Why “Telltale Signs” point badly for Walmart.  Keep Buying Amazon.

Why “Telltale Signs” point badly for Walmart. Keep Buying Amazon.

President Trump has been bashing Amazon of late. And Amazon is down about 12.5% since peaking on March 12, 2018. Simultaneously the DJIA fell 10% from 1/26/18 thru 4/3/18, so it is hard to discern if Amazon’s pullback has more to do with market conditions and trade war fears or Presidential bashing. Amazon’s performance has been only slightly worse than the Dow. Anyway, one would think that if the President is right and Amazon plays unfairly, the future would bode well for Walmart.

That is very unlikely. Since peaking on January 29, just after the Dow, Walmart crashed 32% by April 3. Over the last month the stock has stabilized, but unfortunately the signs are not good for Walmart investors.

trench coat secret exec hireWalmart leadership has never shown a keen understanding of e-commerce, nor a commitment to making Walmart a leading market competitor. You might counter that Walmart’s acquisition of Jet.com showed a strong commitment. But we now know that amidst the minimalistic hype, Walmart actually cheated when providing its e-commerce results. And when Walmart hired a former Tesco executive to lead Jet.com’s grocery sales effort, the news was not splashed front page. Rather it was hidden in an internal email discovered by Reuters and given almost no coverage. Like Walmart was afraid to let people know it was incompetent and hiring an outsider.

Investors, and customers, need to admit that it is a LOT easier for Amazon to learn about traditional store operations by purchasing Whole Foods than it is for Walmart to learn how to succeed in e-commerce. Traditional grocery “excellence” is easy to come by, after all there are thousands of experienced grocery store executives. So Amazon can buy Whole Foods and gain what knowledge it needs overnight, while adapting Whole Foods to the tremendous e-commerce insight embedded in Amazon. But Walmart is struggling to add compete with Amazon in e-commerce, where knowledge is a lot, lot tougher to come by.

Telltale’s are strips of cloth used by sailors to provide early tips about wind direction and speed. Good sailors “read” the telltale strips to plot their sail use for maximum performance. We can read the “telltales” in business as well. The “telltales” at Walmart have long been bad signals for investors. After 3 years of recovery from a 2014 collision created by an overworked Walmart driver, comedian Tracy Morgan recently returned to television with a new show. The overworked driver was a worrisome telltale of how Walmart pressured its employees to attempt competing against much lower cost e-commerce. By February, 2016 there were 10 very obvious telltales of Walmart’s inability to cope with Amazon and the market shift to e-commerce.

Understanding e-commerce is worth a whole lot more than being good at running a tight retail operation. As I pointed out in May, 2016, knowing that trend is what makes Amazon worth so much more than the much bigger, and asset rich, Walmart. And the Walton family knows this, that’s why it became clear by October, 2017 that they were cashing out of the traditional Walmart business. As I’ve said before, if the Walton’s aren’t putting their money in Walmart (or shopping in the stores) why should you?

Reshaping the Power Grid – The Tesla Way

Reshaping the Power Grid – The Tesla Way

Tesla has stuck a deal to put solar panels and Powerwall batteries on 50,000 homes in Southern Australia. The homeowners will not pay for the equipment. They won’t even own it. Instead the equipment will be owned by the utility company, and the 50,000 homes will become a “virtual” power plant – operating as independent pieces of a giant grid. For everyone in the system this will lower power costs by over 30%, and improve the performance where outages are a big problem.

This is really, really smart. The old way of thinking about power generation was a big plant, usually coal, gas or oil powered. Or, a giant group of solar panels in a desert, or a giant group of windmills. Or, a nuclear-powered plant. This centralized generation is then shipped over power lines to homes and businesses.

The problem is that transmission can lose anywhere from 20% to 80% of the power. Thus, the bigger the plant in theory the lower the power cost – but that is only for generation. After factoring in the cost of transmission losses, and the cost of building and maintaining transmission lines, the cost can be quite high. And thus the resulting never-ending increases in electricity prices even as traditional feedstocks go down in cost. Decentralized power generation, in a grid of small production, nearly eliminates transmission losses and uses renewable sources in the most favorable way.

Nobody should be surprised that Tesla is a leader in this program. Back in September, 2016 when Tesla took over (or merged) with Solar City I strongly made the case that this would be a good move. The ability to make solar shingles, solar panels and store large power amounts in whole-building batteries is a game changer for how we make, and consume, electricity. As utility commissions keep realizing the problems with building ever-larger centralized plants, decentralized systems that truly utilize grid management are simply a smarter, cheaper, better way to power our homes and offices.

Most people think of Solar City as “just another home solar system.” That would be wrong. Solar City has the ability to power entire towns and regions with their system of production, storage and grid management. And that is great for Tesla shareholders. Tesla has shown it is a game changer with products like the Model 3, and the combination with Solar City actually creates a utility industry game changer, as well as auto industry game changer, that could put a hurt on companies like Exxon. Now, like when I recommended buying Tesla in January, 2015, you should be thinking long term about the opportunity for outsized returns a game-changing company like Tesla provides.

NACD Board Governance Study 2017-2018

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As a Fellow with NACD, I have spoken at meetings and met members around the US. I’ve heard the comments echoing the sentiments of this year’s study.  I’ve written at length about how to reduce the risk and how to see unexpected trends while there is still time to react.

Excerpt from NACD website:

This year’s survey offers great insight into how directors and boards view the next 12 months. Which major business trends do they expect will have the greatest impact on their companies? What are the areas where they hope to improve board performance next year? Which topics are the ones on which directors want to spend more time during board meetings? In addition, we assess how boards are currently engaging with management on the increasingly complex challenge of formulating strategy and drill down on the growing board imperative of corporate-culture oversight.

With permission from NACD, you can download this year’s study here: