Walmart's wobbly empire

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What would Sam Walton think if he were alive to see Walmart today? asked Brian Sozzi at The Street. The founder of the 53-year-old big-box behemoth would probably be shocked to see that his "pioneering profit formula" — low operating costs and extra-discounted prices — "is now virtually impossible to maintain." The reason? The rise of Amazon and pressure from employees demanding higher wages. Walmart's normally stable stock plunged 11 percent last week — its biggest one-day drop in 17 years — after the company predicted essentially flat sales growth for this year and a possible 12 percent drop in profit for 2016. Between the investment necessary to compete online and the expense of higher wages, including a raise to $10 an hour for its lowest-paid workers that will cost $1.5 billion next year, Walmart's business model "is being smashed to pieces."

Walmart CEO Douglas McMillon certainly has his work cut out for him, said Julie Creswell and Hiroko Tabuchi at The New York Times. The 49-year-old, handpicked by the Walton family last year, is the "consummate Walmart company man," having gotten his start three decades ago selling fishing tackle on a store floor. In damage-control mode last week, McMillon insisted that his plan to spend billions of dollars improving e-commerce and raising wages is "the right thing to do." Wall Street, however, has its doubts. With 5,000 stores and $485 billion in annual revenue, Walmart is by far the world's biggest retailer, but its size makes changing course "akin to turning around an ocean liner in a swimming pool." It's also being steamrolled online by Amazon. The e-commerce giant offers 300 million items for sale and sold nearly $90 billion worth of products last year. Walmart offers just 10 million products online, and last year sold just $12.2 billion via its site.

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"Walmart's problems were a long time in the making, and they'll take time to fix," said Geoff Colvin at Fortune. For now, give credit to McMillon for being a leader. He knows that fast-growing Costco, America's second-biggest retailer, pays its employees an average of nearly $21 an hour. And as a result, Costco gets "better workers, lower turnover, better service, and happier customers." McMillon is also trying to build an e-commerce business that uses the company's stores for faster order processing and delivery. "All those changes cost money before they make money."

Walmart understands the challenges it faces, but its decline may be "practically inevitable," said David Graham at The Atlantic​. To understand why, look to 14th-century Muslim philosopher Ibn-Khaldun, often called the father of sociology. He warned that "empires age and decay in the course of three generations," a theory that "could easily apply to Walmart." The first generation of empire builders is wily and wise, not unlike Sam Walton. The second generation "oversees the peak," but things begin to stagnate. The third generation, lacking the enterprising spirit of its forefathers, watches the decline. Don't believe it? Nearly 40 percent of family-owned businesses are passed to a second generation, but only 13 percent make it to a third. "Pattern isn't prophecy," but I wouldn't be surprised if there is "continued trouble ahead."