ikeGPS – How To Invest in Trends To Escape Your Core and Grow Explosively

ikeGPS – How To Invest in Trends To Escape Your Core and Grow Explosively

Would you like to triple your revenue next year?  And have plans to keep tripling it – or more – every year into the future?

Of course you would.  But is your business positioned for such explosive growth?  Are you in growth markets, creating new products with new technologies that meet unmet needs and have the potential to completely change your business?  Or are you stuck doing the same thing you’ve always done, a litle better, faster and cheaper in hopes you can just maintain your position?

If you’re constantly looking at your “core” markets and solutions, and you know those aren’t going to grow fast, what keeps you from changing to make your company a high growth winner?

First, most people don’t try.  Leaders say it all the time, “I’m so busy running a business I don’t have time to chase rainbows.  Sure technology is changing, but I don’t understand it, nor know how to use it.  I’m better off investing in what I know than trying to chase trends.”  That’s often followed by dragging out the old saw, usually attributed to Warren Buffet, of “don’t invest in what you don’t know – and I don’t know anything about trends.”  The comfort, and ease, of repeating what you’ve always done allows lethargy to set in – so you keep doing more and more of what you’ve always done, over and again, hoping for a different result.  It’s been attributed to Albert Einstein that such behavior is the very definition of insanity.

Everyone is busy.  We live in a “culture of busy.” Years of layoffs and cost reductions have left most leaders simply struggling to keep up with making and selling last year’s solution.  Constant busy-ness becomes a convenient excuse to not take the time to look at trends, evaluate new opportunities or consider doing things entirely differently.  Busy, busy, busy – until someone knocks your business off its blocks and then you have all kinds of time on your hands.

For those who overcome these 2 built-in biases, the opportunities today are extra-ordinary.  It is possible to slingshot into leadership positions with new solutions, literally from out of nowhere.  If you take the time and try.  Listen, and just do it – to steal from a popular ad campaign.

ikeGPS was started in 2003 as a government/military funded products research company.  Focusing on the technology of lasers and cameras, they won contracts to develop and prototype new solutions with technology mostly buried in universities and labs.  It was a good business, made money for the founders, and was intellectually stimulating.  If not growing very fast or showing much potential of growing.

Eventually ikeGPS started making products with lasers and cameras for finding physical assets.  This turned out to be quite beneficial for electric utilities, which have to maintain some 200,000 power poles in the U.S alone.  EPC (Engineering, Procurement and Construction) companies like Black & Veatch, Bechtel. Burns & McDonel , FMC and Foster Wheeler had a need to find big physical things, then measure their size and location between each other and major points.  For utility company suppliers like GE laser cameras for asset location were a handy, if slow growing business.  Good, solid, reliable revenues, but not something that was going to create a $100M company.

So the Managing Director, Glenn Milnes, and Chief Marketing Officer, Jeff Ross, set about to see what they could do to become a $100M business.  Not because anything in their history said they could do so.  Rather because they wanted to make their company a bigger, faster growing and lot more valuable entity.

The first thing they identified was the trend to mobile devices.  They noticed darn near everyone has one, and they were using them for all kinds of interesting things.  There were thousands and thousands of apps, but none that really took advantage of the cameras to do much measuring, or integrated lasers.  While they didn’t know anything about mobile operating systems, or much about the kinds of cameras in mobile phones or the software used for popular mobile camera uses – they could see a trend.

What if they could take their knowledge about lasers and cameras and figure out how to make mobile phones a lot more powerful?  Could they apply what they knew into markets where they had no experience, using technologies with which they had no experience?  Would it work, or waste their time?  If it worked, what would they make?  If they made something, who would buy it?

Despite these great questions, they wanted ikeGPS to grow, and they decided to take the cash flow from their solid, but low growth historical business and plow it into development of a new product.  So they took to internal company brainstorming to see what they might do.  And they came up with the very clever idea of making an add-on device that construction workers, like concrete installers, pavers, carpenters, masons and such, could use with their mobile phones to replace tape measures.  Something that would be simple, easy to use, work with the phones in their pockets and be a lot more accurate than decades-old technology.

