The Pomp Podcast - #986 John Pompliano On How Walmart Took Over The Retail Space

Starting point is 00:00:00 what's up everyone this is anthony pompliano most of you know me as pomp you're listening to the pomp podcast simply the best podcast out there now let's kick this thing off in this episode john pompliano my brother and i we sit down and we talk about walmart and their recent earnings report it's a fascinating business employs 2.3 million people around the world and their sales it may be in trouble we wanted to get to the bottom of what's going on with the business? How did they actually build this thing? Why are the owners who aren't involved anymore so wealthy? And what exactly are the future prospects? The fascinating conversation that breaks down a lot of data and a lot of various insights. Hope that you enjoy these

Starting point is 00:00:39 episodes. Before we get into it, I first want to talk about our sponsors. This episode is brought to you by FTX US. FTX.US is the safe, regulated way to buy and sell Bitcoin and other digital assets. You can trade crypto with up to 85% lower fees than top competitors. There are no fixed minimum fees, no ACH transaction fees, and no withdrawal fees either. FTX.us is also the only leading exchange that supports both Ethereum and Solana NFTs. Download the FTX app today and use referral code POMP to earn these free crypto on every trade over $10. The more you trade, the more you earn. Go download the FTX app today and use referral code POMP. Today's episode is brought to you by Brave. Brave Wallet is the first secure crypto wallet

Starting point is 00:01:24 built natively in a Web3 crypto browser. What's Web3? Web3 is freedom from big tech and Wall Stream, more control, and better privacy. But there's a weak point in Web3, your crypto wallet. Most wallets are browser extensions, a Web2 technology. That means the same old risks, app spoofing, phishing scams, and theft. BraveWallet is different. BraveWallet is the first secure wallet built natively in a Web3 crypto browser. No extension required. With Brave Wallet, you can buy, store, send, and swap assets, manage NFTs, even connect other wallets and dApps, all from the security of the best privacy browser on the market. Whether you're new to crypto or a seasoned pro, it's time to ditch those risky extensions.

Starting point is 00:02:04 It's time to switch to Brave Wallet. Download Brave at brave.com slash pomp and click the wallet icon to get started. Again, go download Brave at brave.com slash pomp and click the wallet icon to get started. Today's episode is brought to you by BetOnline.ag. BetOnline.ag is the top spot for all of your sports betting, casino, and poker needs. It's available on your computer, your tablet, or your mobile device. BetOnline accepts Bitcoin and more than a dozen altcoins to make deposits and withdraw your winnings. There are no crypto fees, processing only takes minutes, and transactions are 100% anonymous and secure.

Starting point is 00:02:43 Head over to betonline.ag and sign up today to receive a 100% crypto bonus on your first deposit. Just use ARK promo code POMP100 to get started. Discover why everyone is saying BetOnline is the fastest and easiest way to wager with crypto for sports, casino games, horse racing, poker, and more. Sign up today at betonline.ag and double your deposit with our exclusive podcast promo code POMP100.

Starting point is 00:03:10 Go check them out at betonline.ag. Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion.

Starting point is 00:03:33 This podcast is for informational purposes only. We now have the man, the myth, the legend, John Pomp. What up, buddy? What up? We talking about money? We talking about money. That's why you're here, because we're talking about money. Talking about money.

Starting point is 00:03:45 That sweatshirt looks fire, by the way. Yeah, it's pretty cool. Yeah, it is a pretty nice sweatshirt. Thanks for the compliment. All right. Yeah, of course. Walmart is what we're going to talk about today. Why are you interested in Walmart?

Starting point is 00:03:56 What grabbed your attention about this? So Walmart's been in the news because of their earnings last week, but then I saw a stat that I thought was pretty interesting about Walmart and the Walton family in general. Um, so the Walton family still owns 47% of Walmart. And since Walmart does a dividend, that means they generate about $3 billion annually just from owning Walmart stock. Let me say that again. The Walton family gets almost $3 billion annually just from what their, uh, their dad did. So there's, there's two things that are really interesting about this. One is that the Walton family still owns 47 percent of walmart in today's day and age uh the founder retaining 47 percent of

