Wal-Mart Stores Inc. (NYSE: WMT) is in the fight of its life.
And contrary to what you may be hearing... it's not winning, according to Money Morning Chief Investment Strategist Keith Fitz-Gerald.
Conventional Wall Street analysts don't see things that way, naturally.
"Wal-Mart is making a comeback. Watch out, Amazon," reported CNN in September of last year.
Last month, Goldman Sachs Group Inc. (NYSE: GS) upgraded WMT stock to "Buy" from "Neutral." Goldman analyst Matthew Fassler even went so far as to say that Wal-Mart can "sidestep the Amazon juggernaut."
"Don't bet your retirement on it," cautions Fitz-Gerald.
"All of these moves that Wall Street is interpreting as 'good developments' - Wal-Mart's two-day shipping, in-store pickup, etc. - are being viewed through a rose-colored lens," said Fitz-Gerald. "In reality, they're all 'Hail Mary' passes - meaning desperate measures intended to help the store remain relevant."
Here's the sad truth about the iconic American retail giant.
Too Little, Too Late
Wal-Mart completely misjudged the impact of the Internet on its business, especially as it relates to Amazon's challenge. Executives may not have been as cavalier, but the "situation reminds me of former Microsoft CEO Steve Ballmer, who famously dismissed the iPhone in 2007. And we all know how that ended," says Fitz-Gerald.
Wal-Mart didn't begin to ramp up its e-commerce efforts until late 2015, when it streamlined its mobile app and online ordering platform. By that time, notes Fitz-Gerald, Amazon.com Inc. (Nasdaq: AMZN) had already captured over 33% of all U.S. online purchases.
"The company assumed - like other quintessential brands have - that it's so ingrained in the American psyche that it was immune to anything that challenged the status quo."
Fitz-Gerald sees glaring similarities between where Wal-Mart finds itself and where Sears, Harley Davidson, and Blackberry were a few years ago.
Keith is an expert at identifying market successes and failures, and he believes Wal-Mart's imminent demise can be boiled down to one specific factor: ignorance.
"Like those companies, Wal-Mart remained out of touch for far too long, and that's cost them valuable market share but also mindshare," says Fitz-Gerald.
According to NPD Group's Checkout Tracking service, 95% of U.S. consumers shopped at one of Wal-Mart's 4,700 stores or on its website, as reported by CNBC. That means roughly five of every six Americans were customers.
That's changing fast.
The harsh reality is that now 51% of Americans prefer to shop online instead of in-store, according to a recent report by Big Commerce. That number is rapidly increasing...
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American e-commerce sales are growing 23% year over year, according to the same report, with Amazon's juggernaut accounting for 43% of that figure. By 2021, Amazon will account for over 50% of U.S. online sales, according to Fortune.
Many investors don't believe this is possible, yet Fitz-Gerald points out simply, "we've seen this playbook before."
Wal-Mart Will Go the Way of the Music Industry
The vast majority of music executives were caught flat-footed in 2000, when very few people believed that customers would turn to the Internet to browse, purchase, and download their tunes.
Apple Inc. (Nasdaq: AAPL) debuted iTunes a year later, and the industry "got crushed almost overnight," observes Fitz-Gerald.
Today, global revenue from music downloads and subscriptions far outpace sales of physical records, according to a 2015 report from the International Federation of the Phonographic Industry.
"Music companies are now a shell of what they used to be, and that's unfortunately the very same path Wal-Mart is on today," says Fitz-Gerald.
There's Only One Retail Play for Investors Now
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"Investors all over the world own Wal-Mart in their portfolios, but they don't realize they are playing with fire," said Fitz-Gerald. "At best, they'll tread water. At worst, they're going to see their portfolios devastated if Wal-Mart can't change course."
Even Wal-Mart Is Not Amazon-Proof
Doing so requires a lot of capital, and it's here that Fitz-Gerald draws two important competitive distinctions.
First, Amazon has over $21 billion in cash on hand versus Wal-Mart with "just" $6.87 billion, according to research firm CreditSights. Put plainly, that means Amazon has more than four times the amount of cash on hand that Wal-Mart does. That gives the company a far broader mandate when it comes to growth.
And second, "profits are irrelevant for Amazon, which continues to defy Wall Street's attempts to classify it. Wal-Mart is inextricably linked to the classic earnings cycle, which means it lives and dies by the penny," said Fitz-Gerald.
Fitz-Gerald put the situation bluntly: "It's Amazon versus everybody else."
He doesn't see Wal-Mart filing for bankruptcy any time soon because so many people have a vested interest in seeing it survive. But he does encourage investors to "weigh the opportunity cost of tying your hard-earned investment dollars to a company that's playing catch-up."
"The far better alternative is to get on board with Amazon," he suggested.
Currently, AMZN is trading at $946 a share.
That's obviously prohibitively expensive for most investors, but he doesn't see that as a reason not to buy. In fact, "there are all sorts of ways to pick up shares in Amazon, ranging from buying a single share at a time, to options, or via several popular mutual funds," he noted.
"Just make sure you do," he urged, lest you "get left behind in what will ultimately be one of the greatest examples of capitalism the world has ever seen."
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