Is Wal-Mart's Empire About to Fall?

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It seems absurd that the corporate fortress known as Wal-Mart Stores  (NYSE: WMT  ) could ever possibly show signs of weakness. After all, Wal-Mart is the largest retailer in the world, with a market capitalization of $240 billion. Its volume of business is simply staggering: Wal-Mart registered $466 billion in sales in fiscal 2013.

And yet, there are cracks appearing in Wal-Mart's armor. Its customer base is under duress, it's suffering from the turmoil swirling through the emerging markets, and it's now facing a severe public backlash for its employment practices that is pushing shoppers toward one of its major rivals. Wal-Mart's recently issued guidance confirms that its problems are a serious issue. As a result, while just a few years ago it would have seemed ludicrous to ask -- is Wal-Mart's age of retail dominance coming to an end?

Shoppers are voting with their feet
Wal-Mart recently lowered its earnings guidance for both the fourth quarter and full fiscal year, and it expects profits to be below previous expectations for both periods. The company gave several reasons for this. One particularly concerning factor was underperforming stores in the emerging markets. Specifically, China and Brazil are looking extremely weak, which prompted Wal-Mart to close 50 units there.

Indeed, Wal-Mart is struggling in the emerging markets such as China and Brazil, where there are now significant signs of an economic slowdown. That's why investors interested in retailers posting strong growth in developing nations should consider PriceSmart, (NASDAQ: PSMT  ) .

PriceSmart is a much smaller retailer. It operates just 32 warehouse clubs, but those units are spread across 12 countries. Its focus is on Latin America, and the results speak for themselves. Its comparable-store sales increased 6.7% in December and 7.5% in the most recent quarter. PriceSmart is still growing locations in its key geographic focus: The company will debut a new warehouse club in Colombia that should open in November.

Even Wal-Mart's operations in the United States aren't running smoothly. Despite consumer-oriented economic data, such as retail sales, looking fairly strong over the holiday period, Wal-Mart largely missed out. As a result, the company warned investors that comparable-store sales, which measure sales only at locations open at least one year, will be slightly negative to the guidance issued after its third-quarter earnings report.

This is true at both its Wal-Mart U.S. stores as well as at Sam's Club, where the company announced it would lay off 2,300 workers due to poor performance. This is part of a broader restructuring initiative that will shave another $0.01 per share off fourth-quarter earnings.

Is weather a fair excuse?
Wal-Mart attributed much of its U.S. underperformance to the poor winter weather. It's true that the severe winter storms took a bite out of domestic consumer spending. Of course, it's worth noting that other U.S. retailers must face the same conditions. It's looking more and more like Costco Wholesale (NASDAQ: COST  ) is simply grabbing customers away from Wal-Mart.

Costco's holiday comps look pretty solid, even with the poor weather, and stand in stark contrast to Wal-Mart's woes. For instance, in the fiscal quarter ended Nov. 24, Costco grew same-store sales by 3%. On top of that solid performance, Costco announced its comparable-store sales increased another 3% in December, or 5% after stripping out gasoline.

Wal-Mart's dominance is waning
There's little doubt that Wal-Mart is still the retailing king due to its massive size. However, as a result of its poor performance both in the United States and the emerging markets, it appears Wal-Mart's dominance is starting to fade somewhat. This would have been unimaginable just a few years ago, but increasing pressure from competitors and a worsening public image have dealt Wal-Mart some severe body blows.

Wal-Mart isn't expecting great things in its upcoming quarter and is giving investors fair warning. By comparison, PriceSmart is excelling in Latin America, and Costco is showing that not all U.S. retailers are hurting because of the weather.

To learn about two retailers with especially good prospects, take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform and how they're planning to ride the waves of retail's changing tide. You can access it by clicking here.


Read/Post Comments (32) | Recommend This Article (13)

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  • Report this Comment On February 01, 2014, at 5:16 PM, PhoenixJack wrote:

    The Wal-Mart in my part of town has seen better days. The store ha 18 check-up counters, but only 3 or 4 working at any time. There is always 8+ number of people standing in line. The parking lot is never clean and it is always junk cars, bums, homeless people, and some of the sickest people that you have ever seen. It is a very unsafe place to be.

  • Report this Comment On February 01, 2014, at 5:39 PM, Tyeward wrote:

    Target is better.