Spike Mobile Laser Camera ToolSo they went to the lab and built it.  They started design in October, 2013, and a year later they had a product ready to launch. – Spike! They took it to social media, Google adwords, all the low-cost ad tools available to small business today.  They also went to industry trade shows, bought some ads in industry trade magazines and ads on industry specific sites.  Things were OK, but it was a slow slog.

As they were preparing to launch Spike they thought, “why don’t we reach for outsiders to gain some input on this product.  Let’s hear what others might have to say.”  So they launched a Kickstarter campaign, offering investors the product to try.  Via this route they gained the eyes and ears of early adopters.

This was when the surprise happened.  The earliest adopters, and biggest fans of laser measuring via mobile devices weren’t in the construction business.  They were signage companies.  ikeGPS listened to their feedback, and realized they could tweek Spike to be very relevant for folks in signage.  The made themselves accessible to these early adopters, and turned a few into fanatical loyalists.

With this early success, they began to downplay construction and seek signage companies.  Across 2 months they placed about $20k (not millions, thousands) in ads in the 4 largest publishers to the signage industry.  This led to on-line product sales, and smashing reviews.

So then they made overtures to the large franchisors of signage related shops – with retail names like Fast Sign, Sign-o-Rama, Alphagraphics, Speedy Sign, Sign World, etc — in companies like Franchise Services and Alliance Franchise.  Within 6 months of launch they had stopped chasing construction customers and were full-tilt developing signage companies, to great success.  Even sign supply companies llke Reece Sign saw the benefit of promoting (and even reselling) these new laser camera add-ons for mobile devices to stimulate sales and move sign design and creation into the 21st century.

After making this switch, they initial launch sold 1,200 units at $500/unit retail .  But better yet, contracts for promotion and reselling has the company convinced they will blow far beyond their projection of 4,000 units in the first year.But they did not simply forget about construction.  The idea was still sound, but clearly the market had not developed.  So they asked themselves, “if we listened to sign guys and they told us what to do, could we listen to construction guys for advice?”

They pursued finding out more about construction, and learned the market was dominated by brand names.  Few products were bought without a strong brand name – and most products are purchased through the very large home improvement chains such as Home Depot, Lowe’s, Menard’s and others.  But that would be a nearly impossible task, at extremely high cost, for little ikeGPS. So they pursued finding a partner which knew the industry.

In early 2015 ideGPS announced that Stanley Black&Decker would brand and sell Spike via traditional retail.  The product should be on shelves before the end of year, and substantial additional sales volumes are expected.

In 2013 100% of ikeGPS revenues were in their traditional government/military and utility markets with their bespoke device.  In just one year they developed a mobile device, and launched it.  In 2015 1/3 or more of their $10.5 estimated revenue will be from Spike, and they expect to at a minimum triple revenues in 2016.  And they think that rate of growth is sustainable into future years.

ikeGPS shows that it IS possible to move beyond historical markets and create new products for break-out growth.  You aren’t stuck in old businesses with no hope of growth.  if you want to grow, and reap the rewards of growth, you can.  You have to

  1. Want to do it
  2. Take time to do it
  3. Pay attention to trends, and support obvious trend growth
  4. Learn about new technologies and how you can apply them.  Start with the trend technologies first, then see how to apply something new.  Don’t start by trying to push what you know onto another platform.  Be ethnocentric in product development, not egocentric.
  5. Brainstorm how to meet unmet needs
  6. Listen to early sales results, and go where the need is  highest/selling is easiest
  7. Don’t forget to learn from what did not work, and see if you can overcome early weaknesses.

 

 

 

 

Why Adding Apple to the DJIA Makes It a Good Investment

Why Adding Apple to the DJIA Makes It a Good Investment

The Dow Jones Industrial Average has been around for about 100 years.  It is 30 of the largest market capitalization companies in the USA.