Starting point is 00:04:39 a company this large yeah is uh almost unheard of there's only like there's only two or three others in the world if i remember correctly jeff bezos owns like 12 to 16 percent of amazon somewhere in that range that's nowhere close to 47 of course so like he owns double digit percentage but a low double digit percentage whereas wall the walton family still owns almost 50 of walmart itself the second thing that's fascinating three billion dollars in annual dividends is a ridiculous number i mean when you own that much stock though they're just playing by the rules they say we have a dividend and we're paying ourselves the dividend yeah i mean that's crazy all right so talk to us about uh walmart in the background all right so walmart was founded

Starting point is 00:05:15 by sam walton uh he had three kids and i'm going to talk a little bit about how he got to be able to continuously own that much percentage uh so he started he was in world war ii he came back he started some uh five and dime stores so like uh five and ten stores um got to those like 16 locations and then he opened up walmart in 1960 or 1983 um or no excuse me 1962 um and then he just he just progressed right his strategy is basically to go he was really cost efficient and he was like we're gonna go into these small towns we're gonna build out um stores in these small towns so then when big time retailers come into play we already have the market right there can't be a million discount stores in the area you can only have so much he he focused a lot on the merchandise and

Starting point is 00:06:00 the cost of the merchandise against amazon which focuses obviously a lot on the operations the convenience the hey let's get to you really really quickly um and amazon or and walmart has kind of tried to build that into what they already care about their merchandise so in 1962 he already had 16 stores i mean he was moving yeah but he had 16 stores of a different brand so he had he had five and dime and then he created the first walmart okay and then at what point do we get the first sam's club because walmart created sam's club yeah i did not know that that walmart created sam's club basically to say we already do low price things to the consumer why don't we just do it wholesale why don't we just do it more of the costco model um and they started in 1983 okay

Starting point is 00:06:40 they now have over almost 50 million members almost 50 million members at costco today or at sam's club costco has like 100 million because they focus on that business yeah yeah but still they've got 50 of the number of subscribers of costco and it literally was like hey let's just start this kind of on the side almost right and it grew into this massive thing yeah and he did a good job of like separating the businesses from like the u.s walmart to international walmart which is owned by a bunch of uh it's joint ventures and subsidiaries and then they have their e-commerce business that has ramped up a ton over time um but they they just do a really really good job and one thing i want to note is the reason that they retained all the ownership was their dad

Starting point is 00:07:17 set up a partnership uh so he had them all as basically like a partnership as the owner of walmart and the way this worked was he was able to pass down all the percents almost tax-free right so he gave each of his uh his three sons and one daughter he gave each of them 20 of what he owned and then him and his wife kept the remaining 20 to split between the two so he split it five ways his 47 interest but what's interesting about this is uh one the naming so walmart walton right so what uh walton's mart uh but then sam's club sam walton sam's club okay got it uh and so he created these two brands the ownership he puts into a partnership and then he basically just said hey my wife and i will keep 20 or one-fifth yeah and then each one of my kids

Starting point is 00:08:01 gets an equal percentage to us as this continues and this is why so many waltons are actually on the Forbes 400 billionaire list, right? Yeah, and to be fair, if you look it up, a lot of them don't do anything with Walmart, right? Yeah, yeah, of course. They just have ownership. Yeah, one of the sons tragically passed away. Another daughter is into like the art and museums

Starting point is 00:08:21 and things like that. So they don't like operate the business day to day. All right, so now talk to me about why is this company worth so much? Like in terms of, I know they've got some real estate. Let's maybe start there in terms of like the real estate strategy. Yeah, they started with the small towns, right?

Starting point is 00:08:34 So they realized that going after a major city, we'll go we're from Raleigh North Carolina right so you use Raleigh as an example inside Raleigh there are other thrift stores there are other grocery stores there's a million other stores but in the outskirt uh in the suburbs right outside they realized they're like there's these towns that have 5,000 people like Kmart's Kmart was going after towns that had 50,000 plus people right because they're like hey people are already there let's just build a store and then we can go ahead and uh get market share that way but he was like why don't we build the market ourselves why don't we go ahead and take over this market and then as people go into that area

Starting point is 00:09:05 move in the area, the area becomes more affluent, then we'll be the number one player there. And that's what they did really, really well is they put it on the suburbs. And you can see like most retailers, like most brick and mortar retailers, they have a ton on the Eastern side of the United States, but they are obviously all over both the United States and globally. Yeah. And then another thing that they did in building this empire is this idea of being merchandise driven, not operations driven. What does that mean? Yeah. So being merchandise driven is one, they were really cost-effective right so they wanted to bring down their cost as much as possible sam walton was huge through all all the research i did sam walton was huge on just like look a dollar that we save gets

