While reading Poor Charlie's Almanack, I came across a very interesting quote from Charlie Munger (Trades, Portfolio) and his opinion of Walmart (WMT, Financial). Here are his thoughts:
"On the subject of advantages of economies of scale, I find chain stores quite interesting. Just think about it. The concept of a chain store was a fascinating invention. You get this huge purchasing power – which means that you have lower merchandise costs. You get a whole bunch of little laboratories out there in which you can conduct experiments. And you get specialization.
"It's quite interesting to think about Walmart starting from a single store in Arkansas – against Sears, Roebuck with its name, reputation and all of its billions. How does a guy in Bentonville, Arkansas, with no money, blow right by Sears, Roebuck? And he does it in his own lifetime – in fact, during his own late lifetime because he was already pretty old by the time he started out with one little store.
"He played the chain store game harder and better than anyone else. Walton invented practically nothing. But he copied everything anybody else ever did that was smart – and he did it with more fanaticism and better employee manipulation. So he just blew right by them all.
"He also had a very interesting competitive strategy in the early days. He was like a prize-fighter who wanted a great record so he could be in the finals and make a big TV hit. So what did he do? He went out and fought 42 palookas. Right? And the result was knockout, knockout, knockout – 42 times.
"Walton, being as shrewd as he was, basically broke other small town merchants in the early days. With his more efficient system, he might not have been able to tackle some head-on at the time. But with his better system, he could sure as hell destroy those small town merchants. And he went around doing it time after time. Then, as he got bigger, he started destroying the big boys."
Walmart's story is quite fascinating, and I agree with Munger's comments. For me, what set Walmart apart from its competitors were: 1) A laser-like focus on improvements and economies of scale by Sam Walton, 2) A willingness to try new strategies and embrace failures to learn from them, 3) A focus on the customer and their satisfaction, 4) Consistently thinking ahead and no taking "no" for an answer in terms of negotiations with providers.
While it is important to ponder if these aspects are as valid now as they were in the past, it is undeniable that Walmart's scale and distribution power are still existent. As the company is facing new headwinds, it is critical to think about how the platform can still be used to produce good results for shareholders. I will discuss Walmart's prospects in coming posts.
Do you think Walmart's moat is still intact?
