Question

Walmart 2019

Data from internet

individual analysis = security analysis

Comprising of stock valuation

SWOT

Estimating Intrinsic Value

Discounted cash flow

And dividend discount

Answer 1

Walmart, one of the nation's largest employers, has for a time now been in damage control mode when it comes to workplace issues, in an effort to undo years of bad press about low wages and difficult working conditions. Last year, the retail giant bumped its starting wages, instituted new training programs and has made it easier to advance to higher paying positions, although rivals Target and Costco's starting pay continues to outpace its $11-per-hour minimum. This year new incentives were also added for attendance, among other workforce initiatives.

The latest effort entails the hire of employees to work just under the store manager level, to help motivate and train store employees, according to the Bloomberg report. Such new "business leads" will take responsibility for finances and hiring, and earn 10% more than traditional assistant managers, while "team leads" reporting to them, whose hourly pay starts at $18, will oversee groups of employees of about 10 or so, Bloomberg said. Incentives like lunch with the boss are earned through the accumulation of gold stickers.

Such moves, which can foster a better workplace culture, are being seen more widely and across industries, in part to help retain workers and improve customer service, according to Kevin Johnson, a labor and employment law attorney at Florida law firm Johnson Jackson.

"When you ask what kind of culture people want to work in, it usually comes down to one in which their voices are heard, their work has meaning, they have the opportunity to learn and get promoted, and their managers are empowered to make decisions, help employees, and generally act rationally," he told Retail Dive in an email. "I don't have any inside information, but it sounds like Wal-Mart may be working on trying to improve the culture for the employees and improve its management performance at the same time. Pushing more responsibility down to hourly employees, improving training efforts for hourlies, giving them a voice, and giving them recognition are all strategies that have been used to try to improve workplace culture."

That's especially true at a time when workers are scarce and competition is fierce, according to branding strategist Brian Kelly, president of consultancy Brian Brands. "In order to protect higher end share [Walmart] needs to fix the People situation," he told Retail Dive in an email. "How it's structured and salaried is beyond my knowledge. I do know that my local [Walmart] has many more folks who seem to understand a shopper's expectations, they demonstrate a sense of urgency and desire to resolve an issue. And not send the shopper off to sort it on their own. Less than a half mile away is a Target that got remodeled about 9 months ago. It is kicking butt. And so Walmart is reacting."

Talented workers also can get expensive as they rise into the ranks, and Kelly said it sounds like Walmart is expanding responsibilities without paying quite as much as they would a top manager. "This naturally happens in retail orgs as long term associates accumulate salary increases and price themselves into more responsibility," he said. "At some point, store manager has too few heads to care for the customer aka cover the floor. FTE (full time equivalent) typically also receive benefits, ... so the incentive is to keep the FTEs to a minimum. But then you take out the expertise that drives a compelling experience. Therein lies the rub."

Indeed, it can be a tricky project, Johnson noted, adding that "the devil is in the details."

"Any significant change in the structure of leadership will likely be met with initial resistance while employees try to figure out whether to give management the benefit of the doubt," he said. Johnson also noted the concerns seen on Reddit "about the potential loss of desirable shifts, the effect on employee compensation, the potential chaos of trying to get through the day with fewer managers, and the fact that the star system strikes some as a bit too much like their child's elementary school class. My snap opinion is that Wal-Mart looks like it is trying to build a better culture, but will have to prove that it can overcome all of the operational hurdles and trust issues that significant cultural change always entails. Winning those battles is what leadership is all about."

Walmart made sweeping changes to its e-commerce organization for the second time since it acquired online retailer Jet.com and appointed company founder Marc Lore as head of its own e-commerce division. The latest move, announced in a memo to Walmart associates on Jan. 13, further consolidates the retail giant’s online properties, and strengthens Lore’s influence on the chain’s digital strategy as it faces-off with Amazon.

In November, the company revealed several management changes in the e-commerce division, including at least three high-ranking departures. This month’s announcement focuses more on the integration of operations, technology, marketing and sales across all its web properties, signaling clear validation of Lore's role at Walmart, and Walmart management’s satisfaction with his progress to date.

The memo unveils a new structure, which it says integrates and builds on the division’s collective assortment and site experience capabilities, including shared buying, item set-up, pricing, analytics and website management responsibilities.

The change represent a significant evolution of Walmart's e-commerce and online go-to-market strategy. And, as far as it goes, makes perfect sense. The question is does it go far enough?

