The Conservatives' Take On Wall Mart Faces A Test

Stocks:  (WMT)(GM)

George Will, the conservative thinker, believes that Wall Mart has done more for the poor in the US than the federal govenment has. Old news. But, if Wal-Mart’s current malaise in the US continue, Will’s theory may indicate that the retailer’s problem’s could become the economy’s problems. Among other things, Wal-Mart saves shoppers $200 billion a year, a sum that is almost 10x what the governemnt provides in food stamp payments each year. With 1.3 million employees, Wal-Mart has almost as many people on its payroll as the US military. And, Wal-Mart adds 100 jobs for each 50 jobs it takes out of the retail sector.

McKinsey says that Wal-Mart was responsible for 13% of the nation’s productivity gains in the second half of the 1990s.

There is every reason for labor unions and other groups that fairly or unfairly have a bone to pick with Wal-Mart to challenge these figures. However, if one supposes that they are largely correct, the slow down in Wal-Mart’s business is certainly bad business for the US economy.

Wal-Mart’s same store sales have been running up very slightly. In November they will actually be down .1%. Under these circumstances, it is unlikely that Wal-Mart will be adding large numbers of new employees in the US. It may be that competitors like Target will take up some of the slack, but it is highly likely that store chains like Home Depot and Lowe’s are not adding new employees. The housing market is simply too brutal.

It may be that the discounts offered by Wal-Mart will continue to help save money in a manner that helps the lower income shopper much more than anything he or she will get from the government. It also may be true that as Wal-Mart drops prices, the action helps bring down inflation. What is equally evident is that whatever benefit Wal-Markt offers the economy in general is diminishing. A chain with falling same store sales is not long a huge growth engine.

In 1953, the CEO of GM said: “what was good for the country was good for General Motors and vice versa.” At that point GM was the largest company in the world and employeed 600,000, probably about equivalent to Wal-Mart’s current 1.3 million.

The fall of GM has certainly not done the larger ecomony much good. Did it save consumers some money to buy Hondas? Perhaps. But, hundreds of thousands of jobs have disappeared.

Wal-Mart is at a tipping point. If it moves the wrong way, it is difficult to see who is helped.

Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.

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