Monday, August 25, 2008

Wal-Mart - Can Marketing Influence Share Price

Wal-Mart (WMT) has experienced approximately a 34% increase in share appreciation in the past year. At one point it was a very good whipping boy. Problems in Germany, South Korea and Japan. Sluggish sales in North America. I am positive I had a few skeptical comments of my own.
Fortune Magazine had an interesting Marketing article by Suzanne Kapner in the Aug 18 edition. Writing from a marketing perspective the premise is that Wal-Mart has had marketing challenges and originally saw itself as a logistics company who could deliver low prices through excellent materials handling. They have attempted a cultural change according to the article to become more of a marketing company, which has had some success.
The article concludes that since the campaign started about one year ago the stock has gone up approximately 34%. “Consumers save money¬¬-and Wal-Mart lives better” being the final quote. So it should be about the marketing?

Earnings are only up 17% when comparing the comparable quarters. Problems in Japan persist. Incursions into India remain confusing. The North American economy continues to have serious problems. So why is the stock up 34%.

If you get into the emotional aspects of money and financial behaviour perhaps the marketing comments are correct. If you advertise well enough than the investor will buy in and bid up the stock. Wal-Mart has a positive spin to the marketing. “Save Money Live Better”. Automotive companies who advertise price discounts come across as greedy and desperate. No 34% increases over there.

The critical thinking investor worries that this is US based marketing which has not influenced other regions with serious problems. Also if a share price reflects the future earnings of a company, a domestic marketing campaign serving up 17% growth should not be rewarded with a 34% value increase.

Beware of the marketing? They want you to buy stuff.