Here is one more glaring example of the absurd and frankly, stupid “short-termism” of Wall Street and the investment community. Doug McMillon, Walmart’s relatively new CEO, its youngest ever at age 49 and its first merchant-chief since Sam Walton, recently committed to invest not only in the right strategies for long term sustainable growth, but also the winning strategies that could crush its nemesis, Amazon. Shameless reminder: I posted in an April, 2014 article WalMart Can Crush Amazon.
Wall Street, with its casino culture, speed-trading paper for immediate wins vs. investing for real value, defines “long term” as this quarter. When McMillon announced last week that instead of forecasting an increase in 2016 earnings (which analysts estimated at 4 percent), he’s predicting a 6-12 percent drop, it was like the sky was falling. Walmart’s stock crashed 10 percent; the biggest one day drop in 17 years … on top of the fact that the stock was already down 22 percent this year.
Wall Street’s reaction was typical of the “short-termers.” They listen, but do not hear. They did not hear, nor did they understand, because the word strategy is not in their lexicon. McMillon’s long-term strategy, and the investment required to achieve it, would by necessity cut into earnings. McMillon committed a $2 billion investment over the next two years to kick start Walmart’s snail-like progress in its global e-commerce and its omnichannel component. He committed another roughly $2.5 billion in costs to raise employees’ wages. And this is all on top of the ongoing investments in elevating the store experience, rolling out its smaller store format, and opening more distribution centers to service its e-commerce efforts.
It’s ridiculously ironic that Wall Street has rewarded Amazon since day one, almost two decades ago, for not making any money, so Bezos can “get big fast.” Yet, they won’t acknowledge that Walmart, the largest company in the world, yes, the largest at over half a trillion dollars, and the world’s largest employer, has a focused strategy for becoming a 21st Century leader in the use of the Internet and all contiguous technologies — as well as crushing Amazon along the way.
“Get Big Fast” Is a Relative Term
Jeff Bezos can still use his objective of getting big fast as justification for zero to minus on the bottom line when comparing Amazon’s roughly $90 billion in sales to Walmart’s roughly $500 billion. However, at some point (and we’re already seeing it), getting big fast is going to turn into a Wall Street call out of “show profits now.” And while Amazon has made a little bit of money over the past couple quarters, with traffic and revenues growing nearly 20 percent, the bigger they get, the more difficult it will be to maintain that rate as pressure from Wall Street continues to mount.
On the other hand, even though revenues at Walmart are growing at a tepid 3-4 percent annually, it equates to roughly $20 – $25 billion a year. They’ve been making money, not losing it.
So, now McMillon says to Wall Street (in my words): “Hey guys, in the spirit of good public transparency, I’ve got a specific, focused strategy, for which I’m going to invest billions of dollars over the next several years. It’s going to take a big chunk out of my bottom line to do so, but at the end of a relatively short period of time, given our gargantuan size, I will have this ship turned around with the technology winds at our back. And you’ll see profitable growth rates like you’ve never seen them. I know you guys are short-termers. I wouldn’t call you greedy, although some would. Anyway, you should understand what I’m saying, because in the long term you could make a ton of money.”
Actually, McMillon said in his own words: \”This is a growth company — it just happens to be a really large growth company.” Then in his personal blog he wrote: “The reaction by the market — while not what we’d hoped — was not entirely surprising. These investments are critical to our current and future success as a company. Simply put, it’s the right thing to do.”
He went on to say in an interview, “We know what we did in the past wouldn’t by itself be enough to win with customers. Retail history is very clear. Those that are unwilling or unable to change go away.”
And on that note, I will say this: McMillon is doing the right thing. Anybody with a long term view of investing in the growth of real value would be crazy not to look very closely at what I would consider an opportune “fire sale” low stock price, driven down by the short term, non-strategic gamblers on Wall Street.