Walmart is one of the most visible and well-known supermarket retailers around the world, and has stores in 27 different countries. Most large cities have more than one, in fact, and the company offers a variety of services including banking, auto maintenance, and more. However, Walmart’s stocks have been slipping in recent years, and Berkshire Hathaway seems to have lost some faith in the company.
In Berkshire’s SEC filings from late 2016, it was revealed that the company sold a majority of its Walmart stocks. In fact, Berkshire went from owning 13 million shares to 1.4 million shares. This means that Berkshire owns 0.05% at the time of writing and is no longer a majority shareholder. It seems like Berkshire no longer believes Walmart to be a good bet, and there are three simple reasons why:
1. It’s no longer a leader in the industry
When Buffett started buying Walmart shares in 2005, the company was making headway and was extremely profitable. Although Walmart’s stock has risen around 50% since Buffett started buying it, the annual increase has slowed to a trickle in recent years. It’s believed this is in response to Amazon’s impressive growth. Walmart has yet to figure out how to compete in the online retail space, and that’s where more and more shoppers are going to get their essentials. In short, Walmart isn’t top dog anymore.
2. Buffett doesn’t like the retail business
Although Buffett owns Nebraska Furniture Mart and a handful of other retail businesses, he has come out and said he’s not a fan of the industry. As a general rule, Buffett likes industries and corporations where he can easily see what will happen and understand trends, and retail is just too complicated.
“I think retailing is too tough for me,” Buffett said in an CNBC interview. “…Now, Wal-Mart’s… got all kinds of strengths. But I just decided that I’d look for a little easier game.”
3. Walmart has limited growth
Walmart is a gigantic global corporation, but at some point the potential for continued growth (which is necessary for continued profit) starts to slow. Walmart, with its more than 10,000 worldwide stores is reaching that point. Internet sales are obviously the most likely avenue for growth, but Walmart has yet to figure out how to beat Amazon at that game, as mentioned above.
Overall, Buffett has always favored companies that are top in their markets and have a ‘moat’ or something that they do which no one else can. Walmart used to hold both crowns, but those days may soon be coming to a close. It’s really no surprise Buffett is cutting his losses now.