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.

Reputation is what the market--a diversity of stakeholders--expects a company to do, and why it rewards some companies and punishes others. Reputation has measurable value. Reputational value risk is when a diversity of stakeholders holds an institution culpable for failures of one of six business processes (ethics, innovation, quality, safety, sustainability, or security) and then adjusts its expectations as reflected in economically unfavorable actions. Turning to various actions by those stakeholders that create or destroy value:

Customers: They're not buying. Walmart announced that it expects (surprisingly) lower sales revenue relative to peers. Three companies announced earnings and Q4 expectations last Thursday: Limited Brands (LTD), Ross Stores (ROST), and Walmart (WMT). .
Source: Google Finance

Employees: They're not working. Strikes are expected in 1000 stores.

Vendors: Don't know.

Creditors: They're not sanguine. Credit default swap prices rose 5% Friday even as the VIX fell.

Equity Investors: They're not happy. Stock price has dropped almost 6% in the past 48 hours. See Customers.

Regulators: They're smelling blood. The company may have violated the U.S. anti-bribery law in China, India and Brazil, according to an internal probe, on top of the Mexican allegations we already know about.

Other indicators...

Reputational Value Metrics: Integrated measures of stakeholder expectations show reputation stability slipping to the median, rank only slightly above median, and volatility trends showing a recent spike in RVM (a non-financial measure of reputational value) and a negative direction projection for CRR (a relative measure of reputation ranking) within a peer group of 15 discount stores.





Data Source: Steel City Re Reputational Value Metrics


Media Coverage: The strikes are getting attention in the blog-o-sphere as the public aka, Walmart customers, are now taking notice. The spikes of web searches are matching levels last seen in 2006 when Walmart was reportedly losing 10% of its customers over labor concerns.

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.

For those who spent the past week off the grid, among the reputation-linked news stories was this one involving Walmart best summarized in the explosive Forbes magazine headline (26 April, Hartung) "WalMart's Mexican Bribery Scandal Will Sink It Like an Iceberg Sank the Titanic."

We've looked at Walmart (NYSE:WMT) quantitatively before, usually in the context of the age-old rivalry with Target (NYSE:TGT), and with less sophisticated metrics. We turn to the improved Steel City Re corporate reputation ranking metrics and benchmarking tools today in search of quantitative evidence of reputational damage.



The peer group comprises 127 companies in the retail trade, and they are sampled from the 7447 companies ranked according to their reputation metrics as of 26 April 2012. Relative to this peer group, Walmart's reputation ranking was at the 72nd percentile. Other vital signs indicate this is an unstable value as the current reputational value volatility is at the 48th percentile relative to a historic volatility in the 26th percentile, and the forecast stability of the firm's reputation is now just below the median at the 49th percentile. Looking at the time series of data, the most recent reputational ranking drop which occurred this past week moving Walmart from the 85th to the 72 percentile is the second this calendar year. The first major drop occurred the week of 16 February when Walmart's reputation slipped from the 92nd to the 82nd percentile relative to this peer group. Other time series metrics show a steady negative reputational ranking velocity, recently accelerated, a steadily negative reputational vector, and what appears to be a second spike in volatility.

Looking at a snapshot of Walmart relative to its peers as of Thursday, all four indicators show negative trends which tend to be leading indicators of losses in enterprise value. Walmart's current return on equity is in the 70th percentile relative to its peer group. We expect this metric to drop in the weeks to come as the inevitable pile on of regulators, litigators and mommy bloggers affirms the deterioration of reputational value.

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.

Earlier this week, the Supreme Court of the United States (SCOTUS) addressed an issue that has been a persistent thorn in Walmart's reputation - allegations of gender bias. The firm, which has reportedly shed up to 10% of its market capitalization over the years due to stakeholder unease with a range of labor practices, breathed a sigh of relief. According to the newsletter of the National Association of Corporate Directors (21 June):

"The Supreme Court threw out a sweeping sex-discrimination lawsuit against Wal-Mart Stores Inc.," the Wall Street Journal (June 21, Bravin, Zimmerman) confirms, "ruling Monday that the 1.6 million women allegedly victimized had too little in common to form a single class of plaintiffs." The court ruled 5-4 along its ideological divide, concluding the allegations against the retailer were too vague and the evidence too weak to establish the common injury essential to encompass all females employed since 1998 in the nearly 3,400 U.S. Wal-Mart stores. "The decision is sure to reverberate in other employment class actions," the Journal states. Attorney John Fox says the impact of the ruling on other cases will depend in part on companies' personnel policies.

With this decision, the New York Times (June 21, Greenhouse) reasons, the Supreme Court has significantly tightened the rules for how a large group of individuals can join together to sue a corporation for alleged harm done to them. "The court's decision will not just make it harder to bring big, ambitious employment class-action cases asserting discrimination based on sex, race or other factors," the Times reasons. "The court set higher barriers for bringing several types of nationwide class actions against a large company with many branches." Robin S. Conrad, executive vice president of the U.S. Chamber of Commerce's National Chamber Litigation Center, applauded the high court for affirming that mega-class actions are inconsistent with federal law. He added, "Too often the class-action device is twisted and abused to force businesses to choose between settling meritless lawsuits or potentially facing financial ruin."

The Montgomery Advertiser (June 21, D'Innocenzio) concludes that despite the legal victory, Wal-Mart has taken steps to address the issues raised in the suit. "Since the sex-bias lawsuit was given class action status in 2004 on behalf of 1.6 million women," the newspaper points out, "Wal-Mart Stores Inc. has set up a women's council that represents each of the overseas markets and focused training and other efforts on advancing women into management roles. As a result, Wal-Mart says the percentage of entry and midlevel women managers has increased over the past five years from 38.8 percent to 41.2 percent." Gisel Ruiz, executive vice president of people at Wal-Mart's U.S. stores, confirms that she has definitely seen the advancement opportunities grow for women. Specifically, she noted that Wal-Mart has created a series of training and mentoring programs to help prepare women for opportunities at all levels of the company.

Turning to the reputation metrics, the Steel City Re Corporate Reputation Index shows that Walmart's reputation has been unusually volatile over the trailing 12 months. Of the fourteen companies comprising the Discount Store sector, the company's metrics currently rank it in the 61st percentile thus matching its ranking at the beginning of this period. Walmart did exhibit a small uptick this week thanks to the court ruling. Over the trailing twelve weeks, however, its reputational volatility velocity has been negative at -15% and its vector has been negative at -11% as its exponentially weighted moving average volatility has climbed to 100%. These reputational challenges are associated with an overall economic under performance that is 15.9% below the median of its peer group.

The sector, too, has experienced significant volatility as of late in what is a rather volatile period for the equity markets (risk assets). The variance in reputation ranking metrics among the peer group has been extreme ranging from a low of 10% to a high of 25%. The VIX (S&P 500 Volatility Index) closed June 23 at 19.29 having bounced over the trailing twelve months between 14.27 and 37.58.  None of this is good for Walmart, whose fractional intangible asset value has now slightly dipped below the median of its peer group.

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.