Has Walmart lost its way or has Wall Street lost its mind?

To say that Walmart is “just too big” is like saying that Apple or InBev are “just too big.” Scale matters, but so does the execution of a successful strategy. It’s ironic that yesterday’s stock-price meltdown is caused by the rollout of the very strategy that Walmart investors have been asking for: Cleaner stores, better customer service and a more robust omnichannel model.

Long-term investors need to judge Walmart not on the results in a given quarter (when most general merchandise chains are lagging) but on the outcomes of investment spending in three to five years. Judge Walmart by its long-term market share gains and operating efficiencies, not by yesterday’s news.

I think this is exactly right: “There is no way they can continue to grow, they are just too big,” Ivan Feinseth, chief investment officer at Tigress Financial Partners, told Bloomberg. “They do $500 billion worth of revenue how are you going to grow that?”

I don’t understand why companies continue to proceed as though markets are infinite. They’re just not. And Walmart has shoehorned, forced, slithered and rejoiced its way into every city and hamlet that is willing to have it.

Plus, I am not sure Millennials are all that enamored with über-big box stores.

And finally, the more food a retailer sells, the lower its earnings as a percentage of sales are going to be.

None of this is rocket science. The street is right, Walmart is in denial.

Sometimes you have to take a step back before you move forward again. If you look at the history of companies, those that just keep doing the same thing (especially in retail) because they fear that in the short-term they will lose money, in the long-term fail. They failed to change their practices and more important they failed to make investments that pay out over the long-term.

Walmart’s growth in their core U.S. business is finished. An annualized 2 percent growth would be astounding. They must grow in online, they must grow internationally. That is where the markets are. It also takes investment and it also takes time.

Sometimes Wall Street amazes me on how much they don’t understand about companies.

While The Street’s expectations that Walmart will continually be able to grow at the pace it has in the past is pure fantasy, there are other elements of their business that investors should be concerned about.

First, market saturation. The thirst for big discount stores is evaporating as markets are overloaded with retail footprints from Costco, Target, Meijer and others. Secondly, Walmart’s once highly-touted distribution system is rapidly becoming antiquated. Inventory costs, out-of-stocks and improvement in distribution practices of both their traditional and new online competitors continue to loom large. The advantage they once had in this area is turning into a liability.

Finally, many of the new stated goals of the company are heavily dependent upon improving the quality of their store associates in terms of product knowledge, customer engagement and e-commerce expertise. It remains to be seen if Walmart can weather the financial impact of investing in and training people without significantly impacting their profitability.

I like what David said. A lot of big companies are going through the cycle where they have to re-evaluate how to continue to do business. You hope after the re-evaulation that the investments made will translate into increased sales. Walmart is not down and out, they have to find a way to steer the ship and make small course changes to get back on the right path.

Walmart is doing many things right, and in ways that others aren’t, including investing in its stores even as it plows ahead with digital innovation. Walmart is playing an expensive long game that won’t always cheer Wall Street. Even so, Walmart does seem to have gotten a bit too literal about its business as of late. Lots of block and tackle “things” going on but without an overarching vision to frame and guide them (“Save money, live better” doesn’t fulfill that tall order). Vision matters.

While many are of the opinion that investment and market economy analysts a depend largely on crystal balls, tarot cards and tea leaves to make judgment, this simply is not the case. These men and women apply a proven set of principles and formulas to the returns on investments, profit dollars, cash flow, long term debt market health, money supply and so on and so forth. The information result derived from this testing is then open to speculation for investors of all sizes and with or without the needed experience and expertise to us it successfully. In short, surprises are few and far between from retrospective perspective and re analysis.

That said, few can argue with the financial difficulties the company and its major investments are struggling with. Big decisions that effect the whole company carry bigger risks as in siphoning from the healthy part(s) of the company to aid with the nonperforming profit centers.

For instance, increases in pay should be a follow on to increasing output and not performance or employee longevity. Likewise increasing market scope and company range and/or presence should follow the acquisition of new venture expertise and vision not product and floor space. It may be obvious to investors that many of the company’s problems are due to shortfalls in anticipating the total needs of the project.

Therefore this may just be a no confidence vote for the movers and shakers in the company. If so what could be worse?

As a long time fan of Walmart, I am sad that the company appears to have lost its way. It appears to me that Doug McMillon does not have a winning strategy to meet the challenges of the rapid changes that are occurring in retail.

The next generation views Walmart as out of date and boring low priced stores. The shopping experience at the average Walmart is bland and offers little excitement versus the more nimble specialty retailers. It is only the price and one-stop convenience that gets them to visit. In addition, They do not even think of Walmart.com when shopping online.

While raising the wages of the store associates is admirable and probably the “right thing to do” it does not raise the morale of the stores’ associates, or increase productivity over the long term. It seems that the company is reacting to the union threat of “Our Walmart” more than using these wage increases as a core strategy, since they continue to use the $1.2 billion price tag as an excuse for missing profit targets. If this were a real strategy, I would have expected there were strategic plans in place to meet this cost challenge and not what I see, which is more management cuts, fewer hours allocated to stores, and the “beating down” of suppliers for lower costs.

Senior executives at Walmart are almost always Walmart veterans trained only in this culture, operating, and merchandising environment. The problem is this is no longer “Sam’s” Walmart of the 1980’s and the retail model has changed particularly in urban areas where Walmart is increasingly doing business. Couple this with the significant change in the store associates and their loyalty and motivation, and there is a disconnect with the traditional model and operating systems. One of the reasons Doug McMillan was selected over outsider Bill Simon was his grounding in the history and culture of the company. His selection of an outsider to run the US in Greg Foran seemed to send a strong signal for some dramatic change yet little has improved in the past fifteen months under Greg’s leadership. Maybe Greg was not a good choice to lead the US business given his lack of experience in the US retail market. He predominately ran stores for Woolworth’s in Australia and his home of New Zealand. I am hoping his learning curve was steep and he can leverage his outsider perspective to deliver we will significant changes in strategy and results.

Overall I am concerned that the current strategy will not deliver improved results in “bricks and mortar stores” nor do I believe Walmart is gaining the traction it needs in e-commerce. My belief is the traditional model will continue to erode and as e-commerce grows other competitors such as Amazon will be the winners and continue to gain market share.

Right plan?

“Our investments in our people, our stores and our digital capabilities and e-commerce business are the right ones. We will be the first to build a seamless customer experience at scale to save our customers not only money, but also time.” Sure seems like the right approach.

Can WMT execute the plan?

Probably not. Due to the deeply ingrained culture and limited vision at WMT, it is not sufficiently agile to perform the feat in the current marketplace.

Too big?

Perhaps the core business has maxed out share. But what other allied opportunities does WMT have to help its customers save time? Or said another way, what businesses can WMT create to increase shareholder value?

WMT is certainly able to activate its customer contacts, data and relationships to create innovative ancillary businesses that could be relevant to its base.

To date, WMT has not replaced Sam Walton. Sears enjoyed a series of visionary leaders that extended the business to grow the brand. Some of them took their eye off the core franchise too.

America has changed since WMT optimized supply chain, vendor relationships and data management to create the compelling retail model. What’s next?

Or as we like to say: “retail ain’t for sissies.”

The appeal of a one-dimensional retailer like WMT is limited, as are its growth prospects. There are other factors driving value for many other (current, declining and former) customers.