Lots of people think “the Dow,” as it is often called, is the value of the market.  This is pretty far from correct, as there are literally thousands of stocks traded on the NYSE and NASDAQ.  Better gauges of the overall market would be the NYSE Composite, or the NASDAQ composite.  Or even the Wilshire 5000.  These much larger data sets are better reflections of the overall stock market.

Some investors, especially small investors or those with little financial training, confuse “the Dow” with the S&P 500.  The latter is simply the 500 largest public companies reviewed and evaluated for credit worthiness by Standard & Poors.  Obviously, with 500 stocks it is 14 times broader than “the Dow.”  So many would say it is a better market indicator than the DJIA.

Yet, lots of people refer to the DJIA, with little understanding of how it is created – and what it really means.

DJIA Time Series

Simply put, the founder of Dow Jones and Company wrote a series of articles form about 1880 to 1900 on investing and stocks.  After his death, editors at Dow Jones thought it would be good to consolidate his thoughts into an investing theory, which they called the Dow Theory.

Simply put, they developed three indices based upon a subset of stocks.  One was an index of industrial companies, which were largely in commodities like coal, cotton, sugar and tobacco.  The second was an index of transportation companies (called the Dow Transports) which was initially loaded with railroads and ocean shippers.  The third were the emerging utility companies (Dow Utilities) which were gas distributors and electricity generation/distribution companies.

The Dow Theory was to watch these 3 indices.  If two started to move in tandem, up or down, then this was considered an indicator of where the overall market would move in short order.  If all 3 move together then it was considered a very strong bullish, or bearish, sign.  Dow Theory was the first effort at predicting future stock movements.

After 100 years of academic research, not a lot of people use Dow Theory any longer.  It has been replaced with 1,001 different approaches to predicting stock movement.  And as other approaches have been created, the Dow Transports and the Dow Utilities are largely forgotten.

But the DJIA still carries a lot of attention.  It has changed dramatically over time.  The editors at Dow Jones (publisher of the Wall Street Journal and other business publications) review the list and update it.  After WWII they determined that Industrials were better represented by steel companies, auto companies and other large manufacturers.  Thus they dropped older commodity companies, just as their shares declined, and added companies like GM.

As the economy changed over time, many changes were made to the DJIA.  As financial services grew, big banks were added.  As retail grew, huge retailers and consumer goods companies were added.  As pharmaceuticals grew, they were added. As computer tech grew, large tech companies were added.  Each time someone was added, someone was dropped.  The only company from the original list is GE.

“The Dow” was  continuously “rebalanced.”  Thus, even though many companies that were once on the Dow are now completely gone, and many others are in bad shape.  Former DJIA companies include: Kodak, Sears, Woolworths, International Harvester, General Motors, Chrysler, Johns-Manville, General Foods, National Steel, Loew’s Theatres.

Thus, the DJIA has had a great upward run for over 100 years.  Because it isn’t “the market.”  Rather, it is a handful of stocks selected by some of the very top leaders in business.  These leaders constantly look to keep the index in growth sectors, while eliminating declining sectors.  And removing companies that do really badly – like GM, which filed bankruptcy.  In other words, this is an index of the very largest – and some would say safest – companies in America that have a growth capability.

Which is why it is so hard for individual investors – and even pros – to outperform the DJIA.  While they tinker around with investments in individual “hot” stocks, and shorting “losers,” overall they rarely can do as well as the DJIA.  For all their rebalancing and predicting, only 1 in 4 (or 1 in 5) beat the DJIA in the short term.  Long term, only 2 out 2,862 funds have consistently beat the DJIA.

So, by adding Apple the editors are again setting up the DJIA for future growth.  AT&T was removed, for the second time.  In 2004 it was taken out as AT&T faced bankruptcy.  Southwestern Bell bought the AT&T name, and it was added back again.  Now it is gone – probably for good – because telecom simply doesn’t have the growth of other sectors like mobile devices.

This is one of the few investment opportunities where “the little guy” gets a tremendous break.  Anyone can buy the DJIA.  By purchasing Diamonds (Symbol DIA) anyone can buy the DJIA index.  You don’t have to do any individual stock buys, nor track changes and do rebalancing.  You don’t even have to deal with stock dividends, splits, etc. because the pros will do all of that for you.  And, you can buy Diamonds via a low cost on-line broker like e-Trade or ScotTrade and your transaction costs are minimal – less than what you’d pay a mutual fund manager (who is unlikely to do as well as your Diamonds.)

