Supply Chain News Bites - Only from SCDigest

-August 14, 2007


Retail Supply Chain: Where is Wal-Mart’s Secret Plan?


As Share Price Tanks Again, Many are Wondering What Happened to Super-Secret Effort; Inevitable Loss of Supply Chain Power?


By SCDigest Editorial Staff


Wal-Mart’s stock price sank to a 52-week low today, after years of disappointing returns to investors, and as the retailer announced slow profit growth in Q2 and reduced financial expectations for the year due to pressure on consumers from higher gas prices and other factors.

Sales and profits were up, but at rates that again paled in comparison to historical percentages. Sales for the quarter on a global basis increased by about $7 billion, or roughly 8%, but that includes new international business and new store openings in North America. Same store sales at Wal-Mart stores in the U.S. rose just 1.2% percent. Profits rose only by about 5%, helped by gains outside of operations, without which they would have been nearly flat.

"Although some people will report that Wal-Mart has had record sales and earnings, our underlying operating performance this quarter is not what we expect of ourselves, and not what our shareholders expect of us," said CEO Lee Scott.

While the media is widely reporting Wal-Mart’s Q2 results, which are being blamed for an overall down day on Wall Street, no one seems to remember that earlier this year the same business media was abuzz with stories about Wal-Mart’s super-secret plan to raise its share price, code named “Project Red.” The strategy was considered so sensitive that the company's high-priced consultants were only allowed to work on parts of the whole strategy and made to toil in extremely high security offices, while a former top Wal-Mart security chief fired by the company detailed some of the extreme monitoring tactics the company used (see Does Wal-Mart have Super Secret Plan to Spin Off Sam’s Club?).

The plan reportedly involved a spin-off of its Sam’s Club chain as one component, but later reports said that idea had been quashed.

So a logical question is: Where is the plan now, when it seems to be needed most? Still being developed, or forgotten for some undisclosed reason?

Wal-Mart has struggled in its efforts to increase market share in apparel and home furnishings, but lately, home electronics has been a bright spot. Plans to enable local stores to have more discretion in product and merchandising decisions do not seem to be getting much traction or attention (See In Search of More Growth, Wal-Mart Follows Best Buy in Move to Tailor Stores to Individual Markets).

To keep things in perspective, Wal-Mart’s increase of $7 billion in revenue for one quarter is larger than most retailers manage all year, nonetheless, it seems to many that Wal-Mart’s enormous retail and supply chain clout will diminish relatively over the next decade, as it will simply be unable to match the growth rates of other retailers, including increasingly strong competitors such as Target and Costco, and as UK’s Tesco prepares to enter the U.S. market.

Simply meaning, at some point when Wal-Mart sneezes, consumer goods company supply chains may only catch a cold, not pneumonia.

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