Walmart managed to lose $21 billion in shareholder value in a single day when its latest results were announced mid-October. Off the back of that, Forbes has just run an article entitled “Amazon & Walmart Should Marry (But They Better Start Planning Soon).” That does a better job than I ever could of talking up just about every facet of Amazon’s business. But in a nutshell, Amazon has our retail future – including books both offline and on – for its chew toy. And Walmart is just grist to the mill.
Needless to say, $21 billion doesn’t just fall off the shopping cart. The trigger for the share slide was Walmart Chief Financial Officer Charles Holley’s forecast of a 6-12 percent profit decline at in fiscal 2017, almost three times analyst expectations, with 75 percent of the loss linked to higher wages. That’s a commitment, however, that the public don’t seem ready to let Walmart back out of. And some union leaders and others are accusing Walmart of trying to shift blame for its own poor performance onto the wage issue. Plus, it seems to be a vicious circle: shoppers avoid Walmart and plump for Amazon due to accusations of low pay, meaning Walmart can only afford lower wages, and so on ad nauseam.
The whole traditional retail sector looks likely to be hit by the wage issue. And who’s likely to benefit? Amazon, of course. Their model simply isn’t labor-intensive in the same way. Other recent PR upsets such as the Federal Trade Commission’s probe into erroneous “Made in the U.S.A.” labels on the Walmart website only bolster the impression that the company is losing customer loyalty while failing to master online.
Yet investors seem ready to forgive Amazon extremely modest profits, if any, while still rewarding its stock. The assumption is simply that they have lost all faith in Walmart’s future. One key factor, as the Forbes article underlines, is that Amazon is that “Walmart’s customer profile is lower-income shoppers … Walmart is at the mercy of the global economy and a lower-income customer base that’s especially vulnerable to trends in wage inequality, the unlikeliness of a significant increase in the US national minimum wage, and a likely US recession in the next few years.” Amazon, meanwhile, is doing a bang-up job of upselling its entire platform to wealthier online shoppers, via Amazon Prime and oodles of other services, not least same-day delivery. And as I argued elsewhere, haters’ hopes of Amazon coming unstuck on propositions like the cheap Kindle Fire 7 are doomed to disappointment.
All in all, Walmart should probably hope that Amazon will haul it to the checkout. And Amazon is likely to be around for much longer than it is.