Why the WMT Stock Price Won't Get Any Better

WMT stock priceThe WMT stock price barely reacted yesterday (Monday) to the news that Wal-Mart Stores Inc. (NYSE: WMT) plans to get a jump on Cyber Monday by launching its sales at 8 p.m. Sunday, four hours earlier than usual.

The Wal-Mart stock price was up less than 1% in mid-day trading following the announcement. It's been a rough year for Wal-Mart stock, with shares down 30% in 2015.

The Bentonville, Ark., retailer said that it was moving up the hours of the sale to help customers.

"It can be exhausting for working parents and millennials to stay up past midnight to shop online, only to wake up early the next day to get ready for work," Fernando Madeira, president and CEO of Walmart.com, said in a statement. "By starting 'Cyber Monday' hours earlier on Sunday evening and quadrupling the number of Cyber Monday specials, we're making it easier for customers to get ahead of the busiest online shopping day of the year and save on the best gifts."

But this isn't as much about catering to customers as Wal-Mart would have you think. The "Cyber Sunday" news is another sign of Wal-Mart's desperation to shore up its weak online retail presence.

Why the Wal-Mart Stock Price Is Falling

One of the main reasons for the big slide in the WMT stock price this year is the rapid migration of retail sales to the Internet, driven by Amazon.com Inc. (Nasdaq: AMZN).

The aggressive pricing, low or free shipping costs, and convenience of shopping from home have all put pressure on traditional retail stocks like Wal-Mart.

"There's a perception in the world that Wal-Mart is playing catch-up to Target and Amazon, especially in e-commerce innovation," Jim Davidson, head of research at Bronto, a marketing company, told The Wall Street Journal.

With more than 5,000 brick-and-mortar locations in the United States, Wal-Mart was slow to react to the challenge that online retailing represented. For years, the company treated its website operation as an afterthought and it showed.

Today Wal-Mart gets just 3% of sales from its website, compared to 8% for Macy's Inc. (NYSE: M), 19% for Nordstrom Inc. (NYSE: JWN), and 26% for Neiman Marcus.

Wal-Mart belatedly recognized the problem. But here's why the company's plans to make up lost ground don't bode well for the Wal-Mart stock price...

The WMT Stock Price Faces Long-Term Pressure

Last month, Wal-Mart said it will invest $2 billion in e-commerce over the next two years.

But that investment will be a significant drag on the WMT stock price over the next several quarters, chopping between $0.06 and $0.09 from next year's earnings per share (EPS).

But while Wal-Mart has no choice but to focus on becoming a better online retailer, its challenges run deeper.

That's because the disruption to retail that online shopping represents is about more than just buying stuff over the Internet. It's also about price - Wal-Mart's primary draw.

Amazon can often undercut Wal-Mart on prices because it's more than an online retailer. It's an online marketplace, where third-party sellers can offer their wares through Amazon. Amazon has more than 2 million partners in its marketplace that account for about 44% of the site's total sales worldwide.

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And in addition to all those retail outlets on Amazon, there are countless others with their own websites selling specialty items over the Internet. With little overhead, most can sell directly to their customers at prices lower than Wal-Mart's.

Wal-Mart thrived when it was only up against other brick-and-mortar retailers like JC Penney Co. Inc. (NYSE: JCP) and Sears Holdings Corp. (NYSE: SHLD).

Online retailing is a much different animal. Consumers can comparison shop at dozens or even hundreds of online retailers, many of which will have better deals than Wal-Mart can offer. A better website won't change that equation - bad news for the WMT stock price in the years ahead.

"A traditional retailer like Wal-Mart that fails to acknowledge the disruptive power of competing technologies, specifically as they relate to e-commerce, will lose its cost advantage and may never recover," warned Money Morning Chief Investment Strategist Keith Fitz-Gerald. "Instead of dominating the industry it created, it will turn into a follower and - if it's lucky - a survivor. Many of the traditional retailers will go out of business or suffer a BlackBerry-like fate as customers 'pull' from their favorite new retailers rather than accept what's 'pushed' upon them by the traditional stores."

 Follow me on Twitter @DavidGZeiler or like Money Morning on Facebook.

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About the Author

David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.

Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.

Dave has a BA in English and Mass Communications from Loyola University Maryland.

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