By SCDigest Editorial Staff
Through a special arrangement, what follows is an excerpt of a current article from Supply Chain Digest, presented here for discussion.
Wal-Mart's stock price sank to a 52-week low this week, after years of disappointing returns to investors, as the retailer announced slow profit growth in Q2 and reduced financial expectations for the year, citing pressure on consumers from higher gas prices and other factors.
Sales and profits were up, but at rates that again paled in comparison to historical percentages. Sales for the quarter on a global basis increased by about $7 billion, or roughly eight percent, but that includes new international business and new store openings in North America. Same store sales at Wal-Mart stores in the U.S. rose just 1.2 percent. Profits rose only by about five percent, helped by gains outside of operations, without which they would have been nearly flat.
"Although some people will report that Wal-Mart has had record sales and earnings, our underlying operating performance this quarter is not what we expect of ourselves, and not what our shareholders expect of us," said CEO Lee Scott.
While the media widely reports Wal-Mart's Q2 results, which were being blamed for an overall down day on Wall Street, no one seems to remember that earlier this year the same business media was abuzz with stories about Wal-Mart's super-secret plan to raise its share price, code named "Project Red." The strategy was considered so sensitive that high-priced consultants the company used were only allowed to work on parts of the whole strategy and made to toil in extremely high security offices.
The plan reportedly involved a spin-off of its Sam's Club chain as one component, but later reports said that idea had been quashed.
So a logical question is: Where is the plan now when it seems to be needed most? Still being developed, or forgotten for some undisclosed reason?
Wal-Mart has struggled in its efforts to increase market share in apparel and home furnishings, but lately home electronics has been a bright spot. Plans to enable local stores to have more discretion in product and merchandising decisions do not seem to be getting much traction or attention.
To keep things in perspective, Wal-Mart's increase of $7 billion in revenue for one quarter is larger than most retailers manage all year. Nonetheless, it seems to many that Wal-Mart's enormous retail and supply chain clout will diminish relatively over the next decade, as it will simply be unable to match the growth rates other retailers, including increasingly strong competitors such as Target and Costco, and as Tesco prepares to enter the U.S. market.
Discussion Questions: What do you think has happened to Wal-Mart's "Project Red" plan to raise its share price? How is the company's share price affecting the way it operates its business? Do you think the focus on share price has resulted in Wal-Mart management making decisions based on Wall Street demands rather than the long-term health of the business? What can (should) Wal-Mart do to reignite same store sales growth in the U.S.?