Wal-Mart (WMT) is in the midst of one serious, methodical operational overhaul in the U.S. that won't start bearing tangible fruit until 2016.
But when initiatives by a new division CEO begin to pay off, look out, America.
Wal-Mart's U.S. CEO, Greg Foran, eight months into the same spot once occupied by founder Sam Walton, has literally been in the trenches since day one in obtaining the most hallowed spot in retail. The man, who has extensive international experience, has already visited an impressive 116 stores across the country completely unannounced. At visits where Wal-Mart's blue-shirt-wearing workers knew of his arrival beforehand, Foran has stocked shelves overnight and talked extensively with employees. Furthermore, he has actually chatted it up with everyday customers, something that provides invaluable insight and is a tactic I never felt was employed by his predecessor, Bill Simon.
Wal-Mart U.S., numbering 4,500 stores, ever so slightly is starting to merchandise its fresh-food department better. The stores ever so slightly are looking and feeling cleaner, tidier and more easily laid out for associates to watch customers navigate aisles.
Although Wal-Mart U.S. still remains near the ground floor of fixing what ails its bread-and-butter business, the changes being led by Foran are sprouting, and stand to strengthen in number and impact into this year's holiday season. Ultimately, I think Wal-Mart is a 2016 story as its stores, and the U.S. consumer, will likely be in much better shape than this year. Sprinkle in a little U.S. dollar weakness and suddenly, Wal-Mart is staring down the barrel of earnings acceleration in 2016.
Wal-Mart's comeback, while in the early stages, means a great deal to the country and the companies that serve its giant supercenters. Here are three things that bear watching as Wal-Mart's potential rebirth comes to light.
Truckers: JB Hunt (JBHT) is Wal-Mart's primary outside trucker. Great news for that company as Wal-Mart's turnaround is hinged on getting more food and general merchandise to its stores quicker. That should lead to an increased number of hauls and more pricing power with Wal-Mart, believe it or not. Over time, it could spur truckers to offer richer compensation packages to attract talent, which has been a problem for years. Those better-compensated truckers will be sending their paychecks home to their spouses to spend at Wal-Mart. Note that 90% of the U.S. population is within 10 miles of a Wal-Mart store.
Packaged-goods suppliers: Wal-Mart is squeezing its suppliers further, especially on the food side, to reduce prices. The world's largest retailer has to inflict this pressure because it's no longer, in some cases, the low-price leader in a merchandise category. I think Wal-Mart's renewed ruthlessness, while a positive for consumers, is bad news for Kellogg's (K), Campbell (CPB) and, yes, Warren Buffett's shiny new toy, Kraft (KRFT). The packaged-goods companies will find it hard to raise prices to Wal-Mart when inflation rises and protect the cost savings during deflation that would have otherwise gone to the bottom line ... and shareholders.
Pharmacies: Mixed emotions on what a Wal-Mart focusing on opening more pharmacies means to the likes of CVS (CVS) and Walgreen (WBA). On one hand, Wal-Mart no longer appears keen on opening hundreds of its "express" store format, which are smaller-square-footage locations that resemble pharmacy store layouts. A person could come in, buy chips, a candy bar and soap and be out the door in under 10 minutes. So CVS and Walgreen could maintain their prime standing in the local rural community. But Wal-Mart does have a focus on adding more pharmacies inside its supercenters and health and wellness clinics. Granted, the major pharmacies are doing the same, it's just that when Wal-Mart sets its sight on an objective, it usually wins.
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