co. of Cincinnati for grocery shoppers. Kroger had revenue of $108.5 billion for its fiscal year that ended Jan. 31, up 10.3 percent from the previous year.
Kroger’s same-store supermarket sales increased 5.2 percent from the prior year; same-store sales for Walmart U.S. increased just 0.5 percent. Same-store sales are considered a key retail metric because sales are compared with stores that have been open at least a year. Wal-Mart’s grocery business accounted for 56 percent of its sales in the U.S. for the fiscal year.
Davidowitz said Wal-Mart didn’t keep prices low enough. The difference in price between Wal-Mart and Kroger might be about 10 percent, instead of perhaps 20 percent years ago, he said.
“You’ve got to get down to the gut question: Why are people going to your competitor and not you?” he said. Davidowitz said Wal-Mart is losing to Kroger in the battle over fresher foods, bakery items and prepared foods.
Greg Foran, president and CEO of Walmart U.S., acknowledged during the meeting for analysts that improvement is needed in the company’s Neighborhood Markets, the smaller, grocery-centric store format.
“So to be completely candid, when we are up against someone who is really good at running supermarkets, frankly our fresh offering has not been on par with what it takes to win in those environments,” Foran said. “So we need to fix what we do in fresh.”
In the early 2000s, Wal-Mart appeared to neglect the e-commerce sector. “A number of people recommended to them years ago, … when Amazon was a fraction of its current size, that they really needed to get the e-commerce side cranked up,” said Craig Johnson, president of Customer Growth Partners LLC, a retail consulting firm in New Canaan, Connecticut. “They pooh-poohed it.”
Amazon’s revenue for 2014 was $89 billion, up 19.5 percent from 2013. But Amazon lost $241 million in 2014 after posting net income of $274 million in 2013.
E-commerce sales at Wal-Mart were up 22 percent to $12.2 billion for the fiscal year that ended in January, and sales have doubled since 2011.
Wal-Mart said its total e-commerce and digital capital expenses will be about $1.1 billion in the fiscal year that starts in February. It said it would spend between $1.2 billion and $1.5 billion during the current fiscal year.
Johnson said he thinks Wal-Mart didn’t jump right into e-commerce because the company was having great success with its Supercenters.
“The success blinded them to either the threat or … the opportunity presented by the Internet,” he said.
Now, Wal-Mart is making progress in its e-commerce sales, Johnson said. Its best program, he said, is its online grocery shopping with free pickup, which allows customers to order groceries online and pick them up at a Wal-Mart location the same day without having to leave their vehicles.
“It has the potential to be a game-changer,” Johnson said. “So they’re finally beginning to get it right.”
Neil Ashe, Wal-Mart’s president and CEO of Global eCommerce, said during the Oct. 14 presentation that the pickup service will be in 20 markets this year and another 20 early next year.
“And we will keep going from there,” he said.
Laura Kennedy, director of retail insights at the research firm Kantar Retail of Boston, said that in turning toward pickup, Wal-Mart is taking advantage of its assets, meaning its stores and their proximity to customers.
“It’s proving to be the more successful model for them,” she said.
Anderson, of RetailWatch, said the drawback of online ordering and curbside pickup is that customers aren’t entering the store to make impulse purchases. In addition, competition from other retailers will increase, driving prices lower.
Still, he said, “I think it will help them maintain and perhaps even grow market, but I don’t think it’s going to address the margin issue that they’re facing.”
Lal, of the Harvard Business School, said Wal-Mart is facing a number of challenges, including whether it remains as the low-price leader and if it has the largest assortment of merchandise.
“I suppose we can say it’s too big because it’s difficult to move a Titanic,” he said. “Once you become that size, changing it becomes a challenge.”
Big Retailer, Big Numbers
|$485.7 billion||Wal-Mart’s revenue for the fiscal year that ended Jan. 31.|
|2.2 million||the number of people Wal-Mart employs around the world.|
|1.4 million||the number of people the company employs in the United States alone.|
|52,942||Wal-Mart’s employees in Arkansas, where it’s the largest private employer.|
|11,450||the number of the company’s stores around the globe.|
|28||the countries in which Wal-Mart operates.|
|132||the number of Wal-Mart stores in Arkansas, as of June 3.|
Source: Wal-Mart Stores Inc.