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2 Investing Tips from One of Corporate America’s Greatest Success Stories

 

Foolish folks who had the chance to step into America would probably not miss the gigantic Wal-Mart stores, which are the giant cousins of the supermarkets we see in Singapore.

This huge company comes with some equally huge numbers. In fact, as of Jan 2014, Wal-mart generated an astonishing US$476.3 billion in sales over the last 12 months. To put this into context, that revenue figure would exceed all of Singapore’s annual Gross Domestic Product. With numbers like that, long term investors should sit up and take notice.

After all, from its IPO in Oct 1970, Walmart shares have gone on to return in excess of 1,300 times the original invested amount. It is, quite simply, one of the biggest success stories in corporate America ever.

Fortunately, the late Sam Walton – founder of Wal-Mart – chronicled his story in his book “Made in America”.

That’s nice, but why should I read it?

Long term ownership of companies comes with its own trials and tribulations. Even the greatest multi-baggers of all time do not go up in a linear fashion. For this, the story of Wal-Mart provides helpful business hints on how Mr. Walton braved through various business challenges, and set the path for the retailer to continually adapt itself into one of the largest companies in the world. It provides, in Singaporean lingo, the “model answer” of sorts for us to reference as we stroll down the path of long term ownership of companies.

With that in mind, here are a couple of key takeaways from the book together with suitable local examples.

1. It is always about the customers

In the book, Roberto Goizueta, Chairman and Chief Executive Officer of Coca-Cola, said the following about Mr. Walton:

“Sam Walton understands better than anyone else that no business can exist without customers. And in the process of serving Wal-Mart’s customer’s to perfection (not quite perfection, he would say), he also serves Wal-Mart’s associates, its share owners, its communities, and the rest of its stakeholders in an extraordinary fashion”

In the early 2000s, Challenger Technologies Limited (SGX:573) admitted that it had stumbled in its international expansion. Challenger CEO Loo Leong Thye recounted the painful decision he had to take to shut down its overseas businesses in order to preserve the profitability of the company.

As a result of his experience, he decided to focus his energies on building stronger relationships with his customers and suppliers. With the stronger foundation, he took the company to an IPO in 2004. Since then, the stock price has returned a total of 780% up till last Friday’s close at S$0.49 per share.

2. Success does not happen overnight

In the book, Mr. Walton wrote that somehow over the years, the public’s impression of Wal-Mart was that it’s something he dreamed up out of the blue as a middle-age man, and that the company was just this great idea that became an overnight success.

But, the first Wal-Mart store was in fact an outgrowth of everything that Mr. Walton and his crew had been doing since 1945. Mr. Walton also cleverly quipped that like most overnight successes, Wal-Mart’s was about 20 years in the making.

Japanese food retailer Japan Foods Holding Ltd (SGX:5OI) had 49 outlets as of 31 March 2011. Today, it has 59 outlets and its share price has tripled from S$0.203 each to S$0.61. With such figures, it might seem that it is ‘easy’ for success to happen for the company – just open more stores and the cash will roll in.

But, what has happened since 31 March 2011 is that the company has closed a total of 27 outlets, but in turn, opened or franchised 37 new outlets.

Interestingly, throughout this period, the company’s revenue and earnings-per-share grew 24.6% and 88% respectively. With upward figures like these, it is perhaps safe to say that Japan Foods’ relentless experimentation with different concepts and the application of what they have learnt (much like how Mr. Walton infused his first Wal-Mart store with 20 years of experience) has found success over the last three years.

In particular, the company’s Menya Musashi concept has gone from zero to 16 outlets as of the financial year ended 31 March 2014. Although it is too early to judge whether Menya Musashi will be successful over the longer term, the concept is already contributing 16.1% of the company’s overall revenue.

Foolish Takeaway

There is an old adage which goes like this – “there is no elevator to success, you have to take the stairs”. These words are fitting when we note that Wal-Mart’s multi-bagging success has been accumulated over decades, and not over a couple of quarters or even in a few years. Although Wal Mart is unlikely to become another 1300-bagger in the coming decades, we take comfort that while history does not always repeat itself, it certainly can rhyme. As such, we stand to increase our chances of investing success by recognizing patterns from the past, and applying it for the future.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.