It's time to review Huygens' favorite retail rivalry. Previously, six weeks ago, Walmart (WMT) made the news as leaked emails suggested management was concerned about awful sales. It was not the economy, although it provided good cover. It was further evidence of a looming reputational crisis.

A reputational crisis, as readers of Reputation, Stock Price and You well know, is a business condition when a plurality of stakeholders reassess their relationship with a company and act with economic force in a way that punishes a company. Customers stop buying, price premiums drop, employees work less efficiently for higher labor costs, suppliers charge more or otherwise reduce a company's priority, credit costs rise, etc.

Bloomberg reports today that Walmart is having trouble stocking its shelves. Customers are not finding that which they seek, and are not returning. According to Bloomberg, the problem is labor -- more specifically, a shortage. "The Bentonville, Arkansas-based retailer’s workforce at its namesake and Sam’s Club warehouse chains in the U.S. fell by about 120,000 employees between 2008 and Jan. 31, according to a securities filing on March 26. The company now has about 1.3 million U.S. workers. In the same period, it has added about 455 U.S. Wal-Mart stores, bringing its total to 4,005." Here's the math: Five-year store growth at 13%; employee growth at -1.3%.

Recapping, Walmart has regulatory issues with possible violation of the Foreign Corrupt Practices Act; labor groups are active again; customers are not visiting; work is not being done...a reputational crisis in waiting, no? Other objective measures, namely the Steel City Re Reputational Value Metrics, indicate significant volatility in the measure of reputational value. In "investor relations" parlance, these data indicate that there is a deteriorating consensus about Walmart's prospects. In "reputation risk" parlance, these data are indicators of a reputation in the early stages of trouble. Momentum indicators are still neutral, but given Walmart's heft, once they start sliding aggressively, it'll be tough to reverse.

By the way, if you were wondering who were the leading and lagging firms in the retail sector, the current king is Costco (COST). At the other end of the spectrum, the firm with the lowest reputational value among its 15 peers is Sears Holdings (SHLD).

Three months ago, Huygens reported that the reputation value metrics calculated by Steel City Re suggested that Walmart was on course for a reputational value crisis. It was a message easy to ignore, as Walmart's travails have been covered extensively by Huygens among many others and stumbling consequent to a host of reputational value crises has been long expected. It had to come eventually, although Huygens in December boldly predicted -- there's nothing all that bod about interpreting reputational value metrics, actually -- it would be evident by Spring 2013.

Hours before Bloomberg News leaked emails from Wal-Mart executives calling February sales a "total disaster," off to the worst start in seven years, the updated reputational value metrics showed yet another spike in RVM volatility. RVM, as described in the book Reputation, Stock Price and You,  is a non-financial measure of reputational value, and its volatility is an indicator of stakeholder expectation alignment with messaging. High RVM volatility values suggest poor alignment. Somethings 'a comin'.

Compared to Target, a much smaller company, Walmart's RVM volatility is leaping of the vital sign charts to the 71st percentile among the 15 companies in the Discount Store peer group. The company's CRR, a measure of reputational value  premium, is in the 93rd percentile. This measure should be a source of good cheer but for the corresponding RVM volatility and the fact that Walmart's ROE is comparable to Target's at the 77th and 69th percentiles, respectively. This mix of measures of reputational value make for an unstable picture as the four week rise in Current RVM Volatility suggests. Worst yet for Walmart, the reputational value Forecast Stability metric, the fifth of the five vital signs, suggests that this pattern of volatility can be expected to remain, well, stable.

Twenty hours after this chart was generated, the markets closed for the extended weekend. Walmart was down 2.18% for the day; Target was reflexively down 2.14%, and the S&P500 was down only 0.1%. Equity investors are event driven. With more thought, expect Target to rebound, and Walmart to continue to sink.

