So, has the American consumer quitting its spending, or are some retailers running weak Success Formulas? That’s really an important question to answer when assessing management at Wal-Mart [see chart here].
Today Wal-Mart missed its earnings forecast (again) [see article here.] After sorting through all the financial machinations from previous year divestiture charges, this year’s tax adjustments, etc. this most recent quarter had earnings per share exactly equal to last year. Does anyone not think this number was manipulated to be sure it wasn’t worse by 1 cent? Wal-Mart blamed its problems on the fallback in consumer spending. Of course, Wal-Mart’s primary customrs have long spent 100% of their bi-weekly pay, so what is supposedly different now? Are we to presume these lower-income folks are saving more now? As their real estate prices and saving rates are falling?
Interestingly, stock market analysts built on the Wal-Mart announcement to beat up the entire Dow Jones Industrial Average [see article here.] Analysts at Wall Street firms like Jefferies & Company said that if Wal-Mart is doing badly, it must mean that consumer’s are spending, and going to spend, less. The assumption in this logic is that Wal-Mart is running a good Success Formula allowing its results to be a proxy for all consumer spending. To accept this, investors have to believe that Wal-Mart’s Success Formula is meeting customers needs so well that it would not be possible to serve customers and get a better performance than Wal-Mart.
In reality, the Wal-Mart Success Formula is seriously out of step with consumer needs. Sheer size does not make Wal-Mart a proxy, because once Wal-Mart’s Success Formula misses serving customer needs consumers keep spending – just somewhere else. Sears Holdings has been missing targets for a long time, but no market analyst says the misses at Sears and KMart are not considered market barometers because market analysts know the Success Formulas there are problematic.
The DJIA has seen higher volatility lately (see chart here). And it is off of its recent highs. Is the cause weak consumer spending? Certainly no one focused on consumer weakness as the cause the last two weeks. But Wal-Mart saw this market destabilization as an opportunity to make an excuse for its poor performance. And via size, some important people are buying that excuse. But the reality behind Wal-Mart’s poor performance has nothing to do with the U.S. economy, aggregate spending patterns by consumers or even changes in the money supply affecting interest rates. The problem at Wal-Mart is Lock-in to an outdated and poorly performing Success Formula. And everything else is just making excuses for not using White Space to solve this problem