Wal-Mart is Wal-Smart

by | May 14, 2001

The world’s biggest retailer proves the New Economy isn’t just for tech companies. To be at the leading edge of the New Economy, a company doesn’t have to make semiconductors or optical networking components, or even map the human genome. As much as anything else the New Economy is about new business methods — and […]

The world’s biggest retailer proves the New Economy isn’t just for tech companies.

To be at the leading edge of the New Economy, a company doesn’t have to make semiconductors or optical networking components, or even map the human genome. As much as anything else the New Economy is about new business methods — and those new methods can be applied in any industry.

So technology stocks aren’t the only way to invest in the New Economy.

Consider the case of Wal-Mart. From its earliest origins it was a play on New Economy demographics, recognizing underserved exurban and suburban markets, and the hollowing out of smaller downtown centers. But as Wal-Mart grew, it became a state-of-the-art laboratory for modern retail logistics management, and for optimized distribution partnerships with manufacturers of branded consumer goods.

But there’s another element to Wal-Mart’s use of New Economy business methods that may hold the key to their continuing dominance: their mastery of the precious market information that naturally flows from their far-flung retail empire. And last week Wal-Mart announced that it would no longer share that information with anyone.

With over 2600 stores, Wal-Mart’s scope as a retailer is vast. But it’s not just the number and dispersion of its stores — there’s the number of its customers, the volume of its traffic and the variety of its merchandise. And for years Wal-Mart’s been capturing, storing and analyzing highly detailed real-time information about every transaction. Armed with this information, there is probably no other retailer — and surely, there is no government statistical bureau — that possesses as much high-quality information about the buying preferences of the American public.

This information gives Wal-Mart a substantial edge in negotiating with suppliers, optimally pricing merchandise, stocking the goods that its customers want when they want them, and keeping inventories low. It’s a superlative and deadly competitive weapon — and, as a corporate asset, a potential source of significant “hidden value.”

Previously Wal-Mart had made this data available to manufacturers, competitors, Wall Street analysts, and anyone else who might be curious, through various third-party data vendors such as ACNielson and NPD Group (who paid Wal-Mart a fee for the right to distribute it).

Quoted in the New York Times on Saturday, a Wal-Mart spokesman said, “We did receive a payment. But we decided that despite that payment, we didn’t get as much out of it as our competitors did.”

Wal-Mart is waking up to the fact that, in the New Economy, market information and information systems can be the most valuable assets a company has got. For example AMR Corporation, the parent of American Airlines, recognized this when it spun off its Sabre reservation system as a separate company. Today Sabre Holdings Corporation has a market cap of $6.5 billion, while AMR’s market cap is only $5.7 billion. The information about the airline turned out to be more valuable than the airline!

We own Wal-Mart, as advisor, because we think it’s in a particularly interesting position right now in these uncertain times — it’s set up to win whether or not the economy recovers from here. In a recovery led by demand-side stimulus-oriented monetary and tax policies, all the retail stocks should do well. But as a super-efficient discounter, Wal-Mart’s also a great recession play. For these reasons it’s one of our three favorite retailers, along with Target and Home Depot.

Now this news of Wal-Mart’s increasing awareness of the true nature and power of its competitive advantage in the New Economy makes us like it even more.

Don Luskin is Chief Investment Officer for Trend Macrolytics, an economics research and consulting service providing exclusive market-focused, real-time analysis to the institutional investment community. You can visit the weblog of his forthcoming book ‘The Conspiracy to Keep You Poor and Stupid’ at www.poorandstupid.com. He is also a contributing writer to SmartMoney.com.

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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