The growing Wal-Mart scandal in Mexico is revealing some fundamental flaws of the Mega-retailer.
Despite the huge run-up in most share prices since 2009, Wal-Mart has floundered, lagging behind the broader S & P 500 Index by about 2/3.
As it seeks to expand outside the United States, Wal-Mart is finding it more difficult to make its domestic model work elsewhere.
The company's historic advantages of low wages, squeezed suppliers, and cheap Chinese manufacturing are each fading away.
Simply stated, Wal-Mart cannot pay its workers any less, whether it is in Mexico or the U.S.
Having extracted nearly every last drop from most of its suppliers, there is little, if anything, left for the company to get.
And, with manufacturing costs and inflation soaring in China, Wal-Mart's workshop has now become far more expensive to operate.
With growth feeble and its competitive advantages going by the wayside, we shouldn't be surprised that allegations of "cooking the books" are emerging.
As George Orwell observed, "It is only when someone is winning that they appear invincible".
Discuss this Blog Entry 2
I hadn't heard of this Mexican scandal, but I'm not surprised if WalMart is running into problems. One shouldn't rely on getting super cheap stuff from China forever. All things come to an end, and I think this one might happen faster than most people expect.
I am not seeing reports of "cooking the books", but I am seeing reports of bribing officials in Mexico. This seems terrible to some in the US but based on reactioin in Mexico it is no big deal. In fact it is normal or business as usual. Latest news today is that Mexico is not even investigating as it is a non-event.
Corruption and the black market are a normal way of life in many parts of the world it is how things get done. I do not think this is right, but just because I disagree does not make it different.
Do not think that the black market is only in places like Mexico or only in 3rd world or 2nd world countries - most of Europe is almost as bad (black market) they are just way more discreet.
As to the other issues for Walmart that are listed - no surprises. What many forget is that cutting to the bone is a finite end game - you can only cut to zero then there is no more. On the other hand growth via innovation is infinite there is really no ceiling. That is not to say that all cutting is bad, applying lean principles and reducing waste is (IMO) a good thing, but unless it is coupled with a growth plan it is but a short lived blip. I wish my congressman would understand that.
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