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BizReport : Research archives : February 17, 2017

Expert: What Buffett's Walmart sale means

This week investor Warren Buffett of Berkshire Hathaway sold off almost $1 billion in Walmart stocks; he then pushed his investment capital into airlines, Apple, and other options. What does this mean to the big picture of retail?

by Kristina Knight

Kristina: Walmart has more than $480 billion in annual revenue - why sell?

Brent Franson, CEO, Euclid Analytics: In short, revenue doesn't matter as much in the market as growth - and that is an area where the giant is undeniably weak. In retail these days, growth is coming from ecommerce and mastering the art of omni-channel. In other words, retailers who are currently winning in the marketplace are those that signal clear savvy in using both online and offline channels to deliver value to customers and returns to shareholders. Walmart has not cracked the code and it's too far behind to get there quickly enough. Walmart's moat - differentiators that prevent competitors from storming the castle - is drying up.

Kristina: You mention that Walmart hasn't invested in personalization, do you think that decision influenced the Berkshire Hathaway move?

Brent: Walmart unfortunately operated with a similar strategic playbook to Macy's - and like Macy's, it's paying a hefty price for misreading the tea leaves. Both retailers went against personalization at a time when people really want and value that aspect of shopping. They opened up as many stores as they could. They put into place centralized purchasing and distribution systems that made it harder to deliver quickly. Now, of course, Walmart will need to close stores over the next few years, invest more into its online business and making work, and play a game of serious catch-up.

Kristina: Does this mean that it's time for investors to get out of retail?

Brent: It is fair to say that Buffett doesn't believe in Walmart anymore. It's fair to say that he's probably a pragmatist who buys undervalued stock with the potential to grow at a pace that generates favorable returns - and sells when they're no longer poised to deliver. So you might infer that Walmart is either overvalued or perfectly valued - in which case, it's no longer interesting or lucrative for Buffett. But fears that the retail category itself is no longer one to believe in are seriously overblown. At more than $24T, retail is doing just fine. That said, retail is at an inflection point where retailers must adapt to reflect the reality of the modern shopper's expectations - and those that are more like Amazon, and less like Walmart, will do much better.

Tags: advertising, Berkshire Hathaway, ecommerce, Euclid Analytics, retail trends, Walmart, Warren Buffet

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