NEW STRATEGY

Scott Hilton, who also came on board with the Jet.com acquisition, has been promoted to senior VP and chief revenue officer for e-commerce. In this role, he will lead the new, single organization that brings together Walmart.com, Jet.com, Hayneedle.com and other sites.

Walmart has also brought together its previously disparate e-commerce technology groups under Jeremy King, former head of WalmartLabs, who has been promoted to executive VP and chief technology officer. The integrated technology team will be tasked with creating a seamless experiences for Walmart’s customers – whether they shop in-store, through the app or online, the memo says.

Unifying all digital properties and operations (retail, technology and product) will allow for greater operational efficiency, increased buying power, a more effective supply chain, improved customer service, and greater consistency in customer experience. But, competing with Amazon will require more than just greater efficiencies. To this end Walmart is creating an Incubation and Strategic Partnerships group, to focus on identifying and incubating new ideas in the digital entertainment and internet of things (IoT) space.

The incubation group includes the so-called VUDU team, which delivers high definition entertainment streaming services. VUDU had been operating in its own silo up to now. Being part of a larger group should help to mainstream its innovative work into the core product. Digital entertainment and IoT represent major growth areas in retail right now – just look at what’s happening with Netflix, and Amazon Video, Echo and Dash, for example.

However, one cannot help but notice that, save for centralizing marketing for all properties digital and non, under joint leadership of .com and in-store, Walmart is still keeping e-commerce at arm’s length, treating it as its own corporation.

Combining marketing is a positive move that can drive a customer-centric approach, which is truly the only way as an omnichannel retailer Walmart can ensure relevance and consistency in how shoppers experience its brand.

On the other hand keeping e-commerce retail separate from in-store retail, for example, almost guarantees continued conflicts between Walmart buying teams as they compete for manufacturer trade funding. Supply chain and inventory is another area where Walmart falls down in-store. This in turn limits their buy online / pick up in store capabilities, at a time when click and collect is growing in popularity with consumers.

In building a large e-commerce division, separate from its main in-store business, to compete with Amazon, Walmart is somewhat missing the point. Competing directly with Amazon, on Amazon’s terms is a fool’s errand.

Walmart’s shareholders have very different quarterly expectations to Amazon’s, and as such, Walmart will never be able to invest in e-commerce to the same relative depth as the online leader. Despite the best efforts of Marc Lore and his team, it is always going to be on the back-foot.

Further, its core value proposition of “Every Day Low Prices” probably isn’t sustainable online, as technology enables Amazon and others price match – every day. Walmart will need to reinvent what “Every Day Low Prices” means to online shoppers, rethinking mechanics for delivering on the promise. This is a critical area where Jet.com can help, having had some success building a price model that delivers below Amazon's prices.

Ultimately Walmart’s best path to success is to play to its existing strengths, by layering its e-commerce and technology capabilities on top of its distribution and physical store infrastructure – from product education, to closing the sale – to reach the shopper where, when and how she wants.

Walmart executives acknowledged it has an inventory management problem: the company lost $3 billion in 2013 sales due to out of stock merchandise while its inventory grew at a faster rate than its sales. Even though the company cited poor weather, higher than expected tax rates, and an economically challenged customer base as its chief challenges, the inventory problem certainly contributed to its lower earnings for the quarter ending April 30.

While I advocated a change in technology and processes to improve its inventory management in April (Walmart’s Out Of Stock Problem: Only Half The Story?), the comments posted by thoughtful Walmart employees after the fact revealed store back rooms are out of control. A combination of poor procedures and too few payroll hours allocated to managing the space make it almost impossible to find product when needed. While Walmart hopes to solve the problem by adding payroll hours back into the stores, there is a technology that could help the company manage what it has in its back rooms much better. Given that Walmart was an early adopter of the technology, it’s surprising they haven’t given it another look. That technology is Radio Frequency Identification (RFID).

RFID chips come in a variety of flavors. A form of these chips power the devices used for automated tolls. They are also implanted in the necks of dogs and cats so they can be scanned and identified if they get lost and picked up by a stranger. Different types of RFID tags are used for different applications, but the most basic are passive tags that require relatively close proximity to be read.