I think most investors are fools to try timing the market. Most people have jobs far removed from financial services and analyzing companies.  Even more people have little academic training in how to analyze financial statements, company reports, projections and market opportunities.  Heck, if the pros who do this full time can’t beat the DJIA, do most of us have any chance at all?

The DJIA has had a great run the last several years.  Investing in the DJIA has outperformed about all other investments, with the best growth rate compared to highly cyclical commodities like gold, or real estate and certainly bonds.  And because it isn’t “the market,” but rather a carefully selected basket of large cap stocks, it offers investors the greatest probability of long-term gains with least risk and volatility.

Adding Apple to the DJIA shows that the folks at Dow Jones are keeping their eyes on the proverbial ball.  It should encourage investors.  And, if you want to share in the growth of equities without having to spend all your free time doing research – or paying high fees – simply buying DIA is a great option.

 

Don’t Fight Trends – So Don’t Invest in Best Buy

Don’t Fight Trends – So Don’t Invest in Best Buy

Best Buy, the venerable electronics retailer, is hitting 52 week highs.  Coming off a low of $24 in April, 2014 the current price of about $40 is a 67% increase in just 10 months.  Analysts are now cheering investors to own the stock, with Marketwatch pronouncing that the last bearish analyst has thrown in the towel.

If you are a trader, perhaps you want to consider this stock.  But if you aren’t an investment professional, and you buy and hold stocks for years, then Best Buy is not a stock you should own.

eCommerce

The bullish case for owning Best Buy is based on recovering sales per store, and recovering earnings, after a reduction in the number of stores, and employees, lowered costs.  Further, with Radio Shack now in bankruptcy sales are showing an uptick as customers swing over. And that is expected to continue as Sears closes more stores on its marches toward bankruptcy.  Additionally, it is hoped that lower gasoline prices will allow consumers to spend more on electronics and appliances at Best Buy.

But, this completely ignores the trend toward on-line retail sales, and the long-term deleterious impact this trend will have on Best Buy.  According to the U.S. Census Bureau, on-line sales as a percent of all retail have grown from less than 2.4% in 2005 to over 7.6% by end of 2014 – more than tripling! But more critical to this discussion, all retail sales includes automobiles, lumber, groceries – lots of things where there is little or no online volume.

As most folks know, the number one category for online sales is computers and consumer electronics, which consistently accounts for about 20% of ALL online retail.  In fact, about 25% of all consumer electronics are sold online.  So the growth in online retail is disproportionately in the Best Buy wheelhouse.  The segment where Best Buy competes against streamlined online retailers such as NewEgg.com, ThinkGeek.com and the ever-dominant Amazon.com.

So while in the short term some traditional retail customers will now shift demand to Best Buy, this is not unlike the revenue “bounce” Best Buy received when Circuit City failed.  Short term up, but the long term trend continued hammering away at Best Buy’s core market.

This is a big deal because the marginal economic impact of this shift is horrific to Best Buy.  In traditional retail most costs are “fixed,” meaning they can’t be changed much month to month.  The cost of real estate, store maintenance, utilities and staff cannot be easily adjusted – unless there is a decision to close a gob of stores.  Thus losing even a few sales, what economists call “marginal” sales, wreaks havoc on earnings.

Back in 2010 and 2011 Best Buy made a net income (’12 and ’13 were losses) of about 2.6% – or about $2.60 on every $100 revenue.  Cost of Goods sold is about 75% of revenue.  So on $100 of revenue, $25 is available to cover fixed costs.  If revenue falls by just $10, Best Buy loses $2.50 of margin to cover fixed costs.  Remember, however, that the net income is only $2.60.  So losing 10% of revenue ($10 out of the $100) means Best Buy loses $2.50 of contribution to fixed costs, and that is deducted from net income of $2.60, leaving Best Buy with a meager 10cents of profitability.  A 10% loss of revenue wipes out 96% of profits!