  • Report this Comment On February 01, 2014, at 6:15 PM, walmartmgt1 wrote:

    I work for Wal-Mart as part of their mgt team, in avon Ohio, the upper mgt mistreat their employees in one week they fired 9 associates their personnel manager put in wrong codes just to have employees fired, the upper management encourage other management to go against other managers, A post it note was posted in our office stating /Jail/theif, when I confronted upper management they all laugh, My Mhrm stated to me I'm the one creating problem and it just a post it note. it so much going on at that store, they said the store is built on integrity? hummm::: is there any? the managers all lies to associates and they have a reputation of turning thing around so the employees will be the one the blames falls on. their practices and work ethics are very bad, Being in Management they were always looking to blame me on everything even the Managers would send emails to the ASSET Protection manager requesting my whereabouts when merchandise were being stolen from the store. there is so much to relate to I can write an entire book.

  • Report this Comment On February 01, 2014, at 6:51 PM, basha0810 wrote:

    Why don't you ask a consumer? Have you been into Walmart lately? They've raised their prices and they've lowered their inventory. Not to mention, every store I've gone into is filthy and employee morale is just as low as their inventory. It's an absolutely awful experience. Every time I leave I vow never to return. Why do I? Because it's a one stop shop and I like that BUT as soon as something better comes along, I'm gone. I'm not a faithful Walmart fan. I feel trapped every time I go there. It's like that addiction to chocolate. You tell yourself that you've got to cut down and before you know it you're eating another bag of truffles. Walmart has pushed me to seriously shop local businesses. I'll miss it and have my withdrawals but I've really had it with this place. They rode the wave for a long time and they've forgotten about the consumer AND the employee, two that have made them who they are.

  • Report this Comment On February 01, 2014, at 7:15 PM, MaxxTheKatt wrote:

    The wife and I don't shop Wal Mart. There is no real savings there. They are just an outlet market for Chinese junk. We shop Target, Costco, Krogers and Tom Thumb. My wife thought it odd that she could come out of Krogers with more food for less money than Wal Mart. Wal Mart like Kmart, Sears and perhaps JC Pennys, are on the way out.

  • Report this Comment On February 01, 2014, at 7:53 PM, pepil wrote:

    Wal-marts are dirty, really filthy and full of foreign and rude staff, they go away from what made them great. Prices can be great, but the stores look like a bomb went off in them, inventory all over, bathrooms dirty, pharmacys and their customers look like a 3rd world country, how long can you go there and not feel like you need a shower, it really is the " people " of WalMart that are ruining it, slowly but surely

  • Report this Comment On February 01, 2014, at 7:57 PM, Mentallect wrote:

    I have been going to Target more than Wal-Mart and Costcos. I hate they mistreat their workers.

  • Report this Comment On February 01, 2014, at 8:54 PM, herky46q wrote:

    Items I look for are often not in stock. The prices are often higher than other stores. The latest problem is that they don't have any shopping baskets. I let Wal-Mart know in their survey how much that diminished my shopping experience. Now I avoid it as much as possible.

  • Report this Comment On February 01, 2014, at 8:59 PM, TreyAnas wrote:

    Mentallect ...

    Costco is great to its employees. They pay relatively well and have great benefits. Moreover, employees in the Costcos I've visited (maybe 4) have been polite and eager-to-please without fail. That doesn't mean you'd enjoy the shopping experience. It's just that comparing their treatment of employees to Walmart's is ridiculous.

  • Report this Comment On February 01, 2014, at 9:18 PM, hlain46227 wrote:

    I pretty much limit my visits to Wal-Mart to the pharmacy. Even then they manage to screw up my prescriptions more often then not. As has been stated elsewhere their prices are now often higher then other retailers, even though they have 20-25 check out lines only 5-6, at the very most, are open at any given time. The associates are either surly and not helpful at all (but who can blame them?) or do not speak English. They seem to be really slow at re-stocking shelves, and I always feel more then a little guilty shopping there because I know how they, the largest and most profitable retailer in the world, treat their employees. Add to that the fact that Wal-Mart has virtually wiped out small, locally owned businesses everywhere they go. I worked in a sparsely populated rural area in a new industrial park outside of Indianapolis. There was a small general store nearby that had been in business, very successfully, for 40+ years. The area started building up, Wal-Mart moved in across the street, the locally owned store's business vanished, the owner had to file bankruptcy and closed the store and then a few weeks later committed suicide. I'm thinking this wasn't an isolated incident.

