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Sunday, April 08, 2007

Wal-Mart Spinning: An Epillogue

Wal-Mart detractors might argue that the company’s net margin (sales/net income) is well above the industry average and that they could afford to transfer the difference to wage increases. The U.S. Census of Retailing reports the following margins

General Merchandise Retailers 3.9%
All Retailers 3.1%

Wal-Mart’s margin was previously reported at 3.5% (11/315). Given the company’s margin is 0.4% below the 3.9% in the retail category where the company is normally classified, detractors would have to argue the company’s product lines are broader than the first category and should be benchmarked against all Retailer’s margin of 3.1%. That would put the company’s margin 0.4% above the average and extending the argument that the company could transfer $12.6 Bil (.04 X $315Bil) to employee wage increases. From our previous calculation that their employees work 3.6 Bil hours annually, such a transfer would result in an hourly wage increase of $3.50 ($12.6 Bil / 3.6 Bil hours). If the company provided in comparison the more modest increase of $2 per hour as advocated by critics that would reduce profits by $7.2 Bil. and margin by .223 % . That $2 hourly increase would reduce Wal-Mart’s net margin from 3.5% to 3.27%, 1.7% above the all retail average. It is possible that a mere two tenths of a percent reduction in the company’s net margin might have a marginal negative effect on the company’s stock price. The question then turns toward whether Wal-Mart stockholders are too penurious to absorb a marginal reduction in wealth in order to open the way to paying Wal-Mart employees a living wage.

2 Comments:

Blogger ChiTom said...

Thanks for these posts on Wal-Mart and the economic analysis.

A generalist's question: you concluded this post saying,
The question then turns toward whether Wal-Mart stockholders are too penurious to absorb a marginal reduction in wealth in order to open the way to paying Wal-Mart employees a living wage.

To what extent is this the issue in all or most cases of economic justice in our economy? It has seemed to me that the greed of the stock market investor (profits must always continue to rise or the company's stock value falls) almost forces companies into short term, profit-at-all-costs business strategies.

While not a huge investor, I am one, if only through 401K/403B mutual funds. Those in my case seeming rather paltry, it's hard not to be "aggressive." It seems to me there is precous little way out. Isn't there a more humane, sustainable approach to all this?

2:06 PM  
Blogger KISSWeb said...

It seems to me it is less the greed of the ordinary investors, most of whom follow a buy-and-hold philosophy, and more that of the traders who want to make high returns on the quick turns -- with the collecive, organized support of the Wall Steet institutions that make the most money from rapid trading.

2:54 PM  

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