Wal-Mart's Bald Tires
Wal-Mart (NYSE:WMT) had 3,289 stores in the U.S. at the end of its fiscal (January 31), but had only opened a net 140 during the latest year. The next largest market was Mexico with 774, followed by Japan at 398, the UK at 315, Brazil at 295, and Canada at 278. Unfortunately, none of these countries would qualify as a robust growth market. However, the company did have 56 stores in China. Looking at the opening of Wal-Mart stores in international markets over the last five years, the percent growth has been in China and Brazil.
Over the last three years, comparative store sales in the U.S. have only grown a little over 3% per annum (March same store sales rose only 1.3%). Total annual net income at Wal-Mart has gone up about 10% per year over this period and hit $312.4 billion in the period ending January 31, 2006. Net income rose to $11.2 billion.
The years of 15% to 20% top-line growth are probably behind Wal-Mart as are the years of 8% or 9% comparable store sales increases in the U.S.
None of this is any news, but the issues that might put Wal-Mart on a faster growth track involve international barriers that will not be easily resolved.
Reuters (www.reuters.com) has said that Wal-Mart will hire 150,000 employees in China in the next five year. According to the news agency, Wal-Mart has 30,000 employees there today. Wal-Mart Asia chief Joe Hatfield indicated to Reuters that he believes Wal-Mart could be as big in China in 20 years as it is in the U.S. today. One has to wonder whether the Chinese will be all right with that. The idea of a U.S. company dominating any critical industry in China may not be something that the regime there would find anymore palatable than a huge presence from the U.S. in consumer electronics or the financial industry. At the very least, having that large a portion of the retail market in China could present problems with a government that has been fickle in its relationships with U.S companies.
The other market one would think Wal-Mart would go after with a vengeance is India. But, CNNMoney (money.cnn.com) pointed out recently that, due to the "foreign direct investment (FDI) regulations", India does not allow international companies to open retail outlets in the country. Nettlesome problem.
Wal-Mart tops the Forture Global 500 (www.fortune.com) as the world's largest company. It has an army of employees that numbers 1.8 million. But, it has begun to bump its head up against the ceiling in its home market and probably will in several others like the UK as well. The costs of opening stores in urban markets in this country is not as low as it was in Wal-Mart's traditional geographic strongholds.
Wal-Mart is now large enough so that it is actually at the mercy of foreign governments for what could be the lion's share of its growth. It puts a company that determined its own fate for so many years in the odd position of having to lobby for its next significant opportunity.
The company's stock, which traded near $60 two years ago rarely gets close to $50 now. Wal-Mart absolutely has to show that it can be one of the two or three dominant retailers in China, which means staying clear of interference from the Chinese government. Or the company has to demonstrate that India is willing to open the door to having a huge presence in that market. Until Wal-Mart can indicate to investors that one or both of these countries will offer the kind of unfettered growth that the company had in the U.S. for decades, the share price is unlikely to get any traction.
Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He was also president of Switchboard.com when it was the 10th most visited site in the world, according to MediaMetrix. He has been chief executive of FutureSource, LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in the companies he writes about.
Wal-Mart (NYSE:WMT) had 3,289 stores in the U.S. at the end of its fiscal (January 31), but had only opened a net 140 during the latest year. The next largest market was Mexico with 774, followed by Japan at 398, the UK at 315, Brazil at 295, and Canada at 278. Unfortunately, none of these countries would qualify as a robust growth market. However, the company did have 56 stores in China. Looking at the opening of Wal-Mart stores in international markets over the last five years, the percent growth has been in China and Brazil.
Over the last three years, comparative store sales in the U.S. have only grown a little over 3% per annum (March same store sales rose only 1.3%). Total annual net income at Wal-Mart has gone up about 10% per year over this period and hit $312.4 billion in the period ending January 31, 2006. Net income rose to $11.2 billion.
The years of 15% to 20% top-line growth are probably behind Wal-Mart as are the years of 8% or 9% comparable store sales increases in the U.S.
None of this is any news, but the issues that might put Wal-Mart on a faster growth track involve international barriers that will not be easily resolved.
Reuters (www.reuters.com) has said that Wal-Mart will hire 150,000 employees in China in the next five year. According to the news agency, Wal-Mart has 30,000 employees there today. Wal-Mart Asia chief Joe Hatfield indicated to Reuters that he believes Wal-Mart could be as big in China in 20 years as it is in the U.S. today. One has to wonder whether the Chinese will be all right with that. The idea of a U.S. company dominating any critical industry in China may not be something that the regime there would find anymore palatable than a huge presence from the U.S. in consumer electronics or the financial industry. At the very least, having that large a portion of the retail market in China could present problems with a government that has been fickle in its relationships with U.S companies.
The other market one would think Wal-Mart would go after with a vengeance is India. But, CNNMoney (money.cnn.com) pointed out recently that, due to the "foreign direct investment (FDI) regulations", India does not allow international companies to open retail outlets in the country. Nettlesome problem.
Wal-Mart tops the Forture Global 500 (www.fortune.com) as the world's largest company. It has an army of employees that numbers 1.8 million. But, it has begun to bump its head up against the ceiling in its home market and probably will in several others like the UK as well. The costs of opening stores in urban markets in this country is not as low as it was in Wal-Mart's traditional geographic strongholds.
Wal-Mart is now large enough so that it is actually at the mercy of foreign governments for what could be the lion's share of its growth. It puts a company that determined its own fate for so many years in the odd position of having to lobby for its next significant opportunity.
The company's stock, which traded near $60 two years ago rarely gets close to $50 now. Wal-Mart absolutely has to show that it can be one of the two or three dominant retailers in China, which means staying clear of interference from the Chinese government. Or the company has to demonstrate that India is willing to open the door to having a huge presence in that market. Until Wal-Mart can indicate to investors that one or both of these countries will offer the kind of unfettered growth that the company had in the U.S. for decades, the share price is unlikely to get any traction.
Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He was also president of Switchboard.com when it was the 10th most visited site in the world, according to MediaMetrix. He has been chief executive of FutureSource, LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in the companies he writes about.
posted by douglas mcintyre at 4:21 PM
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