In Praise of Big Box Retailers

By Jonathan Yates - July 17, 2012 | Tickers: COST, HD, LOW, TGT, WMT | 0 Comments

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In May 1999, country western singer Alan Jackson released the song, "The Little Man," that lamented the replacement of mom-and-pop shops with the proliferation of mass retailers such as  Wal-Mart (NYSE: WMT), Costco (NASDAQ: COST), Target (NYSE: TGT) Lowe's (NYSE: LOW) and Home Depot (NYSE: HD).

 Jackson sang:

Now the court square's just a set of streets
That the people go round but they seldom think
Bout the little man that built this town
Before the big money shut em down
And killed the little man
Oh the little man

Now the stores are lined up in a concrete strip
You can buy the whole world in just one trip
And save a penny cause it's jumbo size
They don't even realize
They'er killin' the little man
Oh the little man

With the recent collapse of the share price for grocery store chain, SuperValu, Wal-Mart, Target and Costco are again the usual suspects.  While the $11.3 billion in debt SuperValu racked up acquiring about 1,100 stores from Albertons in 1996 and a negative profit margin of 2.88% certainly contributed, competition from the lower prices of Wal-Mart, Target and Costco are, once again, being cited.  As the Chief Executive Officer of SuperValu, Craig Herkert, noted in an interview, "The fact is, consumers have a wide range of sources for their groceries and that will continue..."

There is no better news for "consumers," who are the ultimate "little man."

And the "they" who killed "the little man" are "consumers" looking for the best deal, and if it most serves their needs to "buy the whole world in just one trip and save a penny cause it's jumbo size" that is merely expressing freedom of choice; and Wal-Mart, Costco, Target, Lowe's and Home Depot should be praised for providing it.  Buying the stock of each this year would have been profitable, too.

Much, much more comes from Target, Home Depot, Lowe's, Wal-Mart and Costco than onlymore goods and services from "just one trip."  First, is the higher amounts of disposable income that results for the members of the local community when one sets up shop.  As financial columnist Ben Stein wrote, "When Wal-Mart moves to town, everyone gets a raise."

Not only does everyone "get a raise," everyone gets a better selection.  Sole proprietary hardware stores do not have nearly the range of merchandise of a Home Depot or a Lowe's.  That is critical for making repairs around the house.  For general contractors or handymen, nothing compares with the product lines of Lowe's or Home Depot that is needed to keep them in business and service the public.

These stores are much better for the environment, too, both from the buy side and the sell side.  When "you can buy the world in just one trip" that reduces the amount of gasoline needed for shopping.  That greatly mitigates the carbon footprint for a family.

In addition, the unequaled supply network of Wal-Mart is peerless for its efficiency.  For food items, that reduces the rate of spoilage for crops transversing from the field to the market.   A great deal of edible produce is wasted that way in underdeveloped nations.  Less fuel is wasted transporting goods to the store, too.  Target, Costco, Lowes and Home Deport are also very, very effective in logistics, too, as a matter of survival.

Wal-Mart also forces its suppliers to cut down on packaging to get the best price for its customers.  The less cardboard packaging, the fewer trees are killed and the less that goes to the landfill.  Not having cardboard packaging is the ultimate in green tech and protecting the environment.  There are many other ways that Big Box chains are strong in alternative energy and clean tech.

In terms of worker rights, diversity and community relations, it is much easier to work with and police one retail chain with 1,000 stores than 1,000 "little man" shops.  There are also greater opportunities for advancement for the employees at a Big Box chaim.  Regulations requiring heath insurance, alternative energy and clean tech measures, and other similar protocols frequently exempt businesses that have under a certain number of employees. 

In addition, no single entity store is going to be able to go to China like Wal-Mart and advance on the social front for causes such as workers rights and green tech as has Wal-Mart.  Chipotle Mexican Grill, a restaurant chain with more than 1200 locations in North America and Europe, just won an award for a film about its commitment to sustainable farming.  Global commerce helps to strengthen ties between countries, which is critical for peace and prosperity around the world.  For Jackson and others in the entertainment industry, retail chains such as Wal-Mart and Target are far more lucrative for selling merchandise across the far reaches of the globe than thousands of stores run by "the little man."

For investors, big outfits offer the opportunity to share in the profits after going public.  That is not going to happen with "the little man."  Wal-Mart has been one of the best stocks in history.  It continues to reward its shareholders, up more than 22% for 2012; with a 2.2% dividend yield, better than a bank CD or Treasury bond, and probably more secure, too, as there is a low dividend payout ratio.  

And, while certainly not a "little man," Warren Buffett bought 17,892,342 shares of Wal-Mart in the third quarter of 2009 at an average price of $50, 1,200,500 shares in the fourth quarter at an average price of $52.50, and 7,671,000 shares at an average price of $61 in the first quarter of 2012.  Wal-Mart is now trading around $73.18 a share.  If Wal-Mart is good enough for "The Oracle of Omaha" it is certainly good enough for "the little man"! And, if Wal-Mart was not big enough to be publicly traded, there would be no way for an individual investor to profit along with the likes of Warren Buffett.

The other Big Box retailers are performing well, too.  Home Depot is up more than 24% for the year with a 2.25% dividend yield.  Its main competitor, Lowe's, has risen 5.73% over the same period with a 2.41% provided in dividend income for its shareholders, too.  For 2012, Target has jumped more than 18% and has a 2.40% income stream.  Costco, with a 1.17% dividend yield, has increased by more than 13.50% since January 1.

Individual consumers and individual investors are the ones singing the praises of Wal-Mart, Target, Costco, Lowe's and Home Depot through not only buying at the store, but also purchasing the stock. 

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