With less than two weeks of shopping before Christmas, Huygens thought it would be interesting to return to an perennial favorite--the rivalry between Walmart (WMT) and Target (TGT). When last compared in the spring of 2012, Target was leading Walmart in all indicators of Steel City Re's Reputaitonal Value Matrics signaling reputational value growth. The volatilityy of Historic and current RVM's, non-financial measures of reputational value, were both elevated for Target. Also, the CRR, a measure of relative reputaitonal ranking, was higher as was ROE. The forecast, on the other hand, suggested more change in store for Walmart with indicators pointing to a reduction in CRR. And so it came to pass as Walmart spent the balance of the year wrestling with a number of labor and ethical scandals.

Turning to a face-off of the most recent metrics among a custom peer group of 125 retail stores, and Targets CRR has risen only slightly from the 87th percentile to the 90th. And while Walmart's reputational metrics were more volatile and trended negative in the late spring, by early summer, the measures changed course and the company's reputation climbed to its current CRR in the 89th percentile. The ROE, not surprisingly, outperformed Target's returns with rankings in the 57th and 47the percentiles, respectively. Interestingly, as the chart below row 1 column 2 shows, Walmart's RVM volatility is countercyclical to both Target, the industry median and somewhat so relative to the CBOE VIX, better known at the "fear index."

Forecasting for next time, the measures again show less stability for Walmart and a negative CRR. Stay tuned through Spring 2013 when we'll present the next installment of WMT v TGT.

For several years, Huygens has compared and contrasted the reputational metrics for Walmart (NYSE:WMT) and Target (NYSE:TGT). After yesterday's posting on Walmart, several followers of the Mission Intangible blog asked for an update on the comparative metrics. Below, key reputational metrics in contrast reflecting different directions and prospects for these two firms over the near term.

With respect to Target, the firm's Steel City Re corporate reputation ranking has climbed over the  trailing twelve months from 77th to the 87th percentile within the 127 member peer group of retailers. Walmart's declined. Target's repulational value volatility has been higher historically and is higher currently than Walmart's but the direction of the change is slightly positive while Walmart's is negative. Target's reputation is expected to be more stable in the future; not so with Walmart. The bottom line: whatever is afflicting Walmart that is leading to its reputational decline has not infected Target.

It's Black Friday season. It is a jolly good time, to borrow from seasonal expressions, to return to one of our most viewed reputational competitions, WMT vs TGT (or for those who do not live and die by ticker symbols, Walmart vs. Target). At our last review in February 2011, things were not looking particularly good for either firm. Both were losing reputation and value - Target was dropping faster and its metrics were more volatile. Between the two, our money was on Walmart.

At that time, Walmart’s (NYSE:WMT) reputation had dropped over the trailing twelve months from the 88th to the 81st percentile according to its Steel City Re Corporate Reputation Index ranking. Economically, the company was underperforming the median of this peer group by 26.53%. Target (NYSE:TGT), as a point of comparison, had diminished in terms of reputational standing having dropped over the trailing twelve months from the 93rd the 76th percentile. Economically, the company was underperforming the median of this customer peer group by 21.4%.

One year later, Walmart is looking much better. Walmart’s reputation has climbed over the trailing twelve months from the 85th to the 90th percentile among the 137 companies in the Retail sector. Its trailing 26 week exponentially weighted moving average reputation volatility is 1.7% while its 12 week reputation velocity and reputation vectors were both 0% . These are indicators of a slightly accelerated rise in reputation value. Economically, the company is now outperforming the median of this peer group by 12.62%.

Target (NYSE:TGT), as a point of comparison, has improved marginally in terms of reputational standing having increased over the trailing twelve months from the 88th to the 89th percentile. Its trailing 26 week exponentially weighted moving average reputation volatility was 6.9% while it s 12 week reputation velocity and and reputation vectors were 2% and 3.9%. These are indicators of a much slower reputation transition. Economically, the company was outperforming the median of this customer peer group by .84%.

The relative change in intangible asset fraction in the two companies says it all. Walmart's intangible asset fraction is now greater than the median; and Target's isn't.

Readers of the Mission Intangible blog have an apparently insatiable hunger for updates on the Walmart v Target rivalry. Never mind that in the opinion of our data provider, they compete in separate sectors. So in the spirit of the television musical program, Glee, we present one of our periodic mash ups of 140 stores in a composite retail sector.