  • Report this Comment On February 01, 2014, at 9:26 PM, KariM wrote:

    It's Walmart not Wal-Mart. They quit splitting it years ago.

  • Report this Comment On February 01, 2014, at 9:42 PM, saidnuff wrote:

    i prefer Nordstrom

  • Report this Comment On February 01, 2014, at 9:56 PM, apalmerjr wrote:

    Nothing wrong with Wal'll be much better when this global warming lets up and we can get the snow off their parking lot...

  • Report this Comment On February 01, 2014, at 10:00 PM, Rotomoley wrote:

    I agree. Walmart is beginning to fall. It just didn't adapt to the times. Example, Walmart internet prices lower than in store prices and picked up in store. That confuses people and it means Walmart has lost it's way. It's also saturated many of its markets, especially the US. With pure capitalism you can't grow for ever. As soon as that stops/waned someone else takes over. Good or bad this the way our system works. (Personally, I find this problematic in a future world market containing millions of suppliers and only so many customers with money. Add automation, which reduces average real salaries, and you have a recipe for world decline. The model must change I think.)

  • Report this Comment On February 01, 2014, at 10:25 PM, Tommylee2 wrote:

    Don't count Wal-Mart out and run off and sell your stack. Take into account that millions are out of work, more than there have been in a long long time, and the money wasn't there for Christmas like it used to be and even everyday spending is watched more carefully by everyone. Clothing is being bought at 2nd hand stores if possible; food at the lowest price place around; some adults are foregoing gist to each other completely for birthdays, Christmas, valentines day, etc. because the money isn't there any more. My personal finances dictated a meager Christmas this year and unless things change, and I doubt they will, it doesn't look like we will be going on any buying sprees this year either.

  • Report this Comment On February 01, 2014, at 10:44 PM, tkofsa wrote:

    what about their service itself the service at wal mart has gotten so terrible we drive father away even though wal mart is closer cause their service is so bad

  • Report this Comment On February 01, 2014, at 10:53 PM, roger142 wrote:

    I like Wal-Mart, but I still like Sears and K-Mart also. Sears lasted 100 years before changing social shopping habits left them behind. K-Mart screwed up trying to out do Target and ignoring Wal-Mart.

    This article is why I no longer invest in retail or internet stocks.

  • Report this Comment On February 02, 2014, at 12:34 AM, jc850 wrote:

    Wallmart had the right idea when Sam Walton was alive. He wanted better products and the best customer service possible. What changed was greed by his kids. China has cheap labor to make the profits higher.

    What makes the products so cheap is their distribution warehouses that are placed every 500 miles apart. And they have trucks coming in all the time to replenish. But, getting workers to stock is the new problem for them. Treat workers bad, and you get what you pay for.

    Now every product they sell comes from a third world country. When our manufacturing is going down the drain, this makes customers now realize that buying from them all these years is causing the problem.

    They got the attitude that workers are a dime a dozen. Word gets out, and sooner or later only not for long workers work there. This is what you see now. And the stores look like they've been through a war.

  • Report this Comment On February 02, 2014, at 2:27 AM, KingSully06 wrote:

    I used to work at the Walmart Superstore in Vancouver, Wa. I was on the 2nd shift (4pm-1am) unloading trucks and such. Management there is just NOT GOOD. There was maybe 2-3 decent assistant managers, 2-3 supervisors that were of any good. I remember having a conversation with one shift manager and my supervisor. I thought the treatment going on from my supervisor wasn't meshing well. They both start twisting it into me wanting them to "baby' us. Which wasn't the case. I simply had asked that if my supervisor saw he pissed someone off, to pull them aside at the proper time and defuse it. And once I quoted the actual Walmart policy from training, the shift manager, who I got along with pretty well before hand, never saw my the same. It's one thing to be trained and quoted how Walmart is and how the employees should act. It's another thing for them to actually FOLLOW the rules. Especially the managers. I can honestly say if things were actually held to standard, the managers (most of them) would be reprimanded at least 3 times a week. And be forced to take training again to be reminded of how things SHOULD be. Now, don't get me wrong. Like I said earlier, there were a few that were decent. You could easily tell the moral of the group based on who was running what shift. It was that night and day. The good ones KNEW that if they got promoted to another store and came back looking for people, most would follow. I know of one manager who could probably take half the store with him if he asked. Why? Because he showed respect, he was honest and up front (even if it wasn't what you wanted to hear), he listened and he did what he said he would do. If he couldn't, he apologized and would make it up if he could. All he asked in return was you work hard and treat him and others the same way. He was obviously a diamond in a vast see of crap....And pay? yeah, virtually all are underpaid. Especially for what the workers actually do. Treatment? Just survive is the best way. Go in and don't expect anything. Your day will go smoother. They want hard working, subservient workers. Don't speak up. Don't talk back and don't have an opinion. Just work and do what your told, regardless of treatment. I will say that my shift mates, most were great to work with and Iam still friends with some. It really is the ones running the show that cause almost all the issues. And cleanliness? yeah, that falls badly on most stores. The store I worked at tried and really was one of the better kept stores. As for stock? That's not entirely the store's fault. But yeah, they could do better. I am not surprised things are going south for them. I am not surprised people are going to other stores. Even if they have to pay a little more. No one wants to go to a place where it obvious employees are very unhappy and are not afraid to let people know; where stores are mostly trashed and no one cares and where customers really are not as important as Walmart claims they are. Things need to change. But, Walmart's ego won't let needs something BAD to shake them. Who knows when, what or if that'll happen...