Starting point is 00:09:44 passed on to the consumer right they they were just let's just keep keep keep going and keep getting that cost down um and then yeah look they have a variety of products as well right so if consumer electronics is down they sell groceries if groceries is down they sell whatever uh but what we saw last week with their earnings was just consumer spending is down. Yeah. And then last thing, I think that's kind of part of the secret ingredient. It's not really secret, right? But is this idea of Walmart treats their employees, uh, from a very kind of, um, family oriented standpoint, like, Hey, we want to take care of our employees. Why do they do that? It's Sam Walton. When he started the company, one, he, they call their employees associates, right? Because he was

Starting point is 00:10:22 like, we want them to feel like ownership in this business. Um, he's very open with his employees about profits uh how much it costs like everything that a normal company would probably shield from the lower level employees or associates in this case um sam was very open about it and he said if you give people a sense of ownership essentially they're gonna they're gonna work harder at it and they're gonna do a better job yeah it's pretty crazy um talk to me about the current business now how many stores do they have how many countries are they in they have almost 11 000 stores um there's actually split it's about 50 domestic 50 international and then they have like 600 sam's clubs so that's not a big portion of it but the other stores are like 50 50 thousand

Starting point is 00:11:00 they they employ 2.3 million people they're the largest employer in the world the largest employer in the world is walmart and they have 2.3 million people 11 000 stores or so and how many countries uh 28 i think 28 countries jesus christ i mean that is just absolutely insane how many customers on like a weekly or oh yeah so this is this is a this stat actually blew my mind and i'm not sure how it compares to other people but i just think this is absolutely nuts is each week approximately 230 million customers either enter their store or visit their websites so each week 230 million customers each week visit the 11 000 stores and clubs dude that's the equivalent equivalent of two thirds of the United States population every single week. Yep. That's a

Starting point is 00:11:51 number that if it was every year, you'd be like, damn, that's a lot. Yeah. People don't realize how big Walmart is. And like the, like no one can compete with Walmart right now with the model that they already have set up. Amazon is, is, uh, Amazon's doing a different model actually. So they're not trying to compete in my mind. All right. So I think we've got the chart of the stock price uh it's at like 120 bucks or so yeah uh today and it was you know sub 50 in 2000 so it's just gone on you know just an epic run uh what's driving a lot of this a 330 billion dollar market cap company acquisitions uh throughout the last 20 30 years right they bought um was it uh jet.com in 2016 for like 300 million dollars three billion dollars three billion dollars right

Starting point is 00:12:36 um and then just acquisitions throughout the way and building their brand they have i think 46 different like brands under their um like walmart so they just they've done a really really good job of just slowly progressing along the way keeping the cost down for consumers not overreaching um they were pioneers in the sense of their logistics so they used laser um laser technology to be able to move boxes around the warehouse a lot sooner than other people did uh and then that is why they've just been on the forefront of things they were a little late i think to the e-commerce game but then once they bought jet.com from mark law for three billion dollars they uh they just ramped it up they shut down jet.com and said let's just redirect it to walmart.com yeah uh there's four

Starting point is 00:13:16 other charts that uh i know that you gave us that i think are really interesting so first is walmart's net income worldwide going all the way back to 2010 now till 2022 and what you can see here is uh, they did 13, almost $14 billion in net income, uh, is what they're tracking to back in 2020. They did 15.2 billion in net income, which sounds like a massive number, but back in the early 2010s, they were doing like 16, 17, almost $18 billion in net income. This is a business that is robust and it is just sitting there kind of 15 plus billion, uh, in net income. That's not revenue that's net income everyday low prices volume adds up all right then we've got this next one here uh and this shows that uh kind of the financial information um well this does a

Starting point is 00:14:06 good breakdown i think of separating their businesses as a whole um walmart us walmart international and then sam's clubs as well and you can see that walmart is obviously it's the driver for their business so net sales in 2021 let's look at that net sales in 2021 uh walmart us did 93 billion walmart international did 27 billion and sam's club did uh 16 billion so combined 137 billion in net sales but what is fascinating is that uh 93 27 and 16 billion coming from those three obviously walmart us is much bigger i'm actually surprised at how much sam's club does in comparison to walmart international yeah 27 billion uh being walmart international sales versus sam's club 16 and a half billion uh that's not as nearly as big of