Within this custom peer group, Walmart’s (NYSE:WMT) reputation has dropped over the trailing twelve months from the 88th to the 81st percentile according to its Steel City Re Corporate Reputation Index ranking. Its trailing 26 week exponentially weighted moving average reputation volatility is 0.5% while its 12 week reputation velocity and reputation vectors are -7% and -0.1% respectively. These are indicators of a slow but steady erosion of reputation value. Economically, the company is underperforming the median of this peer group by 26.53%.



Target (NYSE:TGT), as a point of comparison, has diminished in terms of reputational standing having dropped over the trailing twelve months from the 93rd the 76th percentile. Its trailing 26 week exponentially weighted moving average reputation volatility is 12.6% while it s 12 week reputation velocity and and reputation vectors are -17% and -10%. These are indicators of a much more volatile reputation transition. Economically, the company is underperforming the median of this customer peer group by 21.4%



This past week, the top ranked firms in this custom retail mash up were Fielmann AG, AutoZone Inc., and Suburban Propane Partners L.P.

More than two weeks have passed since Target (NYSE:TGT) found itself facing incensed stakeholder with pitchforks upset by the ideology of the beneficiary of one of the company's political donations. Positioned broadly in the media as a reputation story, we took interest and found no measurable effect last week. We return again to see if there was latency to the reaction. And we hear - silence.

Turning to the Steel City Re Corporate Reputation Index metrics, Target continues its now 4-week trend of occupying the #1 reputation rank, the 100th percentile, relative to a peer group comprising 16 Department Stores. It has also continued to narrow the economic return gap relative to the median of its peer group, rising another 2%. All of which, in a purely quantitative sense, affirms our previous conclusion that the aforementioned incident, managed as it was with multiple apologies, was limited to a reputation non-event from Target's perspective.

Meanwhile, Walmart (NYSE:WMT) continues to face the looming threat of a reputation crisis tied to its historic labor issues that may overshadow the reputation it has been building around its committment to sustainability. So thought  we'd compare the two sets of reputation metrics by creating a custom peer grouping of 141 Retail companies. (We are only responding to your demand: our TGT, WMT, and Big Box retail blogs are the most widely read of our entire library.) 

Within this peer group, Target began the trailing twelve month period in the 89th percentile and is now in the 92nd percentile. It is underperforming economically the median of the custom peer group by 0.74%. In the second chart, we see that its exponentially weighted moving average (EWMA) reputation ranking volatility has been decreasing over the past quarter, and in the third chart, its most recent trailing twelve week reputation velocity is a positive 2 percentile points per quarter. In short, a good reputation holding steady with no evidence of material consequences from the incident.



Within this same peer group, Walmart began the trailing twelve month period in the 96th percentile and is now ranked in the 91st percentile. It is underperforming economically the median of the custom peer group by 19.12%. In the second chart, we see that its exponentially weighted moving average (EWMA) reputation ranking volatility, having climbed a bit at the end of the previous quarter, has been decreasing recently to a very low level, and in the third chart, its most recent trailing twelve week reputation velocity is a negative 1 percentile point per quarter. In short, a good reputation slowly and gently diminishing.  



Closing the loop on the original incident involving Target these past few weeks, there is no evidence that Walmart benefited in terms of either a boost in reputation or economic return.

In early July, Minneapolis-based Target Corporation (NYSE:TGT) made a $150,000 donation to a local business advocacy group, MN Forward. Six other Minnesota businesses, including Best Buy Co., Inc., (NYSE:BBY), followed suit with $100,000 gifts. MN Forward used the funds to run an ad supporting a socially conservative Republican candidate for Governor, Tom Emmer. The ad for Emmer, who faces an Aug. 10 primary, didn't mention that Emmer’s an outspoken opponent of gay marriages; rather, it focused on his opposition to taxes and spending.