Walmart itself implemented the technology in its supply chain back in 2003. Linda Dillman, then CIO of the retailer, issued the now-infamous mandate to its top 100 suppliers requiring that all cases and pallets be RFID-tagged within eighteen months. The rest of its suppliers were expected to do the same by the end of 2006. By early 2009, the project was abandoned. The reason was pretty obvious to retail observers: It solved no discernible problem. Other simpler technologies, specifically bar codes, served the same purpose more or less. The argument for RFID was that it didn’t require line-of-sight to be read. Unfortunately, radio frequencies don’t pass through liquids and metal well, so you couldn’t get the kind of reliable read rate originally anticipated. So we were back to square one, requiring line-of-sight. RFID was DOA.

Since that time other retailers, most notably Macy’s, have experimented with item-level RFID for apparel and footwear. Early pilots have achieved some excellent results. My opinion has always been that full benefits of RFID would only come when you could achieve full coverage in a store. Otherwise, I couldn’t see how a financial auditor would approve the counts.

briefing with a company named Impinj Inc, a maker of RFID chips and readers, that triggered a whole set of new thoughts. Reader technologies have come a long way (translation: they’ve gotten a LOT cheaper). Impinj, in particular makes a reader called Speedway xArray that allows for wide-area monitoring (approximately 40-foot-diameter read coverage) and provides continuous reporting of what’s in its “sights.” From a pure technology standpoint, this is exactly what retailers have needed to make RFID effective. Tag prices have already come down to reasonable levels for most products, especially apparel. Smaller footprint stores could achieve full coverage in the store at a very reasonable price point and ultimately eliminate the need for physical inventories (an incredibly costly exercise). This in itself is a HUGE opportunity, but I also saw a pretty big application for the back rooms of large-box retailers like Walmart.

I don’t think fixed readers would completely solve Walmart’s back room problem. After all, there’s a lot of metal in those rooms. But supplement them with one or two hand-held devices, and you could get a really good sense of what’s available in the room, whether or not it has been entered into the company’s receiving system. If Walmart made this investment along with bringing some payroll back into the store to work the system, I believe it could get its back rooms and inventory management under control within a year. The company would get a major bang for its payroll buck.

I’ve focused a lot on Walmart’s problem in this piece, but I wanted to emphasize again the incredible value that specialty retailers would accrue from now-affordable full in-store coverage. One of retail’s dirty little secrets is the amount of money spent each year on taking store physical inventories. This includes preparing the store, making sure receiving cut-offs are clean, tidying up the back room, and the cost of actually counting the merchandise (typically performed by outside companies) and reconciling counts. The cost is all the more frustrating when we consider that these counts are rarely 100% accurate. They’re likely close in aggregate financial value, but by item, not so much.

I’ve waited a decade for the hype about RFID to subside and the benefits to kick in. I always knew those benefits would be higher for apparel than for cans of peas. And I knew they were tied not to tag costs, but to reader costs. It appears the day is finally here. The tags can be de-activated before they leave stores/distribution centers to alleviate privacy concerns. This is one opportunity retailers have to both satisfy their customers and shareholders. Improved inventory visibility and accuracy coupled with reduced inventory investment is a winning formula no matter how you look at it.

This SWOT analysis of Walmart Inc. (formerly Wal-Mart Stores, Inc.) shows that the company’s leading position in the international retail industry is based on the utilization of organizational strengths and corresponding competitive advantages. These business advantages are used in countering the impacts of competing retailers and digital content distribution firms, such as Amazon, Target, Apple, and Google. In this case of Walmart, the SWOT analysis gives insights on the internal and external forces significant in the company’s strategy development in the retail industry. While these factors vary over time, the company’s growth depends on its ability to capitalize on its retail operational effectiveness and strengths. Also, in spite of the company’s weaknesses, its strengths are far more significant considerations. Walmart can use these strengths to exploit its opportunities in the retail market. The firm can also use its strengths to counteract the threats to its retail business, especially its e-commerce operations. Strategic implementations based on the SWOT factors are important in ensuring Walmart’s competitiveness and continued leadership as the biggest retailer in the world.

BUSINESS, MANAGEMENT

Walmart SWOT Analysis & Recommendations

UPDATED ONUPDATED ON FEBRUARY 19, 2019 BY NATHANIEL SMITHSON

A Walmart store’s entrance in Shenzhen, China. Walmart’s SWOT analysis shows that the company must prioritize using its strengths to exploit opportunities in the global retail market, including potentials in e-commerce. Weaknesses and threats should be secondary priorities for the company. (Photo: Public Domain)

This SWOT analysis of Walmart Inc. (formerly Wal-Mart Stores, Inc.) shows that the company’s leading position in the international retail industry is based on the utilization of organizational strengths and corresponding competitive advantages. These business advantages are used in countering the impacts of competing retailers and digital content distribution firms, such as Amazon, Target, Apple, and Google. In this case of Walmart, the SWOT analysis gives insights on the internal and external forces significant in the company’s strategy development in the retail industry. While these factors vary over time, the company’s growth depends on its ability to capitalize on its retail operational effectiveness and strengths. Also, in spite of the company’s weaknesses, its strengths are far more significant considerations. Walmart can use these strengths to exploit its opportunities in the retail market. The firm can also use its strengths to counteract the threats to its retail business, especially its e-commerce operations. Strategic implementations based on the SWOT factors are important in ensuring Walmart’s competitiveness and continued leadership as the biggest retailer in the world.