Starting point is 00:14:57 a difference as i would have thought no and it's almost like people forget uh people don't think about sam's club oh walmart walmart right they just think sam's club right and for the accounting department at walmart they're like no we own sam's club let's make sure to add that revenue and because it's a giant revenue uh for the amount of stores that they have got it all right then we've got the same store sales change from the prior year. And what it looks like is that we actually are seeing drops on a quarter by quarter basis in same store sales. Is that something that people are concerned about? Yeah, I think just generally consumers have been spending less. The pandemic was a massive hit to people's wallets. And then obviously stimulus checks being boosted

Starting point is 00:15:37 up in uh late 2020 and early 2021 grew their um had people spending but now you can see that people are going back to not spending as much because they don't have that uh extra excess cash got it and the last one we have is uh walmart us e-commerce sales and the change from the prior year and right now their e-commerce sales are basically flat year over year it used to be uh you know in 2018 2019 2020 we're between 40 to 60 percent uh year over year growth it spiked in 2021 to almost a hundred percent was doubled, but now it's basically flat. So some of that's obviously going to be base effect, right? It grew so much last year. Uh, but still not exactly what you want to see if you're an investor having flat growth year to year. And so talk to me,

Starting point is 00:16:20 I guess, as a last thing around like this inventory, uh, uh, problem, it seems like they've got lots of inventory and sales are down a little bit right now. And so people are a little like, Hey, what's going to happen to Walmart? Yeah. I think the big, uh, the big takeaways from their earnings last week were that inventory on a year over year basis was up about 33% because they kind of almost over-ordered supply chain woes. They just didn't know what was going to happen. So they're like, let's just get all our products in. The worst thing we can have is someone order a product

Starting point is 00:16:43 and let's not have it to sell it to them. But now they have 33% increased inventory. Sales are actually down. And you can imagine what that's doing, right? You can't just have inventory sitting there, especially if you're expecting a average or down year, right? They're not expecting to have an explosive year where it's 10%, 20% growth.

Starting point is 00:17:01 They're expecting 2% growth. So that inventory, that 33%, 34% increase in inventory is a big deal. And then, like I said, stimulus checks are over. So people just aren't spending. They're not doing what consumers normally do and what Walmart wants them to do. Yeah, it's absolutely fascinating to kind of think about how these businesses evolve over time, right? Especially when a company like Walmart has been around for 50 years or whatever it is, and they've been able to navigate so many different macroeconomic changes.

Starting point is 00:17:30 yeah obviously they literally were started before the internet right in terms of uh uh the mass consumer using the internet and so they've been able to navigate e-commerce changes they've been able to navigate good times bad times whatever my general take here is that they'll probably be okay uh but you know you never know i'm getting to think that the only companies that survive are the ones that have the ability and the desire to adapt to different changes right they relate to e-commerce, but then they went full blown in and said, let's ramp that up. That's a good business model. Um, and I got one thing for someone in the comments. I was talking about their employees and how they treat their employees. I do not know. I do not work at Walmart, so I'm not there on the

Starting point is 00:18:09 ground level, but I do know that they have set up multiple things to have their employees college paid for fast-tracked management where they can make over $200,000 a year within a one and a half two year timeframe. Um, so that's all I know about their employees, but they seem to have some systems yeah stuff all right where can we send people to find you on the internet if you don't know now you know go follow me on twitter right now don't even just hit command t on your computer go follow me on twitter right now at john at john probably oh you can see it on the screen john pompliano all right i appreciate you coming on we'll definitely keep doing more of these uh these deep dives i learn something every time we do one uh and it's fascinating to think about various

Starting point is 00:18:47 businesses and how they're kind of navigating good times bad times and what's working so to see Walmart e-commerce year over year sales is near zero percent growth. Kind of crazy. But then you see, oh, last year they almost doubled. And so, you know, there's base effect. There's all that going on. So I appreciate it. All right. Thank you, John. No problem. Thanks so much for listening to today's episode. I really hope you guys enjoyed this one. Make sure you're subscribed on Apple, Spotify, or your favorite podcast player. And if you're looking to try to transition to get a new job in the Bitcoin or crypto industry, we've got you covered. Head over to pompscryptocourse.com. we've developed a curriculum with the top teams across the industry it's a three-week intensive

Starting point is 00:19:26 training program with over 50 events packed into that three-week time period go to pompscryptocourse.com to learn more and i'll meet you guys for the next episode

The Pomp Podcast - #986 John Pompliano On How Walmart Took Over The Retail Space

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.