Now you know why retailers who lose even a small part of their sales are suddenly closing stores right and left.

Looking forward, online retail sales are forecast to grow by another 57%, reaching 11% of total retail by 2018.  But, as we know, this is disproportionately going to be driven by consumer electronics.  Which means that while sales for Best Buy stores are up short term, long term they will plummet.  That means there will be more store closings, and layoffs as sales shrink.  And, increasingly Best Buy will have to compete head-to-head online against entrenched, leading competitors who have been stealing market share for 10+ years.

If you want to trade on the short-term uptick in revenue, and return to slight profitability, then hold your breath and see if you can outsmart the market by picking the right time, and price, for buying and selling Best Buy.  But, if you like to invest in strong companies you expect to grow for another 5 years without having to be a market timer, then avoid Best Buy.

Quite simply, it is never a good idea to bet against a long term trend.  Short term aberrations will happen, and it may look like the trend has changed.  But the trend to online commerce is picking up steam, not reducing.  If you want to invest in retail, you want to invest in those companies that demonstrate they can capture the customer’s revenue in the growing, online marketplace.

December Retail Sales down 1% – Sell WalMart, Buy Amazon

December Retail Sales down 1% – Sell WalMart, Buy Amazon

Retail sales fell .9% in December.  Even excluding autos and gasoline, retail sales fell .3%. Further, November retail sales estimates were revised downward from an initial .7% gain to a meager .4%, and October sales advances were revised downward from a .5% gain to a mere .3%.  Sales were down at electronic stores, clothing stores and department stores – all places we anticipated gains due to an improving economy, more jobs and more cash in consumer pockets.

Whoa, what’s happening?  Wasn’t lower gasoline pricing going to free up cash for people to go crazy buying holiday gifts?  Weren’t we all supposed to feel optimistic about our jobs, higher future wages and more money to spend after that horrible Great Recession thus leading us to splurge this holiday?

There were early signals that conventional wisdom was going to be wrong.  Back on Black Friday (so named because it is supposedly the day when retailers turn a profit for the year) we learned sales came in a disappointing 11% lower than 2013.  Barron’s analyzed press releases from Wal-Mart, and discerned that 2014 was a weaker Black Friday than 2013 and probably 2012.  Simply put, fewer people went shopping on Black Friday than before, despite longer store hours, and they bought less.

So was this really a horrible holiday?

Retail store sales are only part of the picture.  Increasingly, people are shopping on-line – and we all know it.  According to ComScore, on-line sales made to users of PCs (this excludes mobile devices) were up 17% on Cyber Monday, in stark contrast to traditional brick-and-mortar.  Exceeding $2B, it was the largest on-line retail day in history.  The Day after Cyber Monday sales were up 27%, and the Green Monday (one week after Cyber Monday) sales were up 15% (all compared to year ago.)  Overall, the week after Thanksgiving on-line sales rose 14%, and on Thanksgiving Day itself sales were up a whopping 32%.  The week before Christmas (16th-21st) on-line sales surged 18%.  According to IBM Digital Analytics the on-line November-December sales were up 13.9% vs. 2013.

The trend has never been more pronounced.  Regardless of how much people are going to spend, they are spending less of it in traditional brick-and-mortar retail, and more of it on-line.

Amazon vs. Walmart long term Value scores

So, what about Wal-Mart?  The chain remains mired in its traditional way of doing business.  Even though same-store sales have been flat-to-down most of the last 2 years, and the number of full-line stores has declined in the USA, the chain remains committed quarter after quarter to defending its outdated success formula.  Even in China, where Alibaba has demonstrated it can grow on-line ecommerce revenues more than 50%/year, Wal-Mart continues to try growing with a physical presence – even though it has been a tough, unsuccessful slog.

Yet, despite its bribery scandal in Mexico undertaken to prop up revenues, lawsuits due to over-worked, stressed truck drivers having accidents on double shifts killing and injuring people, and an inability to grow, Wal-Mart’s stock trades at near all-time highs.  The stock has nearly doubled since 2011, even though the company is at odds with the primary retail, and demographic, trends.

