If you lined up 1,000 economists, politicians and activists and asked them whether Wal-Mart Stores Inc.'s (NYSE: WMT) success during the current economic downturn was good for the country, you would get 1,000 different answers. The issue surrounding the world's largest retailer are that murky.Wal-Mart's business model is about as basic as it gets -- -buy low and sell high (but still lower than many of its competitors). Founder Sam Walton was famous for demanding the "Wal-Mart discount" from suppliers eager to do business with the retailing behmoth. Their profit margins were not his problem. After flirting briefly and disastrously with attracting wealthier consumers, Chief Executive H. Lee Scott decided to get back to what the company knows best -- selling stuff cheaper than anyone else. That strategy has paid off.
The company is the only member of the Dow Jones industrial average whose shares have risen this year, according to Bloomberg News. The results it reported today would be the envy of most companies struggling in the faltering economy. Net income rose 9.8% to $3.14 billion, or 80 cents per share. Revenue soared 7.5% to $97.6 billion. The results handily beat Wall Street expectations.
But before champagne corks are popped, it's important to remember a few things. Though others have claimed Wal-Mart is "recession proof", the company does not believe it. In fact, it trimmed its yearly guidance to $3.42 to $3.46. U.S. same store sales in the fourth quarter are expected to rise 1 to 3 percent, so it looks like it will have to ramp-up advertising to lure reluctant holiday shoppers. The company, though, is optimistic about the holiday season because many competitors will see sales decline.
Going forward, Wal-Mart's future is even murkier. The union-backed group Wake-Up Wal-Mart claims on its Web site that the retailer does not pay sufficient wages for workers to support themselves and that less than half of its employees are covered by health insurance. Wal-Mart, which denies mistreating workers, may be on the losing end politically if unions increase their clout in the Obama administration.
The American people have a love-hate relationship with Wal-Mart. When the economy starts to improve, middle-class shoppers will look down their noses at the chain. For now, they will be in the checkout line with everybody else.
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Reader Comments (Page 1 of 1)
11-14-2008 @ 8:13AM
Roudy said...
I don't know any of my friends ,rich or lower income,that would or do look down their noses at Wal-Mart even if the economy gets better and their incomes improve.The main core principal that moves Wal-Mart is that they still have a certain amount of integrity(very little) that the others don't have.One is able to return items, if necessary, with no hassle whatsoever, EVER! RoudMan
12-30-2008 @ 10:28PM
Sharon said...
Regarding the love hate relationship. I always get a kick out of people who support all the negative things Wal-Mart does to it's employees . (yes i know there are good things too) Why people do not realize that Wal-Mart is one of the largest receivers of welfare I don't know. Where do I get that? I used to work helping find low income housing for people. Many of them worked at Wal-Mart. (percentage wise more than any other company of the applicants I worked with, well more) So taxpayers provide low income housing for Wal-Mart employees and often other social services. YOUR tax money enables Wal_Mart to provide low paying jobs. I don't know about rural areas but no one can provide themselves with life's basics in a large city working at Wal-Mart. Yes I know some will say they should go to school. Some people were not blessed with the intelligence to be able to succeed in school so they are doing the best they can.
If you make a decent living and shop at Wal-Mart you really aren't getting a good deal. Yes the goods may be lower in price but you are also paying to take care of Wal-Marts employees through social services.