If you have read us before, you may have read something about Wal-Mart Stores Inc. (WMT-NYSE).  There is probably an 80% chance that it was critical of the company but not for the entirely the same reasons as many Wal-Mart critic sites.  We do not subscribe to the evil corporate beast mantra as some, but sometimes it is obvious as a sore thumb that a company’s image is carrying right over into its shareholder pocketbooks.

I was just on CNBC (watch video here) discussing Wal-Mart along with many analysts and portfolio managers today discussing what is wrong with Wal-Mart.  There is no reason to keep going on and about your earnings and you guidance, because frankly it was just "less bad" than it could have been.

That is the case here.  Calling for Lee Scott to step down or for the Walton’s and the board to force him down is beginning t sound like a broken record.  But for starters he needs to.  You that time that two public speakers convey a message and one doesn’t carry an audience and one shines?  Lee Scott is falling short on all fronts.

So what are solutions?  There are about 10 things on the surface.   There are many more, but here’s a start:

1) Lee Scott is the first fix.  Stop coming across and don’t go out andirritate entire regions.  When you manage to alienate the New York Cityarea, maybe learn from it and say "It is probably best to address thisin the future rather than today, and we look forward

2) Youaren’t a growth company any longer, not inside the U.S. anyhow.  Stopacting like one.  You stated your cap-ex would be slower than yoursales growth.  Nix that idea and get real.  You need to chop cap-ex andstore growth down to a crawl for 12-18 months.  Target and Sears won’tcatch up that fast and you can even do it on the quiet so you don’tsend Target and Sears the idea to encroach further.

2) Yourmargins might be able to be blamed on apparel and inventories growingfaster than sales, but that means you are buying some of the wrongmerchandise and you are buying too much of it.  There is likely more ofa widespread issue here.  This also goes to show how you are unable tomaintain the store growth, so fix the growth to a crawl and yourinventory may partially rectify itself without major changes.

3)Work on your ‘loss leader’ program.  It’s ok to lose money here andthere, but when you go start taking risks on potentially losing moneyon higher-end electronics you have to start selling a lot morelower-end items.  You should see better results and less margincompression from this.  You could even compress it to say "the first200 units" per location, but you better not get caught being dishonestabout it.

4) Work on your credibility.  You have roughly 30% ofyour sales from food now, so if you say your food is ‘organic’ makesure it is so you don’t have to say "employees got the labels wrong."When you issue a letter discussing inaccuracies about spying, why notmake a controlled media appearance instead of floating it where no onewill see or care.

5) Make the stores ‘a tad’ nicer.  No oneexpects you to be Whole Foods or Nordstrom’s, but from your floors toyour ceilings you can make minor improvements that might make it a tadbetter. 

6) Core customers are your key.  You are about price,but price isn’t everything to everyone.  At this point if you justwrite off the high-end customers you may have a victory.

7) Makeyour growth story international.  You have probably maxxed-out in theUS, so only add at a crawl domestically.  Focus on the India plans for"soon" and go look for more deals like the last acquisition in Chinabecause that was stellar.

8) Your health care initiativesactually seem to be working, or at least you are conveying that you arehappy with them.  If that’s the case then you can implement this fasterand cleaner.

9) Work harder on your employee AND communityrelations.  You know you have a problem here and you know you haven’tcome closer to a fix on this.  Smiles are getting harder and harder tofind and until you adequately address this you are going to be underfire.  I will be the first one to admit that there are some that willnever stop attacking you, but you have not come close yet to reallyappearing as a better steward.

10) Show your investors that youare willing to reclassified yourself.  You are considered more of astaple now, so don’t think you need to grow the top-line with theanticipation that you will make it up after you own all the retailspace.  Change your focus to a margin (and therefore earnings) storythat is going to commit to using vast amounts of the earnings power toreward shareholders.  Investors have to know they aren’t going your oldgrowth rates ever again, but they can settle for higher income and somegrowth.

The truth is that when coming up with this list aftergetting to think further on the topic, you know and I know that 10issues won’t help.  Maybe Lee Scott is not the first answer.  Maybesome of the loss leaders are just too ingrained in your "Always LowPrices" but it doesn’t have to mean "Always compressing margins andincome."  This is a start.

If you decide you want to keep LeeScott, well that’s your business.  You are in year two of a three yearplan and you have to know you are not executing like you would liketo.  If these issues and major disappointments are still here a coupleor few quarters out from today then expect more than these tensuggestions.  You’ll be receiving public cries from investors formandates that make your company look entirely different than today.For a hint, the suggestions will start with a "key and lock" and therewill be analogies to strategies used in relationships gone awry.

Maybe it should have been a "12 Step Program," but sometimes less is more.

Jon C. Ogg
May 15, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.

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