  • Report this Comment On February 02, 2014, at 4:11 AM, PeterR wrote:

    The business models of Wal-Mart and COSTCO are opposite poles. Wal-Mart's business model is to ruthlessly exploit everybody -- employees, suppliers, customers -- to squeeze out every possible penny of short term profit. Employee turnover is high because Wal-Mart's part-time (no benefits) minimum wage-slaves leave as quickly as they can find another job. COSTCO is quite the opposite. Their business model is cooperative rather than ruthlessly oppressive. They pay a living wage and treat their employees and suppliers fairly. Their employees typically stay for many years. COSTCO is thriving.

    The face of a retail business is the low level customer-service employee, so systematically screwing your low level employees is self-defeating. When they are unhappy their apathy/attitude makes customers unhappy with the company. Do the Walton kids remember Eastern Airlines?

  • Report this Comment On February 02, 2014, at 7:55 AM, mchale207p wrote:

    2/2/2014 I like walmart...also kmart,target old navy and others,shop there,regularly.i feel as if I own the stores or as a customer am privileged to shop there and be a part of the profession.they always treat me real nice and I generally have a positive experience.i graduated fromst.stephen's and st.francis desales in 1969 and went to college for nurseing[suny Morrisville] I finally went to work for the local newspaper,delivering the paper for 10.00 a week..hey,it's something to do.kathleen McHale Geneva ny

  • Report this Comment On February 02, 2014, at 8:15 AM, gompy wrote:

    Walmart stores in the Eastern part of the USA, the ones I sometimes visit are ugly, disgusting, dirty and have no real merchandize. Boxes are all around the store waiting to be emptied and put on the shelves. If you need any assistance, no one is available. Seems all have a break at the same time. Who would want to shop in such store? Not me.

    Target on the other hand, their store is nice, clearn and guess what... there is merchandize to buy.

  • Report this Comment On February 02, 2014, at 8:34 AM, jimalfieri wrote:

    While I agree that the appearance of some Walmart stores has deteriorated and some of their employees are not the most cheerful, let's face it, the only reason to shop at Wal-Mart is for their low prices, and regardless of what some may say, they are still by far the lowest priced retailer out their. Not to mention the fact that if you 're even aware of a lower price somewhere else, Walmart will match it instantly at the register. I can't tell you how many times I've done just that. To be honest, I don't care about their rude employees. I'm there for their low prices and no one can touch them in that area.

  • Report this Comment On February 02, 2014, at 9:02 AM, ARBE123 wrote:

    It's not just Walmart suffering. It's all retail stores. Target, J.C.Penny, Sears, K-Mart, Payless Shoes stores, Macy's, Nemon Marcus. etc.

    Retail, as a whole, is suffering. People are not buying as much as they used to.

    Why, because they are not working, or not working for as much as they were.

  • Report this Comment On February 02, 2014, at 9:10 AM, Hrothgar wrote:

    I'm a manager at Walmart and it's not a good place to work. In retail, you can expect your hours to be cut after the holidays, but ours now get cut all the way into July now. The racism (in the name of diversity) is omnipresent, and we're always watching crummy employees get promoted because they are the right ethnicity while hard-working, knowledgeable employees are left scratching their heads. Most new hires don't speak english so you can't communicate with them properly.

