Games That Wal-Mart Plays

AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Wal-Mart Stores (NYSE: WMT) has a new policy about medical coverage starting January 1 for which workers working less than 30 hours won't qualify for health insurance, raising the bar from the current 24 hours per week. Full time Wal-Mart workers shouldn't feel smug either as coverage for spouses can be lost if hours drop at any time to part time status. Making employees work on Thanksgiving was in the news this holiday season, but is the least of the employee problems at Wal-Mart.

A Disingenuous Game

Does Mike Duke, CEO of Wal-Mart, deserve to make 717 times what the average Wal-Mart worker makes per year of $22,700? There are plenty of other CEO's who make much more than their employees but they in turn, aren't cutting benefits, hours and overtime pay of workers who are making poverty wages. Workers who then have to rely on medical assistance for basic medical care as well as food stamps and other public assistance. The CEO of United Health Group makes much more proportionally, but the median salary there is more than twice that of a Wal-Mart worker.

Wal-Mart plays a disingenuous game claiming they offer more comprehensive medical benefits to their workers than most retailers when they raise the bar to qualify for it and have an understanding at the managerial level that no more than 30% of workers should work the number of hours to qualify for coverage.

As the largest private employer in the US, Wal-Mart is not just a stock or a company but a major driver of the economy and a benefactor of the government's aid for their employees.

A Game of Chicken

But why should a stockholder care how his company treats employees? Headlines. While Wal-Mart got some bad press for its extension of Black Friday to the actual Thanksgiving holiday, that is nothing compared to a political firestorm when thousands of Wal-Mart workers go on the dole. Wal-Mart also has been charged with multitudinous instances of contesting and thwarting the payment of its workers compensation claims.

Wal-Mart benefits from over $2 billion worth of government aid to their employees and from a mandate that it and its competitors have to pay health benefits for more than 50 full time employees. Within months of this new policy I expect to see a groundswell of news stories about Wal-Mart that will be negative and detrimental to the share price. At some point these ploys to avoid coverage and paying livable wages will backfire.

Socially responsible investors should keep a wide berth from this name as well as anyone hoping to see share price appreciation. One last thing to mention about Wal-Mart is their overseas and Mexican operations have been under scrutiny for violations of the Foreign Corrupt Practices Act. M. Joy Hayes points out in this Fool post about the Mexican scandal doesn't the character of their corporate culture beg the question why bother buying Wal-Mart?

Winning The Game

I don't consciously boycott Wal-Mart but I manage to avoid going there more than once a year. It's just a chore and a grungy place to shop. It gets more possible to avoid it all the time thanks to Amazon.com (NASDAQ: AMZN) and Costco Wholesale (NASDAQ: COST). Costco employees are paid very well for retail positions garnering it the moniker of the Anti Wal-Mart in a New York Times article of 2005.  Even then analysts thought retired CEO Jim Sinegal was too good to his employees. Costco's share price has significantly outperformed Wal-Mart as shown in Fellow Fool Brian Shaw's in depth look at Costco as a core position.

Costco has a higher P/E of 23.58 with a 1.10% yield (which doesn't include a recent special dividend) to Wal-Mart's 13.91 P/E to 2.30% yield. Costco, however, beats Wal-Mart's expected growth rate of 9.20% with its 12.66%.

As for Amazon, like most of the big tech names it treats its employees extremely well with fantastic benefits. Despite its humongous P/E at 2918.81 it is still a growth stock to consider, with Cloud, Kindle FireHD tablet, an ever expanding e-emporium, streaming.. and wait for it, very possibly a Kindle phone.

Both have certainly outperformed Wal-Mart as stocks and both are encroaching upon Wal-Mart's supremacy as the largest retailer. Amazon earned its eighth consecutive number one spot for holiday e-tail satisfaction from ForeSee among other holiday etail records. Wal-Mart.com and even Apple.com lagged Amazon.com this holiday season with most online searches.

A Brendan Byrne interview with Motley Fool founder Tom Gardner explains why he thinks the CEO and founder model works so well using Amazon and Jeff Bezos as his textbook example. As for growth Amazon is the winner of these three names with analysts expecting 32.64% growth per annum over the next five years.

The Endgame

Socially responsible investing aside, Amazon and Costco are better names going forward than Wal-Mart with better share price appreciation and expected growth rates. Amazon would be the growth name and Costco the value name depending on what you're looking for to fill out your portfolio.

Wal-Mart is being squeezed by dollar stores on one end of the barbell and higher-end customers that enjoy a Costco bargain as well as Amazon and the showrooming effect. Why bother with Wal-Mart, indeed, when there are proven winners in the e-tail and retail game?

 


leglamp has no positions in the stocks mentioned above. The Motley Fool owns shares of Amazon.com and Costco Wholesale. Motley Fool newsletter services recommend Amazon.com and Costco Wholesale. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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