- Walmart is enduring a terrible quarter.
- Relationship with suppliers is in decline.
- Walmart continues to make smart acquisitions which will help long-term growth.
If you had asked investors last year to give you a brief overview of Walmart (NYSE: WMT) stock, most would have said that it was a “stable” stock, and a low-risk investment. Ask this year and you are likely to hear something completely different. You see Walmart has gone through a myriad of problems which has caused a YoY operating income decline of 8.2%. In fact, take a quick look at WalMart stock price from January first to date, and it forms an almost perfect downward slope.
To be honest, Walmart has a mixture of problems...
Firstly, Walmart has had a historically strained relationship with its suppliers. With 11,500 stores in 28 countries in 53 years of trading, they top the Fortune 500. Therefore, suppliers tend to fall head-over-heels in order to trade with Walmart. Not to be melodramatic, but getting your product(s) showcased in Walmart can make a brand become a household name overnight. However, Walmart pits suppliers against each other thereby encouraging them to reduce prices. Over time, this has made doing business with Walmart less attractive.
Unfortunately for Walmart, the ongoing conflict between Walmart and its suppliers seems to have boiled over. In a recent contract amendment, Walmart piled on the fees, and ensured that suppliers are paid on longer terms. This came across as a “We do what we want.” mentality from Walmart. Therefore, some suppliers are seeking legal help. This is simply a move to keep costs low. The fact is suppliers are the life-blood of any supermarket. Plus with ecommerce growing rapidly, this move might be driving suppliers into the hands of Amazon and eBay. In brief, Walmart is the Goliath in this story, and can’t see how they could lose to David. And we all know how the original tale concluded.
Speaking of Amazon, Walmart recently beat the online giant in terms of app user growth. Walmart’s app for smartphone and tablet devices has enjoyed 400% year-over-year growth, and its user numbers (45 million) place it ahead of both eBay and Amazon. However, it might be too little too late. The fact is Walmart was late to fully embrace the ecommerce market. Arguably, if Walmart had been more proactive with its online experiences, Amazon wouldn’t have had the opportunity to grow as much as it did. This isn’t only because of Walmart’s huge market penetration, and brand recognition, but also because of an unparalled economies of scale. Saying this, it is nice to see Walmart embracing the online space in a big way.
No company gets to the top of the Fortune 500 without making some exceptionally smart decisions. For instance, Walmart recently streamlined its workforce: which was a bold move to keep operating costs low while maintaining customer service. Walmart also continues to make strategic acquisitions in order to add more value to customers and increase long-term growth.
Firstly, Walmart continues to expand both in the U.S and internationally. Secondly, Walmart continues to acquire key businesses. Walmart has acquired website accelerator, Torbit, and ecommerce social network Luvocracy in order to feed their technology into the current business. Interestingly, Walmart acquired Vudu- a streaming service similar to Netflix. However, since acquiring Vudu 5 years ago, they have failed to roll it out internationally, or even establish it as a market leader in the U.S.
In conclusion, the numbers don’t lie. Quite simply, Walmart has endured a dreadful financial year so far, which has also reflected in the WalMart stock price. However, a small company can go through a bad year, and so can a multibillion dollar company. I fully expect Walmart to bounce back after Christmas. This is simply because the actions they have put in place should bear fruit by then.