Remember those internal emails that Bloomberg obtained last February, in which a Walmart executive wondered: “Where are all the customers? And where’s their money?”
Six months later, he is probably asking the same question. Walmart reported disappointing earnings once again this morning. Sales and earnings per share (EPS) for the second quarter of FY 2014 both came in below Wall Street expectations, as did same-store sales; while analysts were anticipating same-store sales of 0.7%, the company reported a figure of -0.3%, making Q2 the second quarter in a row that the company posted negative same-store sales. Customer traffic was down half a percent, and management also lowered its full-year EPS guidance.
Company management blamed a “challenging” retail environment and “cautious consumer spending” for the earnings weakness. But let’s be clear: Walmart is not just being buffeted by external economic forces. Walmart’s weakness stems from the failures of the company’s business model.
As we’ve said many times before, Walmart has hit the limits of its cut-costs-to-the-bone business model. For instance, the company’s efforts to reduce costs by cutting staff have backfired: Understaffing has resulted in poor inventory management, with shelves staying empty while inventory piles up in the back room. (That might also explain the 6.9% increase in inventory that Walmart reported in its earnings today.) It’s also undoubtedly resulted in missed sales, with customers leaving the store because they can’t find an available associate to help them, because checkout lines are discouragingly long, or because they simply can’t find items from their shopping list in a store that’s in “total disarray.” No wonder Walmart came in last on the Market Force customer satisfaction survey.
Walmart leadership got the company into this position. They can get the company out of it by investing in associates—the people on the ground who stock the shelves, keep the store organized, and interact with customers. (And, to boot, then those associates themselves will have money to spend at Walmart!) How many more quarters of shaky results will it take before they take action?