Tuesday, October 18, 2016

Automation: "How Wal-Mart May Revive U.S. Productivity — And Its Own Fortunes" (WMT)

From Investor's Business Daily:

Wal-Mart brought back its Smiley icon this year as the mark of its low-price deals. Now it hopes to revive its longtime status as a technology innovator and productivity leader by deploying new apps, bar codes and drones.  (Dennis Nishi)
Wal-Mart brought back its Smiley icon this year as the mark of its low-price deals. Now it hopes to revive its
 longtime status as a technology innovator and productivity leader by deploying new apps, bar codes and drones.
A future with slow-growing productivity — and by extension, slow-growing incomes — seems close to becoming conventional wisdom. But the strides that Wal-Mart (WMT) is making with technology that streamlines everything from tracking inventory to simplifying check-out suggest a brighter outlook.

The retail giant was considered a prime force behind the last productivity boom (think bar codes, scanners and retailer-supplier data links) and the subsequent productivity bust (heavier reliance on temps and part-time workers come to mind).

But facing competitive threats from Amazon (AMZN), Dollar Tree (DLTR), Dollar General (DG), Target (TGT) and Costco (COST), and the simultaneous challenge of substantially raising its own wage scale, Wal-Mart is re-engineering virtually every aspect of its business. New technologies and strategies have been tested, sending drones flying through warehouses, equipping shoppers with their own scanners and putting apps in the hands of efficiency-seeking store managers. Now sales are on the upswing, though profits have yet to follow, as the pace of change at Wal-Mart is accelerating.

The payoff for investors won't be immediate. On Oct. 6, Wal-Mart cut its profit outlook again as it invests heavily to improve operations in stores and online. The stock has a lousy 19 Composite Rating out of 99, which means the stock only outperforms 19% of all other stocks based on earnings, share price performance and other key criteria. The Retail-Major Discount Chains group is No. 190 out of 197 industries that IBD tracks.

The good news for consumers is that the retail giant is sharing some of its efficiency gains via lower prices, which means you can expect its efficiency measures to spread to other companies. Amazon may be the most disruptive force in retail, but Wal-Mart's sheer scale still gives it an outsized influence on the economy. Kroger (KR), Target and the dollar stores are feeling heat from Wal-Mart price cuts, the companies have hinted at and analysts have signaled in recent weeks. Even fast-casual restaurants and quick-service chains like McDonald's (MCD) appear to be feeling pressure due to Wal-Mart's grocery price cuts along with its upward pressure on wages, with the cost of eating out rising at a record pace vs. eating in. When Wal-Mart makes up its mind to cut prices and do what it must to accomplish that, suppliers and competitors have little choice but to change the way they do business too.

Here's a look at some technology programs underway at Wal-Mart and how they could change the productivity paradigm for retailers and the broader economy. 
 IBD'S TAKE: Wal-Mart is the best stock in its sector, but its Retail-Major Discount Chains group is ranked 190 out of 197 by IBD based on stock performance and Wal-Mart shares aren't near a buy point. For a primer on how to find stocks to buy at the right time, visit IBD University.
1. Skip The Cashier — And Checkout Process
Wal-Mart CEO Doug McMillon said on the Aug. 16 earnings call that the company will roll out its new self-scan-and-pay technology at all Sam's Clubs this fall, letting members of the discount warehouses "skip the checkout line."

Customers can use the "Scan & Go" app to ring up items as they put them in their shopping cart and see a running receipt total on their phones. The app also handles payment, so customers just show their receipts to greeters on the way out.

The technology has been a long time in development. In 2014, the company pulled the plug on a year-old Scan & Go pilot program at 200 Wal-Marts using an app that was only compatible with Apple (AAPL) iPhones.

But the company isn't reserving its latest innovations for Sam's Club customers. In June, Wal-Mart rolled out mobile payment technology at all of its 4,600 U.S. locations. It is testing out customer handheld scanning devices provided by the store in a number of Wal-Mart locations, but management has noted the logic of offering the same self-scan capability via smartphone that it's doing at Sam's Club.

2. Next-Generation Bar Code...

HT: Ritholtz@BloombergView

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