Walmart Makes a Lousy Shield

Just as in 2008, the retail giant may not be the safest haven.

We've seen this movie before. 

Investors have flocked to Walmart this year out of fear another recession is brewing. Down nearly 30 percent in 2015, shares in the world's largest retailer are up 8 percent this year, compared to a 6 percent drop in the S&P 500. A similar short-term bounce in Walmart occurred in 2008. 

Don't Call It a Comeback

But make no mistake, this is a move to safety, fueled by what investors think will happen to the broader market -- not a reflection of the underlying performance at the company. 

And when it comes to market timing, it's just as important to know when to get out as it is to know when to get in. On Thursday, Walmart lowered its annual sales forecast and reported fourth-quarter financial results that fell short of Wall Street's already lowered expectations. Even its much-lauded e-commerce sales rose by only about 8 percent (down from the 20 percent to 30 percent growth numbers of years past). Shares fell about 4 percent in pre-market trading, . 

Funny enough, even Walmart's corporate strategy reeks of déjà vu. Then, as now, the company pruned its aisles to hold fewer goods and keep a "clean floor policy," while revamping stores to make them less cluttered, friendlier, and more amenable to higher-income customers.

Peaks and Valleys

Walmart same-store sales, year-over-year change

Source: Bloomberg Intelligence

Then, as now, Walmart stressed a commitment to gargantuan super centers and everyday low prices, instead of periodic sales and discounts -- even online, where getting the cheapest price often wins the sale. And after a year of trying to position itself as what CEO Doug McMillon called "a very big growth company," Walmart has resumed talking about the need for profits. 

This approach didn't work out back then, and it's unlikely it will hold up now. 

Walmart's moves in the previous recession led to years of sales and customer traffic declines, as well as weaker relationships with suppliers. Once the economy began to improve, Walmart's financial results suffered. Two years of growth in established U.S. stores were followed by 9 straight quarters without growth.

Walmart will likely get a short-term boost from the overall market jitters, but it's unlikely to last for long. Among Walmart's many challenges are slower e-commerce sales growth, its exposure to pained emerging markets, the continued strength of the dollar, and cost pressure from closing stores and paying workers higher wages. Deflation is also a big problem at the retailer, because when prices of meat and other food are lower, Walmart typically passes along those same prices to its customers and takes in less revenue. 

The world's biggest retailer is still a force to be reckoned with. But it might be best for now if investors hit the fast-forward button on this movie, to get to the selling part.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Shelly Banjo in New York at

    To contact the editor responsible for this story:
    Mark Gongloff at

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