This SWOT analysis of Walmart shows that the company can have higher long-term success potential through aggressive global expansion, especially in retail markets in developing countries. The company’s internal strategic factors (strengths and weaknesses) represent capabilities for this kind of expansion. However, the firm’s external strategic factors (opportunities and threats) require the creation of more value through the retail service value chain, to overcome the hindering force of competitors, especially strong local and regional incumbents. These considerations are in line with the factors identified in the PESTEL/PESTLE analysis of Walmart Inc.

Walmart’s Strengths (Internal Forces)

In this part of the SWOT analysis, Walmart’s strengths are all related to the size of its business. These competitive strengths enable the company to withstand threats despite its weaknesses as a low-cost retailer. For exploiting global expansion opportunities, Walmart’s strengths for further global growth are:

1. Global organizational size
2. Global supply chain
3. High efficiency of supply chain

4. Walmart’s global organizational size gives the business deep pockets to fund growth and expansion. The global supply chain also provides business resilience from market-specific risks, such as disruptions in local supply chains. In addition, Walmart’s supply chain has high efficiency because of advanced technologies for monitoring and controlling the movement of products from suppliers to its stores. In this SWOT analysis, such organizational and business strengths provide competitive advantage, especially against smaller retailers.

   Walmart’s Weaknesses (Internal Forces)

   Walmart’s weaknesses impose challenges on the firm’s ability to withstand the threats also identified in this SWOT analysis. These weaknesses are directly related to the company’s generic strategy and its implications in business development, capabilities, resources, and profit margins. Walmart uses the cost leadership generic strategy, which leads to the following weaknesses:

5. Thin profit margins
6. Easily copied business model
7. Competitive disadvantage against high-end specialty sellers

8. Thin profit margins are a typical effect of using the cost leadership strategy. Because Walmart minimizes selling prices, it also needs to minimize profit margins and rely more on sales volume. The cost leadership strategy also makes Walmart’s business model easy to copy. The firm does not have significant competitive differentiators, except for its business size and prices. Furthermore, high-end specialty retailers have the upper hand in attracting quality-seeking buyers who have low sensitivity to price. Thus, the weaknesses presented in this SWOT analysis of Walmart reflect business vulnerability to innovative competitors and disruptions in the industry environment, especially in the presence of major e-commerce firms like Amazon.

   Opportunities for Walmart (External Forces)

   Walmart’s opportunities are mainly about expansion and improving business practices. These opportunities are linked to the global economic situation. Also, the human resources situation in the organization presents issues that are actually opportunities for the firm to improve. In this portion of the SWOT analysis, Walmart’s opportunities are:

9. Expansion in developing countries
10. Improvement in human resource practices to develop competitiveness in the labor market
11. Improvement in quality standards

12. Walmart’s opportunity to expand in developing countries is based on their high-growth economic condition. On the other hand, the opportunities in HR practices directly relate to the criticisms on the company’s employment practices. Improving these practices can attract higher quality workers relative to other retailers. Walmart’s opportunity to improve quality standards addresses consumers’ concerns on the health effects of using low-cost and sometimes low-quality products. This part of the SWOT analysis presents some ways for addressing the company’s weaknesses and the threats to its retail business.

    Threats Facing Walmart (External Forces)

    The threats to Walmart’s business are linked to the retail market condition and the changes in consumer perceptions about the products they buy. These factors should compel the company to make some competitive strategic changes. In the context of this SWOT analysis, the threats to Walmart are:

13. Healthy lifestyle trend
14. Aggressive competition
15. Online retailers of various sizes

16. The healthy lifestyle trend is a threat and an opportunity. It threatens Walmart’s business because many of the company’s goods are perceived as not healthful, not organic or not natural. It is an opportunity for the company to improve its quality standards. However, this factor is more of a threat because the retail giant currently does not prioritize healthful products in its stores. Aggressive competition is another threat because other large retailers could use aggressive marketing strategies to capture Walmart’s customers. Also, small-scale and large online sellers are a threat against the company’s retail business. Through the Internet, small sellers or individuals are able to compete and bypass the company’s presence by using their own websites to sell products to online consumers. Similarly, in this part of the SWOT analysis of Walmart Inc., large online retailers have the ability to attract and satisfy consumers, especially those who prefer the convenience of online transactions.

