For Wal-Mart Stores, Inc. (NYSE:WMT) CEO Doug McMillon, retailing today is all about logistics. Getting purchases identified, paid for, and into consumer homes is the back-end of what WMT did in its own youth, which was to stock stores efficiently and break bulk at the lowest possible cost.
The company’s multi-billion-dollar logistics investment, combined with the growth of Amazon.com, Inc. (NASDAQ:AMZN) in groceries and meals, is already causing Silicon Valley to walk away from delivery.
While Amazon works through highly automated warehouses and delivery systems, WMT wants to do it through in-store pick-up, a “secret Santa” plan that debuts over the next two weeks.
The chain estimates that 90% of shoppers still have some last-minute work to do, even two weeks out, and if Walmart can fulfill those orders conveniently it can gain loyalty for the rest of the year.
The stores will still look the same, but the shopping experience will change, from a process of wandering around with carts and piling merchandise into parking lots, to letting your fingers do the walking and having merchandise waiting for you, either at the store or on your doorstep.
Is WMT Dangerous?
Change is necessary for defensive as well as offensive reasons. As Walmart has become a go-to desitantion for small cities and towns, a slew of problems are constantly coming to Walmart.
Every day, or so it seems, WMT stores are the scene of kidnappings, armed robberies, arson and even murder. People are being shot in Walmart parking lots, thieves are taking guns right out of protective cases, while others are taking merchandise then stealing cars from the parking lots to haul it all away.
Just as Willie Sutton robbed banks because it was where the money was, thieves today target WMT and its parking lots. Unions that pressed for wage increases last year are now demanding new investments in security.
The “secret Santa” plan can help with this, cutting the time people spend outside their cars, and reducing the number of trips they make. WMT’s own investments in security also help — many of the stories listed above involve criminals who were caught in the act.
Walmart Stock: Analysts Remain Unconvinced
Convincing analysts and investors that Walmart’s investments can turn into profitable growth is proving difficult.
Warren Buffett has been cutting the Walmart stake of Berkshire Hathaway Inc. (NYSE:BRK.A, NYSE:BRK.B) for three straight quarters, cutting his stake in half.
While the Dow Jones Industrial Average has been rising over the last month, Walmart stock has been fighting to hold the $70-level, with many analysts skeptical that a bigger e-commerce investment will lead to profit. The average recommendation remains a hold.
While Blackrock and UBS have been increasing their stakes in WMT stock, other hedge funds are cutting their stakes.
Walmart is being treated almost as a bond, a place to park money on its way to somewhere else. After gaining almost 20% during the first half of the year, WMT stock has barely held its own over the last six months, much as its sales and profit levels have remained flat at about $120 billion in revenue and $3 billion in net income most quarters.
Christmas Will Tell the Tale for WMT Stock
Christmas is always the big season at Walmart, as at other retailers.
Last Christmas, the company had revenues of $129 billion during its Christmas quarter, which ends in January, along with $4.5 billion in net income, which is 10% more in revenue and 50% more in net income than the rest of the year.
To get out of its current trading range, with a slightly below market price-to-earnings multiple of 15 and below-market yield of 2.8%, Walmart stock needs to beat those numbers substantially.
I don’t think it can, but if you disagree then WMT stock is a bargain right now.
Dana Blankenhorn is a financial and technology journalist. His latest novel is Bridget O’Flynn vs. Something Big & Ugly. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in AMZN.
