Very interesting article on Wal Mart (WMT). Here’s my two cents.
- The wages that Wal-Mart pays are the byproduct of supply and demand, if we had a larger layer of educated people than Wal-Mart would have to pay higher wages to attract a smaller supply of of less educated labor – laws of economics.
- The consumer is less wealthy not because of WMT, but because of the external cirucumstances that have nothing to do with WMT – high enery costs, unaffordable healthcare, corporate investments in productivity, etc…
- I could be wrong, but I thought Ford’s (F) biggest achievement (and a competetive advantage for awhile) was a creation of conveyor lines and specialization of production. It allowed for Ford to make cars cheaper than its rivals. Ford was able to pay higher wages because it was more efficient than everybody else. Arguably that’s what set WMT apart from its competition from the very beginning – efficiency. However, as inventory management technology became ubiquitous, its competitors became more efficient, thus WMT needed a different edge – its size is providing that edge: bargaining power.
- Nobody has to sell goods at WMT, nobody forces suppliers to sell goods there – it is there choice.
- I agree with you on the last point – Wal-Mart will have to adjust to market forces even if that force is public opinion – that is how the free market works. Involvement of political “leaders” or unionization are not the solutions. If people will perceive that WMT abuses its workers – they’ll stop shopping there (if they can afford to). Public opinion is growing more negative on WMT and if I worked for WMT I probably wouldn’t like it much either. But I have a luxury of not having a personal involvement with WMT thus my opinion is unbiased. Wal-Mart may have to figure out how to do even more with less, but higher paid labor.
Vitaliy N. Katsenelson, CFA
This article is written for educational purposes only. It is not intended as a recommendation (or advice) to buy or sell securities. Author and/or his employer may have a position in the securities discussed in this article. Security positions may change at any time.