    Recommendations based on SWOT Analysis of Walmart Inc.

    This SWOT analysis shows that Walmart must prioritize using its strengths to exploit opportunities in the global retail market. The company’s weaknesses and threats should be secondary priorities. Walmart can improve its HR management standards and product quality standards to improve firm performance. Also, the company must continue expanding its business to exploit economic opportunities in developing markets. Walmart’s strengths based on its global organizational size, global supply chain, and high efficiency of the supply chain can support aggressive global expansion in foreign markets. Still, the company must implement strategic changes based on the weaknesses and threats presented in this SWOT analysis, to prepare the business for the long-term developments of a globalized and increasingly online retail market.

17. Walmart Intrinsic Value: Projected FCF

    : $73.22 (As of Today)

    Since the intrinsic value calculations based on Discounted Cash Flow Intrinsic Value: DCF (FCF Based), or Discounted Earnings Intrinsic Value: DCF (Earnings Based) cannot be applied to companies without consistent revenue and earnings, GuruFocus developed a valuation model based on normalized Free Cash Flow and Book Value of the company. The details of how we calculate the intrinsic value of stocks are described in detail here.

    As of today, Walmart's projected FCF intrinsic value is $73.22. The stock price of Walmart is $114.60. Therefore, Walmart's Price to Intrinsic Value: Projected FCF Ratio of today is 1.6.

    NYSE:WMT' s Price-to-Intrinsic-Value-Projected-FCF Range Over the Past 10 Years
    Min: 0.93   Max: 42.43
    Current: 1.56

    0.93

    42.43

    During the past 13 years, the highest Price to Intrinsic Value: Projected FCF Ratio of Walmart was 42.43. The lowest was 0.93. And the median was 1.80.

    NYSE:WMT's Price-to-Intrinsic-Value-Projected-FCF is ranked lower than
    54% of the 251 Companies
    in the Retail - Defensive industry.
    

    * Competitive companies are chosen from companies within the same industry, with headquarter located in same country, with closest market capitalization; x-axis shows the market cap, and y-axis shows the term value; the bigger the dot, the larger the market cap.

    Walmart Intrinsic Value: Projected FCF Distribution

    * The bar in red indicates where Walmart's Intrinsic Value: Projected FCF falls into.

    Intrinsic Value: Projected FCFCompany CountIntrinsic Value: Projected FCF Industry Distribution-4601-4256.15-3911.3-3566.45-3221.6-2876.75-2531.9-2187.05-1842.2-1497.35-1152.5-807.65-462.8-117.95226.9571.75916.61261.451606.31951.152296050100150200GuruFocus.com

    Intrinsic Value: Projected FCFCompany CountIntrinsic Value: Projected FCF Sector Distribution-64307-60983.6-57660.2-54336.8-51013.4-47690-44366.6-41043.2-37719.8-34396.4-31073-27749.6-24426.2-21102.8-17779.4-14456-11132.6-7809.2-4485.8-1162.42161050010001500GuruFocus.com

    Walmart Intrinsic Value: Projected FCF Calculation

    Since the intrinsic value calculations based on Discounted Cash Flow Intrinsic Value: DCF (FCF Based), or Discounted Earnings Intrinsic Value: DCF (Earnings Based) cannot be applied to companies without consistent revenue and earnings, GuruFocus developed a valuation model based on normalized Free Cash Flow and Book Value of the company.

    The details of how we calculate the intrinsic value of stocks are described in detail here.

    This method smooths out the free cash flow over the past 6-7 years, multiplies the results by a growth multiple, and adds a portion of total equity.

    Value = ((Growth Multiple)*Free Cash Flow(6 year avg) + 0.8*Total Stockholders Equity(most recent))/Shares Outstanding (Diluted Average)

    In the case of negative total equity, the following formula is used (see the Total Equity section for the reason):

    Value = ((Growth Multiple)*Free Cash Flow(6 year avg) + Total Stockholders Equity(most recent)/0.8)/Shares Outstanding (Diluted Average)