MISSION INTANGIBLE

M:I Products

MISSION:INTANGIBLE, the blog of the Intangible Asset Finance Society, offers critical comments on intangible asset, corporate reputation, and finance; supplemented by quantitative reputation metrics. Intangible assets include business processes, patents, trademarks; reputations for ethics and integrity; quality, safety, sustainability, security, and resilience; and comprise 70% of the average company's value. MISSION:INTANGIBLE is a registered trademark of the Intangible Asset Finance Society.

Read future M:I posts via RSS RSS

Walmart: Bentonville, we have a problem

C. HUYGENS - Thursday, November 13, 2014
Price, variety, and convenience are what have defined Wal-Mart, and what customers expect when they shop. Volume is what suppliers expect, and what creditors assume when assessing risk. Failing to meet these expectations, and surprising stakeholders with recurring labor and ethics issues, is a formula for reputation value loss.

The chart below shows dismal numbers for the world’s largest discount retailer and the effects of disappearing customers, disengaged employees, disappointed equity investors, worried creditors, and unhappy regulators -- in other words, the cardinal signs of a reputation crisis.

Wallmart: Gently rolling head in aisle 4

C. HUYGENS - Tuesday, November 26, 2013
At a session with analysts after the 2012 Walmart (WMT) annual meeting, Bud Bugatch with Raymond James asked what effect company executives thought allegations of corruption in its Mexican operations would have on the company's reputation (Read More). As described in Reputation, Stock Price and You, Mike Duke, CEO of Walmart replied, "We will be a better company because of this."

Bloomberg reports this week that "the U.S. Department of Justice and the U.S. Securities and Exchange Commission are investigating allegations that Wal-Mart systematically bribed Mexican officials so it could more quickly open stores in the country. Federal and local government agencies in Mexico also are involved in investigations. Wal-Mart has said that it also has started inquiries into potential violations of the FCPA at operations in Brazil, India and China."

Earlier this week, Walmart announced that Mr. Duke would be stepping down after 4 years at the helm and nearly 20 months since he explained how the experience would make the company better. Wal-Mart’s shares gained 69 percent from Jan. 30, 2009, the last trading day before Duke became CEO, through Nov. 22 this year. The Standard & Poor’s 500 Index more than doubled in that time.

If better is not more valuable, is there another metric? Has Walmart used the experience to improve its standing with its stakeholders -- its reputation?

The Consensiv reputation metrics, powered by Steel City Re's measures of reputational value, reflect stakeholder expectations and their economic effects. Of the 15 firms in its sector, Discount Stores, Walmart has drifted from trending above the third quartile to trending below the third quartile of the metric, Reputation Premium. This indicates lost value. Its stakeholders are confident that this premium is appropriate as evidence by an extremely low Consensus Trend metric. The Consensus Benchmark,which is based on a one-year average standard deviation of the Reputation Premium, indicates at 5.2% a surprisingly volatile ride down for such a large company.

Yes, reputational health is still top quartile, but in a field that includes JCPenny and Sears, that's not so great. There are profound operational issues that are eroding Walmart's reputational value. Complacency, evidenced by Mr. Duke's tenure, is possible only because a slow leak takes years to sink a large ship.



For more background on the Consensiv reputation controls, click here. To view the November 2013 reputational value league table, based on Consensiv's metrics, and available exclusively at CFO.com, click here.

Walmart v Target: Great expectations chapter 2

C. HUYGENS - Tuesday, September 17, 2013
Among the giant retailers battling for customers' attention and wallets, ethics has emerged as a point of differentiation. This issue manifests in two forms: ethical treatment of retail employees, which includes matters of pay and attitude towards sexual orientation; and ethical treatment of suppliers, which includes a much larger range of work environment and labor standards issues. Walmart Stores (WMT) and Target (TGT) are two stalwarts of this battle who've been favorites of Huygens and the Mission Intangible blog readers for many years. Walmart is famous for its domestic labor issues; also, its supplers were party to both the Tazreen factory fire and the Rana Plaza building collapse tragedies in Bangladesh over the past year. Target, famous for its pro-gay policies, was not implicated in either of those events that consumed so many garment workers' lives.



The Steel City Re reputational value metrics reveal that stakeholder expectations were impacted by the events described above with RVM volatility (Consensus Trend) being the earliest measure and Reputation Rank deterioration (Reputation Premium) being the casualty, with the advantage going to Target.  Yet if stakeholders are giving Target a range of economic benefits as the result of its superior reputation, what caused Target to report a severe drop in profitability in late August which then triggered its stock price to plunge from a +10% ROE to a -6% ROE over the past few weeks? Stay tuned.

WMT v. TGT: Spring 2013 Edition

C. HUYGENS - Tuesday, April 02, 2013
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).

Walmart: Awful quarter

C. HUYGENS - Monday, February 18, 2013
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.

WMT v TGT: Fall 2012 Edition

C. HUYGENS - Thursday, December 13, 2012
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.

Walmart: Looming reputational value crisis (again)?

C. HUYGENS - Monday, November 19, 2012
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.

WMT v. TGT: Spring 2012 Edition

C. HUYGENS - Sunday, April 29, 2012
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.

Walmart: By the numbers

C. HUYGENS - Saturday, April 28, 2012
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.

WMT v TGT: How things change

C. HUYGENS - Saturday, November 26, 2011
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.


Recent Comments


SuMoTuWeThFrSa
     1
2
34
5
6
7
8
9
10
11
12
13
14
1516
17
1819
20
2122
23
24
25
2627282930
 

Subjects

Archive