On the other end of the spectrum is Amazon.com.  Amazon is still growing revenues at over 20%/year.  And introducing successful new publishing and internet service businesses, expanding same day delivery (and even one hour delivery) in urban markets like New York City, as well as expansion of its Prime service to include more original programming with famed director Woody Allen after winning the Golden Globe award for its original series Transparent.

However, several analysts were trash talking Amazon in 2014.  20% growth has them worried, given that the company once grew at 40%.  Even though Amazon’s growth is a serious reason companies like Wal-Mart cannot grow.  And there is the perennial lack of profitability – including a larger than expected loss in the second quarter ; a loss which included a $170M write-off on FirePhones which never really found a customer base.  The latter item led to a Fast Company brutal lambasting of CEO Jeff Bezos as a micro-manager out-of-touch with customers.

This lack of analyst support has seriously hurt Amazon.com share performance.  From 2010 to early 2014 the stock quadrupled in value from $100 to $400.  But over the past year the stock has fallen back 25%.  After dropping to $300/share in April, the stock has rallied but then retrenched no less than 3 times, and is now trading very close to its 52 week low.  And, it shows no momentum, trading below its moving average.

Which is why investors in Wal-Mart should sell, and reinvest in Amazon.com.

All the trends point to Wal-Mart being overvalued.  Its revenues show no signs of achieving any substantial growth.  And, despite its sheer size, all retail trends are working against the behemoth.  It has been trying to find a growth engine for 10 years, but nothing has come to fruition – including big investments in offshore markets.  The company keeps trying to defend & extend its old success formula, thus creating a bigger and bigger gap between itself and future market success.

Simultaneously, Amazon.com continues to invest in major developing trends.  From publishing to television programming to cloud/web services and even general retail, everything into which Amazon invests is growing.  And even though this is a company with $100B in revenues, it is still growing at a remarkable 20%.  While some analysts may wish the investment rate would slow, and that Amazon would never make mistakes (like Firephone,) the truth is that Amazon is putting money into projects which have pretty good odds of making sizable money as it helps change the game in  multiple markets.

Think of investing like paddling a canoe.  When you are investing against trends, it’s like paddling up the river.  You can make progress, but it is hard.  And, one little mistake and you easily slip backward.  Lose any momentum at all and you could completely turn around and disappear (like happened to Circuit City, and now both Sears and JCPenney.)  When you invest with the trends it is like paddling down the river.  The trend, like a current, keeps you moving in the right direction.  You can still make mistakes, but the odds are quite a lot higher you will make your destination easily, and with resources to spare.  That’s why the sales results for December are important. The show traditional retailers are paddling up river, while on-line retailers are paddling down-river.

I don’t know if Wal-Mart’s stock value has peaked, but it is hard to understand why anybody would expect it to go higher.  It could continue to rise, but there are ample reasons to expect investors will figure out how tough future profits will be for Wal-Mart and dispose of their positions.  On the other hand, even though Amazon.com could continue to slide down further there are even more reasons to expect it will have great future quarters with revenue gains and – eventually – those long-sought-after profits that some analysts seek.  Meanwhile, Amazon is investing in projects with internal rates of return far higher than most other companies because they are following major trends.  Odds are pretty good that in a few years the trends will make investors happy they own Amazon, and dropped out of Wal-Mart.

 

Walmart Investors Should Worry about Tracy Morgan Lawsuit – A Lot

Walmart Investors Should Worry about Tracy Morgan Lawsuit – A Lot

Famed actor and comedian Tracy Morgan has filed a lawsuit against Walmart.  He was seriously injured, and his companion and fellow comedian James McNair was killed, when their chauffeured vehicle was struck by a WalMart truck going too fast under the control of an overly tired driver.

It would be easy to write this off as a one-time incident.  As something that was the mistake of one employee, and not a concern for management.  Walmart is huge, and anyone could easily say “mistakes will happen, so don’t worry.”  And as the country’s largest company (by sales and employees) Walmart is an easy target for lawsuits.