The messenger apparently signaled more than the message. According to the Bloomberg Businessweek story, and what many claim is a self-inflicted reputation crisis,

gay-rights advocates saw the donation as a betrayal by Target, which has long cultivated support among gays by, for example, providing health benefits to domestic partners and sponsoring Twin Cities Pride, an annual celebration. Since the contribution became public, as required under Minnesota law, calls for a boycott and other protests have mounted on YouTube (GOOG) and Facebook. "We feel betrayed," says Jeffrey Henson of Portland, Ore., who started an anti-Target Facebook group that has almost 40,000 followers. Protesters have also stood outside Target stores with placards denouncing the company.

Target’s CEO, Gregg Steinhafel, issued three apologies since late July. The company has not commented on whether or not it will ask for the money back.

Politics aside, the question of interest to the Society is whether or not within all this noise there is a brewing crisis of reputation. According to the Society's lore, and the book, Mission: Intangible, there are three key business processes driving reputation value in the retail sector. These intangible assets are business processes that (1) promote ethical behavior, (2) deliver quality products (price is embedded in quality since it constitutes an expectation), and (3) advance sustainability. Walmart's issue with labor is an example of a reputation that is challenged in the ethical behavior department. But is a campaign contribution with an indirect link to a politically sensitive issue sufficiently material to impact reputation? And if it is so in some cases, can a company have a sufficiently resilient reputation to withstand the challenge?

Let's turn to the metrics. The Steel City Re Corporate Reputation Index does not reveal evidence of a reputation crisis arising from this event. Looking at a reputation metrics snapshot after the markets closed on the day of the rally, 5 August, neither Target nor Best Buy seem to show any material impact attributable to the political donation and the controversy arising.

Target’s reputation has been in the top slot for several months relative to the 16 peer companies in the Department Store sector. Being ranked in the 100th percentile  confers resilience, and so it is not surprising that the kerfuffle this past week, and the smoldering activity this past month, have had no apparent effect. This is confirmed by a quick peek at equity pricing. While TGT has been increasingly underperforming its peers with a -17% relative return over the trailing twelve months measured the week of the donation, and a -24% relative return on 5 August, it does not appear to be linked to the event. This past week, at the height of the protests, there was actually a small relative equity bump as TGT was underperforming the median of its peers by 25% the week before.

Yet even with a firm that may not benefit from reputation resilience, the event appears to been more smoke than fire. Best Buy’s reputation has been on a steady decline since late April when it peaked at the 76% percentile among the 124 companies in the Retailers sector. Over the past month, that decline continued with only a small step jump (drop) of two percentile points this past week. In terms of equity pricing, BBY has been underperforming its peer group for some time, but over this past week reduced that gap from -33% to -28%. In conclusion, based only on the above metrics, there appears to be no reputational consequence attributable to the political contribution.

But there is nevertheless a lesson. The event was not allowed to fester and apologies were quickly issued. As the Wall Street Journal summarizes, "The Target flap shows the potential downside for companies that want to get more involved in politics since a January Supreme Court ruling on campaign contributions. Brand-oriented companies, in particular, worry about getting embroiled in controversies that can tarnish their reputation."

A big box retailer’s reputation is driven by the price and quality of its products, but not by its propinquity. Such are the data from an analysis prompted by the July 2010 issue of Consumer Reports magazine whose headline reads, “Best stores for practically anything.”

The 2 June press release provides highlights of a survey of 30,000 readers of the consumer-oriented magazine on their big-store shopping preferences. The companies are Costco (NASDAQ:COST), Dillard's Inc. (NYSE:DDS), Kohl's Corporation (NYSE:KSS), JCPenny (NYSE:JCP), Target Corporation (NYSE:TGT), Sam's Club (NYSE:WMT), Sears (NASDAQ:SHLD), Macy's Inc. (NYSE:M), Meijer (private), Walmart Stores (NYSE:WMT), and Kmart (NYSE:SHLD). The results of the survey may surprise you. If you are a follower of this blog, the correlation of the results of the survey with the metrics of the Steel City Re Corporate Reputation Index should not.

According to the magazine, the Consumer Reports ratings are based on the experiences of 30,666 readers who characterized 56,922 trips to 11 retailers between April 2008 to April 2009. The Reader Score represents overall satisfaction. A score of 100 would mean all respondents were completely satisfied; 80 means they were very satisfied on average; 60, fairly well. The results are summarized in the table at left.

