Wal-Mart Stores, Inc. Needs a Drastic Overhaul to Turn Its Stock Price Around
It’s tough to be a retailer in this cloudy economic climate and even worse when the stock market hates you. That’s what happened to Wal-Mart Stores, Inc. (NYSE:WMT) last Wednesday after a miserable outlook sent sellers to the exits, driving the share price down 10%. But what happened to Walmart stock is not isolated in my view.
The share price of this former retail icon and Wall Street bellwether fell to a 52-week low at just above $58.00. We saw several brokers jumping off, but the stock is probably safe from its five-year low of $48.31 in August 2011.
I wouldn’t be a buyer now but aggressive traders could trade WMT on additional weakness. Option traders could also look at some call option writing to generate some premium income if they believe the upside moves are limited.
Why Walmart Failed
What happened with Walmart is simply its failure to grow with the times and adapt to the new landscape for the retail sector. This means innovative marketing, fresh ideas, and a strong online presence, including the ability to deliver goods effectively to customers. Amazon.com, Inc. (NASDAQ:AMZN) is one of the best in this area and makes the online experience seamless for customers.
Simply look at the price chart of WMT stock versus Amazon.com and you’ll see the major divergence between the two over the past year.
Chart courtesy of www.StockCharts.com
Amazon.com doesn’t have stores but has built its foundation around developing a strong online presence, something Walmart has failed to do. This will be the challenge.
Walmart said it is working on a model that allows customers to pick up orders at the store. Again Best Buy Co., Inc. has been doing this for years and honestly, it’s not a big deal.
Recall my recent discussion of Netflix, Inc. and how Blockbuster went the way of the dinosaur after failing to recognize the significance of the Internet until it was too late. Walmart may want to consider this or it could face years of trying to steer the ship clear. It’s not about re-inventing the wheel, but simply trying to make it spin more effectively.
Target Corporation (NYSE:TGT), for instance, reinvented itself in the stock market after a horrible failure to expand into Canada. Target returned to its roots as a U.S.-centric company and has focused on rebuilding its brand, including the selling of specialized brands you cannot find elsewhere. The company is also selling groceries and goods in other high-demand areas.
Costco Wholesale Corporation (NASDAQ:COST) is another winner that continues to deliver consistency and results to Wall Street, a great stock for the buy-and-hold investor’s portfolio.
The reality is that Walmart has size and capital but will need to change its archaic ways. It will take some time. In the meantime, the Walmart stock is dead money, so look elsewhere to shop.
As we move forward towards Black Friday, Cyber Monday, and the holiday shopping season, we will see which retailers deliver and which fail.