Adam Hartung

About the Author Adam Hartung

Adam Hartung has more than 30 years of practical experience developing and implementing successful strategies to take advantage of emerging technologies and new business models. He is currently CEO of Spark Partners, Content Laboratory, Inc. and Soparfilm Energy Corporation. Additionally, Adam Chairs the Audit Committee on the Board of Directors for Six Dimensions Global (SIXD,) and has been on the Board at several privately held companies. Adam provides board advisory services via the National Association of Corporate Directors (NACD) where he is a Fellow and regular speaker on risk management across multiple industries. Adam is the No. 1 Leadership columnist for with over 3 million readers, and quarterly Leadership columnist for CIO Magazine. He has been featured in dozens of journals, including Adweek, Washington Times and BBC television. Adam received his MBA from the Harvard Business School with Distinction and continues to travel the globe leading risk management workshops as well as conference and management meeeting keynotes.

Can Jet.Com Save Wal-Mart Stores, Inc. (WMT) From Sears’ Fate?


Wal-Mart Stores, Inc. (NYSE:WMT) is in more trouble than its leadership wants to acknowledge, and investors need to realize that it is up to to turn around the ailing giant. And that is a big task for the under $1B company.

Nobody likes to think their business can disappear. What CEO wants to tell his investors or employees “we’re no longer relevant, and it looks like our customers are all going somewhere else for their solutions”? Unfortunately, most leadership teams become entrenched in the business model and deny serious threats to longevity, thus leading to inevitable failure as customers switch.

In early September the Howard Johnson’s in Bangor, Maine will close. This will leave just one remaining HoJo in the USA. What was once an iconic brand with hundreds of outlets strung along the fast growing interstate highway system is now nearly dead. People still drive the interstate, but trends changed, fast food became a good substitute, and unable to update its business model this once great brand died.

Sears announced another $350M quarterly loss this week. That makes $9B in accumulated losses the last several quarters. Since Chairman/CEO Ed Lampert took over Sears and KMart have seen same store sales decline every single quarter except one. Unable to keep its customers Chairman/CEO Ed Lampert has been closing stores and selling assets to stem the cash drain, but to keep the company afloat his hedge fund, ESL, is loaning Sears Holdings another $300M to keep the company alive. On top of the $500M the company borrowed last quarter. That the once iconic company, and Dow Jones Industrial Average component, is going to fail is a foregone conclusion.

Recommended article: Wal-Mart Stores Vs. Target Corporation: Comparing Recent Earnings Results

But most people still think this fate cannot befall the nearly $500M revenue behemoth WalMart. It’s simply too big to fail in most people’s eyes.

Yet, the primary news about WalMart is not good. Bloomberg this week broke the news that one of the most crime-ridden places in America is the local WalMart store. One store in Tulsa, OK has had 5,000 police visits in the last 5 years, and 4 local stores have had 2,000 visits in the last year alone. Across the system, there is 1 violent crime in a Walmart every day. By constantly promoting its low cost approach WalMart has attracted a class of customer that simply is more prone to committing crime. And policies implemented to hang onto customers, like letting them camp out in the parking lots overnight, serve to increase the likelihood of poverty-induced crime.

But this outcome is also directly related to WalMart’s business model and strategy. To promote low prices WalMart has automated more operations, and cut employees like greeters. Thus leadership brags about a 23% increase in sales/employee the last decade, but that has happened as the employment shrank by 400,000. Fewer employees encourages more crime.

In a real way WalMart has “outsourced” its security to local police departments. Experts say the cost to eliminate this security problem are about $3.2B – or about 20% of WalMart’s total profitability. Ouch! In a world where WalMart’s net margin of 3% is fully 1/3 lower than Target’s 4.6% the money just isn’t there any longer for WalMart to invest in keeping its stores safe.

With each passing month WalMart is becoming the “retailer of last resort” for people who cannot shop on-line. People who lack credit cards, or even bank accounts. People without the means, or capability, of shopping by computer, or paying electronically. People who have nowhere else to go to shop, due to poverty and societal conditions. Not exactly the ideal customer base for building a growing, profitable business.

And to maintain revenues WalMart has invested heavily in transitioning to superstores which offer a large grocery section. But now Kroger, WalMart’s #1 grocery competitor, is taking aim at the giant retailer, slashing prices on 1,000 items. Just like competition from the “dollar stores” has been attacking WalMart’s general merchandise aisles. Thus putting even more pressure on thinning margins, and leaving less money available to beef up security or entice new customers to the stores.

And the pressure from e-commerce is relentless. As detailed in the Wall Street Journal, WalMart has been selling on-line for about 15 years, and has a $14B on-line sales presence. But this is only 3% of total sales. And growth has been decelerating for several quarters. Last quarter Walmart’s e-commerce sales grew 7%, while the overall market grew 15% and Amazon ($100B revenues) grew 31%. It is clear that simply is not attracting enough customers to grow a healthy replacement business for the struggling stores.

Thus enter the acquisition of The hope is that this extremely uprofitable $1B on-line retailer will turn around WalMart’s fortunes. Imbue it with much higher growth, and enhanced profitability. But will WalMart make this transition. Is leadership ready to cannibalize the stores for higher electronic sales? Are they willing to make stores smaller, and close many more, to shift revenues on-line? Are they willing to change the WalMart brand to something different, while letting replace WalMart as the dominant brand?

If they do then WalMart could become something very different in the future. If they really realize that the market is shifting, and that an extreme change is necessary in strategy and tactics then WalMart could become something very different, and remain competitive in the future. But if they don’t, they’ll follow Sears into the Whirlpool, and end up much like Howard Johnson’s.


Stay Ahead of Everyone Else

Get The Latest Stock News Alerts