In the two charts below, we show the correlation of the consumer survey data with the Corporate Reputation Index metrics. Blog readers are generally familiar with the underpinnings of the rankings. For this analysis, we created a derivative metric, the Reputation Vector. The reputation vector takes three factors into account: the average Corporate Reputation Index ranking over the trailing twelve months; the trend, and the variance. The first graph shows the correlation of the Reader Score for all of the companies with the corresponding Reputation Vector value. The slope is positive, but the explanatory power of the trend line only accounts for about 20% of the variance.

According to the survey, for each of the stores, readers cited their primary reasons for shopping at that venue. The three reasons were low price, high quality products, and location. When the data are analyzed separately, a slightly more interesting pattern emerges. All three trend lines are still positive, but the explanatory powers are radically different. 77% of the variance in Reader Score is explained by variance in the Reputation Vector when shoppers were motivated by price; 100% of the variance is explained by the Reputation Vector when shoppers were motivated by quality (not that meaningful with only two data points); but only 4% of the variance is explained when shoppers were motivated by location.

The data suggest that the overall consumer experience as indicated by the Reader Score correlates well with the financially-relevant derivative metric of Reputation Vector – which captures the behavioral expectations of stakeholders -- when price or quality are the primary drivers of behavior. The moral: “Location, location, location” may still be important, but with so much now accessible through the internet, price and quality are by far more important drivers of reputation and the economic benefits and costs thereon.

As April came to a close, Walmart Stores Inc. (NYSE:WMT) received bad news. The United States Court of Appeals for the Ninth Circuit, in San Francisco, ruled that the plaintiffs alleging unfair labor practices against female employees (read, unethical practices) can head to court as a class action. This decision transforms a nine year old matter into the largest class-action employment lawsuit in U.S. history.

Besides being a welcome break from the headline risk crises on safety, quality and ethics facing BP (NYSE:BP), Toyota (NYSE:TM), and Goldman Sachs (NYSE:GS), the issue provides an opportunity to test a central hypothesis held by the Society and described in detail in the book, Mission Intangible. This is it.

Reputation value is the sum of the value contributed by six key intangible assets (business processes) governing ethics, quality, innovation, safety, sustainability, and security. The assets create value cooperatively like the stones in a Roman arch; loss of any one key stone can destroy significant value.

Let’s also recap what is value. Market capitalization is the obvious one. More to the point, companies with superior reputations have enhanced pricing power, lower operating costs, lower credit costs, and higher earnings multiples. It's that simple.

Walmart has invested significant time and effort into building authentic credentials and a reputation for excellence in sustainability practices. Is its reputation for sustainability sufficient to compensate for its less-than-stellar reputation in labor (ethics)? The hypothesis would suggest that they are independent, and that failure in either could erase the reputation value created by the other. Let’s look at the numbers.



The Steel City Re Corporate Reputation Index, also described in greater detail in the book, Mission Intangible, shows that Walmart’s reputation ranking has slipped from the coveted #1 slot of the 100th percentile among 39 peers in the multiline retail sector. Over the past 16 months, Walmart has moved from the top ranking to the 94th percentile. Economically, its return on equity has underperformed both the median return of its peers (by 42%) and the S&P500 benchmark index.



In contrast, Target Inc. (NYSE:TGT), a rival whose charting in this Mission Intangible blog back in June 2009 has been the most popular post ever, raised its reputation ranking among this peer group from the 46th percentile to the 94th percentile. At the same time, it outperformed the median of its peers (by 27%) and the S&P500 index.



Also for contrast look at Walgreen Co. (NYSE:WAG). During this period, their reputation ranking rose from the 69th percentile to the 81st percentile, and it outperformed its peer group by a narrow 2%, but comfortably beat the S&P500 Index.



Last, note that the multiline retail sector, as a group, slipped in its median reputation ranking relative to the broad market. Furthermore, the variance among the individual companies comprising this sector narrowed. The sector's median reputation ranking drop stands out dramatically in contrast against Target's reputation ranking rise.