Troubles at Walmart, IBM and the New American Century

America’s 20th century business icons are in trouble — but that’s no reason to worry.

October 22, 2015

America's 20th century business icons are in trouble — but that's no reason to worry.

With Walmart sales and profits falling, pundits are asking if the economy is again headed down. Hardly so, even though IBM and other business icons are in trouble.

Better competitors — and mostly Americans — who herald a new age of American innovation, are simply squeezing the Arkansas retailer.

Walmart’s recipe for success was simple. Through a detailed knowledge of supplier costs, disciplined supply chain management and low wages for store personnel, it bargained hard with manufacturers and delivered goods at the lowest prices.

Unfortunately, its methods were hardly occult and others like Dollar General and Target caught on, undermining the Arkansas behemoth’s competitive edge.

Moreover, along with other big employers like McDonald’s, Walmart is under increasing social political pressure to pay workers more.

Growing popularity of the virtual marketplace

Walmart attributes 75% of its drop in projected earnings to raising entry level wages to $9 an hour. But employers don’t get much paying a single mom so little. Shoppers complain its stores are unfriendly, messy and often poorly stocked.

Other bargain retailers are suffering a similar malaise, because millennials — and older folks willing to change buying habits — can get better products for cheaper prices online.

For $99 a year, Amazon Prime provides prime-time TV and free shipping directly from the folks that make products. That virtual marketplace offers more choice and competition that drives down prices.

As a result, the retail supply chain, including shipping to warehouses, as well as stores’ and retailers’ inventory carrying costs, is altogether cut out. That drives consumer prices to their lowest possible level.

Brick and mortar are not going away but when consumers know exactly what they want, they can save even more by avoiding the cost and pain of negotiating Walmart’s congested parking lots and “courteous” employees.

Alas, the same is happening at IBM. The tech giant’s competitive advantage was in helping moderate-sized and large companies manage on-site computing, software and related services.

The “cloud” factor

It would then use the resulting access to hawk its mainframes, software and businesses services such as Lotus Notes email and artificial intelligence systems.

Unfortunately for IBM and traditional rivals – Hewlett-Packard, Dell and Oracle – businesses large and small can now rent or lease computer services at a cheaper rate on “the cloud” online, just like discount granola bars.

Amazon Web Services leads by offering 10-times the cloud computing capacity as the next 14 largest rivals combined, and boasts of clients like General Electric, BMW and Capital One.

AWS is building a marketplace for software and services from a wide range of suppliers with obvious advantages over an IBM consultant who has an interest in hawking Big Blue’s offerings.

Many other firms like Juniper Networks, Equinix and Red Hat also offer computing power, software and other services on the web.

Both Walmart and IBM are moving toward web and cloud, but both have CEOs more comfortable with another age and executives who feel entitled to out-sized compensation, which their revenue and earnings trends indicate they hardly deserve.

Light at the end of the tunnel

The good news is that so many of the leaders in e-commerce and the infrastructures of data management, computing, software and business services that define the cloud are American.

The story repeats in so many places — Tesla, not BMW or Toyota, with electric cars that break performance meters, and Twitter and Facebook that turn all of humanity into a village square.

We entered the 21st Century being told by so many economists and pundits that this would be the Asian Century. China’s woes and inept leadership throw cold water on that thinking.

Just as in Henry Ford’s age, the future belongs to people with a “better idea.” Thankfully, many of those are the American entrepreneurs who are defining a New American Century.

Takeaways

Is the economy again headed down? Hardly so, although IBM and other business icons are in trouble too.

Many of the leaders in e-commerce, data management and other business services are American.

The 21st Century was thought to be the Asian Century. China’s woes throw cold water on that thinking.