Investing to Wealth

Filed under: Wal-Mart (WMT), Target Corp. (TGT)

Wal-Mart Stores Inc.'s (NYSE: WMT) new Chief Executive Mike Duke will have his hands full once he takes control of the world's largest retailer on Sunday.

For one thing, the economy continues to struggle. Gross Domestic Product fell 3.8% in the fourth quarter, the most since 1982. Consumer spending fell 3.5% in the quarter as unsold goods continued to pile up. Though consumer confidence rose to a four-month high, it was still weaker than expected.

Some have argued that the weak economy benefits Wal-Mart because as money gets tight people are interested in finding bargains. Funny how you don't hear the jokes about Wal-Mart shoppers being low-class much any longer. I know plenty of college-educated people who shop in the store, and without fear of ridicule.

To be sure, though, the Bentonville, Ark. company has said it is not immune to the economic slowdown.

The question facing Duke and Wal-Mart investors is whether the chain can keep these new customers, particularly as Target Corp. (NYSE: TGT) among others try to lure them away with low prices. Moreover, as Reuters notes, the food inflation that helped bolster sales growth in 2008 has moderated.

The company also has to contend with the weakness in the Chinese economy. Last month, the chain offered huge discounts to lure customers to its stores in China. And you have to wonder whether the company's Chinese suppliers will boost prices to Wal-Mart. Will the company then have to raise its already low prices? Those questions are yet to be answered.

One of the biggest challenges Duke may face is in Washington. Support is growing in Congress to make it easier for workers to join unions. When President Obama says that unions are part of the solution and not the problem, that must send shivers up the spine of the strongly anti-union company.

Shares of Wal-Mart actually rose last year, quite a feat for any company, let alone a retailer. But that was then and this is now. There will be no honeymoon for the new corporate chief. Duke is like a beginning swimmer who has been thrown in the deep end of the pool: either he will sink or swim, but he won't have much time to figure out to keep his head above water.

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