Wal-Mart Bets The Company

october 10, 2005

Wal-Mart is like a 30-year old cruise liner that needs a lot of help. Things have fallen apart, things look old, the ship never really looked that luxurious, but still people come for the cruises because the price is low. The low-prices have attracted all the folks that are willing to pay only "so much" for a cruise and not much more. When gas prices go up, getting these folks out to the dock is a lot of work -- this is because trying to squeeze that extra $5 out of them to pay for the gas to get to the dock is like squeezing blood from a turnip. Over the last 10 or more years, the ship SS Wal-Mart has not had any renovations, instead the crew has concentrated on squeezing all of its vendors for lower prices and resting solely on that to bring in customers. The ship does not look all that much different than when I first set sail. The only thing that Wal-Mart has done to the ship is add more rooms so that they can take more people for cruises. But, what happens when the customers who seek out low prices start to seek out more? What happens when a spanking new cruise liner shows up on the horizon? It has a little red target painted on it, the insides of the new rival cruise liner is fancy and the rival cruise liner features a tiered cruising environment -- able to cater to all: Those who seek a decent low-priced cruise to those who seek some extra fancy ammenities during the cruise (Mmm, you have to love the lobster dinners). What happened to the SS Wal-Mart is that for the last 10 years, it had been so focused on driving costs/prices down that it overlooked the fact that people actually care about how things look and sometimes (just sometimes) people are willing to pay a higher price for a fancy cruise -- you know the one that comes with a buffet, alcohol, and nice silverware. So, as the SS Wal-Mart enjoyed serving that one segement of the market that would suffer the most if things turned bad in the economy, its competitor, the SS Target has been branching out and focusing on other avenues of income. The problem with the SS Wal-Mart is that they are too big to make course changes easily, they are trying now. They are trying to slowly change the course of the SS Wal-Mart to match that of the SS Target. They are trying to change the environment of the ship to be less like a Naval aircraft carrier and more like a luxurious cruise liner. They are trying to add fancy linens, dress the crew in fashionable garb, and serve better food. They need to widen the corridors on the ship and make them look more inviting -- steel bulkheads and standard Naval grey really does not impart a sense of fanciness. But, can they get this ship turned around? It will be interesting to see over the next few (six to 18) months how well the captain (Aye, aye Captain Lee Scott) handles the changes that are being planned. Trying to do all of this in a downturn for cruising is difficult. You have to retrofit or renovate the ship; and advertise the new image to potential customers. All of this costs money, and as the cost of gas rises and the cruise bookings drop, it will be hard to convince investors that this move is a good one. And lets not forget that SS Wal-Mart is not the most nimble ship in the world -- they cannot make big changes in quickly. Someone should keep an eye out on the horizon for a very large iceberg, because if it ever showed up without warning, the SS Wal-Mart is going down. I for one think that the SS Wal-Mart has created its own image of low prices and cannot escape from that image. The fact is that they try to advertise their cruise liner in Vogue or any other fashion magazine, but the image of a cheap cruise liner will never get wiped out of the public's memory. Will the fashionable really jump onto a ship that looks like a Naval aircraft carrier with cheap fake wood panels stapled onto its side? Probably not when there is the more truly luxurious SS Target just pulling in. When should investors become wary of the SS Wal-Mart with its stock prices already dropping? They should become wary when after some changes, Captain Lee Scott turns the SS Wal-Mart back onto its old course. Then we know that it will be heading more for the Arctic and less for some hot Polynesian islands -- and we all know that there is a bigger chance of hitting an iceberg when headding to the Artic. If you're interested, here is a good article on Wal-Mart and all the changes that they are planning to implement -- and how they could either go wildly good, or explode in Wal-Mart's face and cause much grief.