Diving into the Fortune 500

I shared a widely discussed and debated article a couple weeks back called “The Share of Noise” in which the relative noise (social and media) around a retailer vs. their actual value (revenue) was reviewed. I maintain the POV that Noise (PR) is a (potential) early indicator of success, but if noise doesn’t translate to revenue then it is simply that – just noise. Also, the reverse is very important as well, if a retailer currently has the sales but not the “noise” (i.e. interest) can they maintain those sales for the long term? Something to think about.

As a quick side note the debate caused us to dig in and look at the correlation between Noise and Sales, which was a low .204 (weak) and then again on Noise and MarketCap, which was .791 (strong).  It really makes you think …… is market cap a true indicator of value or a popularity contest based on PR? But I digress.

On that same topic of evaluations of successful companies, last week one of the longest running and most respected reports came out; the Fortune 500. We dove into the report with an eye towards retail and found some interesting findings.

At a high level their methodology is simple, they are ranked by revenue but the report does include multiple other metrics (Revenue Change, Profit, Profit Change, Assets, Market Value, Employees) as well as provide a way to view the list by sector, industry, location and if the CEO is a founder or Female. More on their methodology <here>.

Before we jump into exclusively looking at the retail side of the 500, because we are data nerds in addition to retail nerds we charted the top 10 over the past decade. Note the longstanding strength of a couple retailers. Amazon entered in 2018 and continues to accelerate but has yet to dethrone the long-term champion Walmart who has been in the top 2 for well over a decade. CVS Health also has been in the top 10 since 2015.

Remember all of the articles about the Retail Apocalypse a couple years back, what a bunch of rubbish that was.

Note: in case you are wondering what you are looking at. The chart above is the top 10 companies from 2011-2021. The logo is larger in the year they arrived in the top 10, and the smaller icons show how long it has been on the list.

Now let’s dive into the Retail Side of the 500. Of the top 500 on the list, 73 (or ~15%) are retailers as are 3 of the top 10 (Walmart, Amazon & CVS). Interestingly ~15% of the total revenue is also represented, yet only 11% of the Market Value.

With Amazon being an anomaly, with several other business models, we took a look at the numbers removing Amazon.

	% of the 500	% Revenue	% Market Value	Employees
w/ Amazon	~15%	~15%	~11%	~25%
w/o Amazon	~15%	~12%	~6%	~21%

Now lets remove the non retail noise and go further back in time and it paints a pretty clear picture who the battle of the giants in retail will be over the next several years.

Last Words: Don’t bet against Walmart! Just last week in an article published by CNBC JPMorgan claims that Amazon will overtake Walmart as the largest U.S. retailer in 2022. This was followed by multiple follow up articles critiquing Walmart’s lack of innovation like Britain Ladd saying “Instead of Thinking Big, Walmart consistently finds a way to take the path of least resistance“. There have been countless articles written not just about Retail Apocalypse but about how Amazon will be the end of Walmart, we just don’t think so. Walmart has been top 4 since 1996 and top 2 since 2000, and while previous success doesn’t not guarantee future success it sure doesn’t hurt.

Apparently the market has, indeed, listened to those articles and Walmart has one of the the largest negative gaps between Market cap and revenue. Walmart has, admittedly, taken some serious missteps as well as hasn’t truly figured out their own Walmart last mile but I surely wouldn’t bet against them.

Back to our the conversation at the beginning, note that every retailer on the chart below, including Walmart, has annual revenue exceeding market value, so the market believes they are worth less than they sell in a single year? While a company valuation is highly complex and does, and should, take many variables beyond revenue into consideration it does make you pause and think what is it about retail does the market not value nor understand?