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Wal-Mart: Bloom Or Doom? |
Current rating: 0 |
by Jeff Hwang and Rick Aristotle Munarriz
(No verified email address) |
30 Sep 2003
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According to Business Week, "for every Wal-Mart supercenter that opens in the next five years, two other supermarkets will close." And this is done without creating new jobs. Unfair advantages? Unfair playing field? That's just buggy whip talk. |
A Wal-Mart Monopoly?
Jeff Hwang, The Motley Fool, September 29, 2003
JHwang (at) Fool.com
http://www.fool.com/News/mft/2003/mft03092917.htm
In the Oct. 6 issue of Business Week, Anthony Bianco and Wendy Zellner discuss a growing concern: "Is Wal-Mart Too Powerful?" The article leaves me with another concern.
Wal-Mart (NYSE: WMT) is known for passing on its low-cost advantages to the customer. For example, the article points to a UBS Warburg report suggesting that food prices are 14% lower in markets where Wal-Mart competes. But as the authors note, there are several overwhelming negatives.
For one, the company has dominated its suppliers. Wal-Mart, which owns a hefty 30% of the U.S. consumer staples market and 15% to 20% of all music and video sales, plays a role in determining what gets sold. For example, the company has forced record companies to produce clean versions of explicit-label CDs or risk losing out on sales. And based on the complaints of a few customers, modern male magazines such as Maxim, Stuff, and FHM have been removed from store shelves.
And if you think that's a problem, Wal-Mart accounts for 28% of Dial's (NYSE: DL) sales, 24% of Del Monte Foods' (NYSE: DLM) sales, and 23% of Clorox's (NYSE: CLX) sales. If Wal-Mart has too much power over these companies now, what will happen when Wal-Mart's share hits 50% at the end of this decade?
Among other negatives, the article points to the fact that Wal-Mart employees earn 20% less than those at unionized supermarkets. In addition, Wal-Mart's entry into new markets has forced the closure of existing stores: According to Business Week, "for every Wal-Mart supercenter that opens in the next five years, two other supermarkets will close." And this is done without creating new jobs.
Which brings me to my new concern: the possibility of monopoly pricing.
According to a Retail Forward report cited in the article, 30 supermarkets have "closed since Wal-Mart saturated Oklahoma City." Think about this: Wal-Mart is successful because it can offer lower prices than anybody else. But what if nobody else exists to compete?
In business classes, you hear stories of the unacceptable practice of predatory pricing -- financially stable companies pricing at a loss until weaker competitors exit the marketplace. Today, the accepted business practice is to actually create value. Wal-Mart and Southwest Airlines (NYSE: LUV), for example, can offer lower prices because of operating efficiency. As capacity is removed from an industry, pricing power is created.
Wal-Mart today is saving money for consumers everywhere. But 10 to 20 years from now, are we going to want a Wal-Mart with pricing power?
Don't Knock Wal-Mart
Rick Aristotle Munarriz, The Motley Fool, September 30, 2003
tmfedible (at) aol.com
http://www.fool.com/News/Take/2003/take030930.htm?source=mptoppromo
If you're a mom and pop-hugging traditionalist, maybe it's best to cover your eyes for the next few paragraphs. Wal-Mart (NYSE: WMT) revealed its latest plans for world domination, and that might include a big lot of cleared land next to you.
While the retail giant is looking to add 50 million square feet of selling space during the next fiscal year -- or nearly 500 new stores worldwide -- that's actually just an 8% increase from its existing chain base. Yes, when you're that big, even the smallest footsteps make the ground rumble.
The company also reaffirmed that it's on target to nail $0.46 a share in earnings during the current quarter, but let's get back to the expansion plans. Yesterday, Jeff Hwang took a look at the growing Wal-Mart empire and the implications of gargantuan living.
Oh, great. Here's another writer about to kick Wal-Mart in the shins for sport. No. Not me. I have no problem with Wal-Mart. I think the arguments against the company's growth spurts ignore how much the discounter contributes to the local community through jobs, benefits, and tax revenue. Providing cheaper goods also leaves more disposable income floating around the community, no?
But is it fair that Wal-Mart can sell groceries as loss leaders just to drive in store traffic and move higher-priced ticket items at modest markups? Won't that drive supermarket chains like Kroger (NYSE: KR) and Safeway (NYSE: SWY) out of business? Isn't this hitting below the belt to warehouse club concepts like Costco (Nasdaq: COST), BJ's (NYSE: BJ), and even Wal-Mart's own Sam's Club?
Perhaps, but what's the point? The same free market that let Wal-Mart blossom will roll out the welcome mat for the better mousetrap. Unfair advantages? Unfair playing field? That's just buggy whip talk. |
