As investors, at least, maybe we should stop worrying about the consequences of a Wal-Mart opening near us and start worrying about Wal-Mart itself. Never mind that Wal-Mart-haters think the company represents a vast global conspiracy of greedy capitalists run amok (and they may be right). Just as the demonizing of the world’s largest retailer hits its peak, Wal-Mart, as a company, may be falling apart.
As its tentacles reach every state and almost every municipality in the nation, Wal-Mart has become public enemy No. 1 for politicians, small-business champions, unionists, and journalists. You name it, Wal-Mart’s been beaten up for it: low wages, shoddy benefits, predatory pricing versus mom-and-pop outfits, and an anti-union stance that makes Henry Ford look like a shop steward for the United Auto Workers. How hated is this company? Here in New York, the company announced in December 2004 that it planned to open a store on Queens Boulevard in 2008, but the strategy quickly drew fire from residents, unions, small-business owners, and local politicians. By February 2005, Vornado Realty Trust told city officials that Wal-Mart would not be part of its plans to develop a retail center on the Rego Park site. Word that the retailer was also looking at sites in Staten Island drew similarly swift opposition. In California, meanwhile, there’s a bill making its way through the State Legislature that would force Wal-Mart and similar big-box retailers to pay the legal fees of any municipality that prevails in a lawsuit to block such companies from building a store. That’s class warfare of a kind that we haven’t seen in this country in 70 years. Can expropriation be that far behind?
To listen to the despondent Wal-Mart critics, you would have to wonder whether the Lilliputian consumers can ever defeat this retailing Gulliver. Don’t be fooled. Wal-Mart’s more of a Goliath than a Gulliver. And Davids are popping up everywhere. Wal-Mart, the once-venerated king of American retailing, has in the past year become Wal-Mart the pitiful helpless giant reduced by a collection of third-rate retail powers, if I may be so bold as to borrow language from our nuttiest president ever. For more than a year now, Wal-Mart’s been reporting horrible numbers, just awful, while the rest of retail is in ascendancy. One hundred million people may still shop there every week, but from the looks of the numbers, they aren’t buying much of what they see.
Despite the dismal financial performance, which has produced a horridly underperforming stock that has flatlined for seven years now, Wal-Mart’s management is in total denial. Almost every month, CEO Lee Scott starts afresh with an optimistic prediction of how the next five weeks will go. Then routinely, at the end of almost every month, the company misses its projections. The worst part is, no one seems the least embarrassed by this performance, least of all Scott himself. Going into October, Wal-Mart predicted 2 to 4 percent sales growth. Then, in early October, the company lowered its projection to 1.3 percent. When it finished the month, Wal-Mart turned out to have gained only half of one percent. This at a moment when almost every other major retailer was meeting or exceeding its higher targets. There was a time when such an overpromise-and-underdeliver phenomenon at this once-smartest of all retailers would have been unthinkable. Now it’s a given. That’s why, for the first time since Sam Walton could visit all of his stores in his beat-up old pickup, it’s worth asking if we are not seeing the twilight, not of the consumer—as so many media pundits speculate because of the incredibly low single-digit growth from Wal-Mart—but of the largest American retailer itself.
What’s ailing Wal-Mart? People don’t mind shopping at a down-market, politically incorrect store, if the prices are low enough. That was always Wal-Mart’s game. But now the other guys have figured it out. A number of Wal-Mart’s competitors now offer similarly low prices and a better shopping experience. Take Target. Wal-Mart’s sloppy aisles, dowdy clothing, and junky presentation have all the charm of GUM, the grim old monopolistic chain of the former Soviet Union. Target, meanwhile, is a joy. And its in-house merchandise, the key to its bountiful profit margins, rivals the stuff you can find in much more expensive stores—at price points that still make you feel like you’re getting the deal of the century. We live in an era when consumers, more than ever, want to feel rich. Wal-Mart may still be competitive on the price front, but it’s losing the quality game. In the most recent quarter, same-store sales for Target grew 4.6 percent, compared with 1.5 percent for Wal-Mart.