Thursday, June 23, 2005
Putin’s New Campaign Slogan: “Live Lousy, Die Young & Buy Your Oil From Me”
The most interesting thing I heard this week at a conference with a broad range of companies as boring as Home Depot and as comical as TurboChef Technologies was the blunt assessment of the Russian situation by Wal-Mart’s CFO, the sharp, knowledgeable and quick-witted Jay Fitzsimmons.
Jay, like all Wal-Mart higher-ups, has a very broad knowledge of a very large slice of the world’s economies, and he always has something interesting to say about topics far beyond the usual why-were-comps-below-plan-last-week? nonsense that most retailers end up getting asked on their conference calls.
To put Wal-Mart in perspective, sales will top one-third of a trillion dollars this year. It’s adding $30 billion to sales each year—almost two JC Penneys. And for the typical U.S. consumer products companies ranging from giants like P&G and Colgate to little guys like Acme United and Jarden, Wal-Mart is 20-25% of sales.
So whatever Wal-Mart has to say about the world at large, it’s always worthwhile.
For one thing Jay takes the PIMCO side of the bond trade, saying “there’s not much” inflation in the Wal-Mart shopping cart.
In the food category, which is important to Wal-Mart given the successful roll-out of the company’s huge food/merchandise “Supercenters” over the last decade, inflation is running 1.8-1.9%.
General merchandise prices, however, are deflating at a 1.3% clip. Summing up inflation on the one-third of a trillion dollars that Wal-Mart handles, Jay says “it’s flat on average.”
That was interesting, but not as interesting to me as the discussion about Russia. It is impossible to talk about the future of Wal-Mart without talking international—particularly the opportunities in China, which are, of course, huge; as well the two other large and under-developed countries: India and Russia.
Turns out India does not allow direct foreign investment in their retail sector, so Wal-Mart is not going to participate in that country’s growth any time soon.
But Russia is wide open, and Wal-Mart looked closely there, and was about ready to go…but pulled back following Putin’s hostile takeover of Yukos, the country’s largest oil producer.
As Jay summed up the Russian government’s hostile attitude toward capitalism: “they see a good business—they want to nationalize it.”
Putin might get away with taking whatever he wants to take—a couple of weeks ago it was a newspaper; before that it was a TV station and an oil company. He’ll certainly get even more rich and more powerful than he already is.
Meanwhile, great companies like Wal-Mart with the cash and human capital that could have provided an invaluable engine of growth for the poor shlubs who live under Putin (male life expectancy: 59 years) are investing their money and their knowledge elsewhere.
The Russian Crisis of 200X approaches.
I Am Not Making This Up
The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations.
Posted by Jeff Matthews at 7:51 AM