    The worst thing of all is that they expect a superhuman level of work while absolutely refusing to supply the tools to get the job done. I ran the entire grocery department by myself for years, and if i ran down my list of responsibilites combined with daily notes from the store manager, you'd be amazed.

    And then they tell us we can get bonuses but do everything they can to screw us out of those bonuses. For example, we have to buy our basic supplies from them and they 'charge' the store a ridiculous price for them, which comes directly out of our bonus. Or when some terrible person decided to slip on a hanger and sue the store, the money for the settlement comes directly out of our bonus.

    Then I find myself being rude to customers without even thinking about it and feeling like crap for doing so.

  • Report this Comment On February 02, 2014, at 9:58 AM, ddeaux wrote:

    The root of all the major national retailers falling comes down to something simple: greed! Corporations want more and more $$$ to pay executive management Mongols and top holding shareholders (which by the way is the executive management mongols) and to pad their savings accounts so they can live the good life. Just take a look at some of the corporations prospectives and you will see that the company's board of directors and upper executive management members stock option benefits in the millions......i.e. Not only do they make millions from the board of director and upper management positions, their stock holdings bring in millions more. Plus all the perks they get have to be paid for on the backs of the lowest ranked employees: private jets, limos, expensive dinners, mansion homes, etc. don't come out of their own pockets!!! Watch the show or research American Greed. You will be shocked!

  • Report this Comment On February 02, 2014, at 10:57 PM, joeeknish wrote:

    The consumer dictates what WalMart sells. If the imported goods didn't sell they wouldn't stock them. I am certain for every horror story you hear there is a positive one as well. They pay well as you build your time or move up the ladder. No, you will not support a family of four just starting out. I don't hear anyone bashing Target or Home Depot for dropping insurance for part time employees. WalMart still provides it to their part timers. The ones I frequent are helpful and I never wait in lines on the front.

  • Report this Comment On February 02, 2014, at 11:46 PM, borninkenyafools wrote:

    You don't get to the the largest retailer and the largest employer by failing . Only a "Fool" would believe Wal MART is falling .

  • Report this Comment On February 03, 2014, at 8:30 AM, marialao wrote:

    Walmart and BigCorp in general are the reason our local economies are so messed up. Don't fill BigCorp's pockets! Whenever possible, buy local! Buy from your closest farmer's market! It has been proven that for every dollar spent within your local economy, over $0.75 of it gets reinvested in your local economy. Support your local economy!

  • Report this Comment On February 03, 2014, at 9:23 AM, simplifly1 wrote:

    I worked at walmart for 2 1/2 years , I was a baker , I was called into the office , because my dinner rolls weren't a Consistent brown color , standing in that small managers office was 4 assistant managers the asst. store manager and the store manager . i was questioned and told that I needed to be consistent when I baked ( I used a oven that was electronic , I just punched in what the instructions said to do ) and thats what I explained to them . From then on the conversation shifted to me having an attitude problem and causing problems in my department and how did I think I could change that . I decided that I was sick and needed to go home , and they told me I would have 3 days off and write a letter to the store manager why I thought I should be able to keep my job . I was so ANGRY , HUMILIATED , & INSULTED , but like many other of walmarts employee's I had to work I had a husband that had to work out of town and 2 kids at home , so I had to go back . and I had one of those managers in my dept. ( checking my product ) everyday for a long time ! From that meeting on I did have an attitude problem and I didn't care who knew it , my dept manager's life became hell ! I HATE HATE HATE WALMART AND I HOPE THEY CLOSE , I always said " walmart is it's own worst enemy " what goes around comes around eventually !!!!!!!!!!

  • Report this Comment On February 03, 2014, at 3:14 PM, lambo wrote:

    Walmart needs to pay the employee way more salary. The American tax payer is subsidizing Walmarts' clowns in millions of dollars, while the tax payers support their employee with housing, health care and whatever else they really need. Meanwhile, these hustlers rip us off!!

  • Report this Comment On February 03, 2014, at 3:21 PM, Mathman6577 wrote:

    I agree with borninkenyafools.

    My thought is as follows:

    If you don't like the company don't shop there, don't work there, and don't invest in it. And stop telling me what to do.

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Bob Ciura, MBA, has written for The Motley Fool since 2012. I focus on energy, consumer goods, and technology. I look for growth at a reasonable price, with a particular fondness for market-beating dividend yields.

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