There are no short-term decisions," according to Meredith Adler, an equity analyst for Lehman Brothers. "There is only the long term. And if you don't plan for the long term you won't survive, because Wal-Mart plans for the long term."
Not one to pull punches, Adler is a highly regarded stock analyst and recognized expert on retail. When she speaks, as she did recently in New York at a seminar sponsored by Oracle, institutional investors listen and stock valuations hang in the balance.
Adler began her presentation by identifying four major non-technology elements currently transforming the retail landscape: 1. Security, 2. Wall Street, 3. Wal-Mart, and 4. Consumers shifting to greater value. She brought technology into the equation by pointing out that each of these four non-IT elements triggers an IT response. "Technology isn't a department," Adler noted for her audience, "it's a tool, an enabler." According to Adler, Wall Street is currently focused on something she calls Return on Invested Capital (ROIC), indicating the Street is placing greater importance on ROIC than on such classic retail indicators as comp store sales, total revenue and gross margins.
To determine ROIC, investments are measured against quarterly revenue and profit reports. The rate of return is tracked over time and the analysis is factored to strip out one-time gains, such as those achieved through mergers and acquisitions. "Buying to grow," explains Adler, "is often a bad idea."
Other key points Adler made during the presentation include: you've got customer data, so use it; focus your IT strategy on core competencies and outsource as much as possible; and, finally, be aware the Street is examining incentive programs for key executives and how they will be held accountable. Like it or not, Wall Street asks tough questions, like this one: How are you going to win against Wal-Mart? To many retailers, this question hits below the belt. But according to Adler, this is exactly what the Street wants to know, and she offers some guidance, noting that private companies seem to compete more successfully against the behemoth of Bentonville. H.E. Butt Grocery, for example, beats Wal-Mart whenever they compete in the same markets.
So, why do private companies have a better record against Wal-Mart? The answer, according to Adler, is they are better able to sacrifice short-term performance to achieve long-term gain. If you don't, observes Adler, they will