Does Wal-Mart Have the World's Best Management?

What if legendary retired General Electric Co. (NYSE: GE) CEO Jack Welch was put in charge of Wal-Mart Stores Inc. (NYSE: WMT)? Or Lee Iacocca, the man who invented the Mustang and turned around Chrysler in the early 1980s? Even if Wal-Mart had (or has) the greatest management in America, the terrible results it says it will post could not be avoided.

The argument that Wal-Mart did not see e-commerce coming, or rejected its effects for too long, can be laid at the feet of past management. Current management know the problem and have set out to solve it quickly.

However, at this point the battle with Amazon.com Inc. (NASDAQ: AMZN) largely has been lost. No Herculean effort can reverse that. The trend toward migration to the e-commerce leader it too far along, and too many other large retailers are vying for the extremely modest pie of online sales success. The fact that the stocks of other large retailers dropped with Wal-Mart’s announcement is proof of that.

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In specific:

“Fiscal year 2017 will represent our heaviest investment period. Operating income is expected to be impacted by approximately $1.5 billion from the second phase of our previously announced investments in wages and training as well as our commitment to further developing a seamless customer experience,” said Charles Holley Walmart’s executive vice president and chief financial officer, “As a result of these investments, we expect earnings per share to decline between 6 and 12 percent in fiscal year 2017, however by fiscal year 2019 we would expect earnings per share to increase by approximately 5 to 10 percent compared to the prior year.”

Investing in the future may not bring any returns. As a matter of fact, for Wal-Mart, better returns are unlikely. Wal-Mart listed higher wages as one of the reasons for its trouble. Plans to increase the minimum wage have spread from state to state and city to city. What is currently a trend to a floor of $10 or $11 has moved to $15 in some areas. If Wal-Mart has to adopt those pay levels, its earnings will be ruined, if the current wage effect at the retailer is any clue.

The brick-and-mortar competition also has grown in a way Wal-Mart management could not stop, and cannot halt in the future. Target Corp. (NYSE: TGT) and Costco Wholesale Corp. (NASDAQ: COST) have flanked Wal-Mart by picking apart its model and taking some of its best strategies. Scores of other niche retailers have done the same. Wal-Mart could not, and cannot, keep these companies from borrowing what it learned from decades of extremely successful operations, many of them created by founder Sam Walton.

Wal-Mart’s growth in both revenue and earnings has ended, and management can hold back the tide briefly, but only briefly.

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