Wal-Mart's Out of Its Element and the Numbers Show It.

Implications: Nothing has really changes at Wal-Mart to suggest that it will perform that much better in a declining economy; including the numbers.  Heres why.

Analysis:  First impressions are usually right and Lomax should stick with his skepticism of Wal-Mart.  The fact is nothing has really changed strategically at world’s largest retailer.  Scott is still the boss and most of Wal-Mart’s new ideas under his watch has either failed or are at best still in the “it will pay off next year” stage.   With the exception of the $4 prescription drug program, few of Wal-Mart’s product initiatives either domestically or abroad have really changed the outlook for the company. 

Granted international operations have recently propped up sales.  But longer term growth overseas is problematic at best.  For instance, Asda’s future growth in the UK depends on the English opening up urban development at the expense of High Street merchants.  That’s going to be a hard sell; especially with the House of Lords whose landed gentry control much of the UK’s existing commercial real estate.  

Japan is also a problem.  Realistically, it’s unlikely Wal-Mart will ever make a profit in the land of Nippon.  Scott insists the company isn’t going to vacate the market.  That may be true under his leadership.  It will probably take a new Chairman to cut the company’s losses.  China and India are future opportunities.  But both markets are as uniquely different as Japan and South Korea were to Wal-Mart which makes their success there all the more uncertain.  In addition, the company has strong competition from Carrefour and Tesco, especially in China.  

The numbers don’t really add up as some recent converts to Wal-Mart would have the market believe.  For instance, Wal-Mart’s store for store sales was only up 2.1% (includes fuel) during the fourth quarter.  That’s poor performance when compared to total US retail sales growth* of 6.2%, 7.8%, and 3.6% for October, November, and December 2007 respectively (* includes fuel and auto sales).  If Wal-Mart’s low price strategy was really on target, its fourth quarter sales growth should have been higher; especially given the company’s weak previous year sales comparisons.  Add to that a meager 0.5% comp store sales increase in January and Wal-Mart may not be quite the perfect fit in a recessionary economy as some analysts expect.