But that would belie a much more concerning situation.  One that should have investors plenty worried.

walmart

Walmart isn’t doing all that well.  It is losing customers, even as the economy recovers.  For a decade Walmart has struggled to grow revenues, and same store sales have declined – only to be propped up by store closings.  Despite efforts to grow offshore, attempts at international expansion have largely been flops.  Efforts to expand into smaller stores have had mixed success, and are marginal at generating new revenues in urban efforts.  Meanwhile, Walmart still has no coherent strategy for on-line sales expansion.

Unfortunately the numbers don’t look so good for Walmart, a company that is absolutely run by numbers.  Every single thing that can be tracked in Walmart is tracked, and managed – right down the temperature in every facility (store, distribution hub, office) 24x7x365.  When the revenue, inventory turns, margin, distribution costs, etc. aren’t going in the right direction Walmart is a company where leadership applies the pressure to employees, right down the chain, to make things better.

Unfortunately, a study by Northwestern University Kellogg School of Management has shown that when a culture is numbers driven it often leads to selfish, and unethical, behavior.  When people are focused onto the numbers, they tend to stretch the ethical (and possibly legal) boundaries to achieve those numerical goals.  A great recent example was the U.S. Veterans Administration scandal where management migrated toward lying about performance in order to meet the numerical mandates set by Secretary Shinseki.

Back in November, 2012 I pointed out that the Walmart bribery scandal in Mexico was a warning sign of big problems at the mega-retailer.  Pushed too hard to create success, Walmart leadership was at least skirting with the law if not outright violating it.  I projected these problems would worsen, and sure enough by November the bribery probe was extended to Walmart’s operations in Brazil, China and India.

We know from the many employee actions happening at Walmart that in-store personnel are feeling pressure to do more with fewer hours.  It does not take a great leap to consider it possible (likely?) that distribution personnel, right down to truck drivers are feeling pressured to work harder, get more done with less, and in some instances being forced to cut corners in order to improve Walmart’s numbers.

Exactly how much the highest levels of Walmart knows about any one incident is impossible to gauge at this time.  However, what should concern investors is whether the long-term culture of Walmart – obsessed about costs and making the numbers – has created a situation where all through the ranks people are feeling the need to walk closer to ethical, and possibly legal, lines.  While it may be that no manager told the driver to drive too fast or work too many hours, the driver might have felt the pressure from “higher up” to get his load to its destination at a certain time – or risk his job, or maybe his boss’s.

If this is a widespread cultural issue – look out!  The legal implications could be catastrophic if customers, suppliers and communities discover widespread unethical behavior that went unchecked by top echelons.  The C suite executives don’t have to condone such behavior to be held accountable – with costs that can be exorbitant.  Just ask the leaders at JPMorganChase and Citibank who are paying out billions for past transgressions.

Worse, we cannot expect the marketplace pressures to ease up any time soon for Walmart.  Competitors are struggling mightily.  JCPenney cannot seem to find anyone to take the vacant CEO job as sales remain below levels of several years ago, and the chain is most likely going to have to close several dozen (or hundreds) of stores.  Sears/KMart has so many closed and underperforming stores that practically every site is available for rent if anyone wants it.  And in the segment which is even lower priced than Walmart, the “dollar stores,” direct competitor Family Dollar saw 3rd quarter profits fall another 33% as too many stores and too few customer wreak financial havoc and portend store closings.

So the market situation is not improving for Walmart.  As competition has intensified, all signs point to a leadership which tried to do “more, better, faster, cheaper.”  But there is no way to maintain the original Walmart strategy in the face of the on-line competitive onslaught which is changing the retail game.  Walmart has continued to do “more of the same” trying to defend and extend its old success formula, when it was a disruptive innovator that stole its revenues and cut into profits.  Now all signs point to a company which is in grave danger of over-extending its success formula to the point of unethical, and potentially illegal, behavior.

If that doesn’t scare the heck out of Walmart investors I can’t imagine what would.

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