arvy’s teaser: Walmart, a tower of strength in turbulent times. From its humble beginnings to its evolution into an omnichannel powerhouse, this family-run giant continues to thrive, offering investors resilience and long-term growth potential.
Recession.
Every investor’s biggest worry.
The great paradox? It is inevitable. As soon as you have left one recession behind you, you will one day find yourself in the next recession. It is the natural cycle that the economy follows. An upturn is eventually succeeded by a downturn. The funny thing about it? Investors lose far more money trying to predict corrections than they do from the corrections themselves. Be it through opportunity costs because they are not invested or strong emotions that lead to wrong decisions as soon as the correction arrives. I could talk about it for hours. But the good thing though? Bear markets are generally much shorter-lived than long, steady bull markets (Chart 1). Markets ultimately take the stairs up and the elevator down.
We do not see recessions and subsequent bear markets as such a bad thing. They provide good long-term buying opportunities, you can raise your dollar-cost average, you can separate the wheat (Good Story) from the chaff (Bad Story) and you personally learn a lot through turbulent times. You see, you can see the glass half empty or half full. It all depends on how you deal with what you cannot control.
Let’s move into the most resilient business in when the shit hits the fan.
The #1 recession stock.
Walmart.
Chart 1: Stock market cycles, you win more in bull markets than you lose in bear markets
Source: Visual capitalist
Family Dynasty
Sam Walton opened his first Walmart supermarket in 1962.
Today, Walmart operates 10,957 stores, employs 2.3 million people and generates annual sales of over $600 bn.
In the US, the Walton family is the richest family ($270bn), followed at a considerable distance by the Mars family (yes, the chocolate bar, $117 bn) and enjoys a strong reputation as a down-to-earth family dynasty. Sam Walton is the epitome of an entrepreneur and the way to run a family business. In his memoir “Sam Walton: Made in America”, he discusses his keys to success.
Sam’s 10 Rules for building a business:
- Share your profits with all your associates, and treat them as partners
- Motivate your partners. Money and ownership alone are not enough
- Commit to your business. Believe in it more than anybody else
- Celebrate your successes. Find some humor in your failures
- Communicate everything you possibly can to your partners
- Appreciate everything your associates do for the business
- Control your expenses better than your competitors
- Exceed your customers’ expectations
- Listen to everyone in your company
- Swim upstream. Go the other way
The outcome?
Six decades of relentless growth.
Chart 2: Sam Walton, the founder of Walmart
Source: Quartr
Brick-and-Mortar & Low Prices
One-stop-shop and low prices.
This is the idea behind Walmart. In the US alone, Walmart has 4,600 stores and – buckle up – 90% of the US population has a store within 10 miles.
This density of stores and the range of goods on offer in the US give Walmart an enormous cost advantage. The supermarket has the largest assortment of goods with 140,000 units, compared to Target with 80,000 or Costco with 4’000 units. If you are a consumer staple like Nestlé, Coca Cola or Pepsi, you want to sell your products through Walmart.
Guess who has the upper hand in price negotiations? Customers benefit as they can enjoy a wide selection of products at low prices, which in turn leads to brand strength for Walmart.
The result?
Walmart has a 25% market share. The next four largest grocers, Kroger, Costco, Target and Albertson, have a combined market share of 23%. In addition, their low-price strategy leads to stable and ever-growing sales (chart 3), no matter the storms, because groceries at cheap prices are always needed. A tower of strength during recessions.
As I do every time I visit the US, I highly recommend visiting a Walmart Supercenter.
It is an experience in itself.
And that is not all.
Chart 3: Walmart’s annual revenue
Source: Koyfin
Sweet Spot
With the rise of e-commerce and giant Amazon, Walmart certainly cannot rest on its laurels. Despite being a supertanker, Walmart has been innovative and has emphasized its pursuit of omnichannel.
This means that the company has begun to expand its business from traditional brick-and-mortar stores to online offerings. Thus, Walmart grew strongly in its e-commerce offerings, including Walmart+ (the answer to Amazon Prime), which offers its own marketplace (like amazon.com), free shipping, fuel benefits and access to the streaming service Paramount+.
Because of its tremendous scale and access to capital, Walmart can build on its resilient, low-cost strategy while still having growth trajectories underpinned by operational efficiencies that improve margins. Defensiveness meets a tad of growth and margin expansion. A sweet spot.
Walmart will not be the mega-growth story, but it has proven one thing.
You can grow your capital while sleeping soundly.
Chart 4: Walmart over 30 years, US recessions (shaded) with strong outperformance
Source: TradingView
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