The Walmart Absorption Effect

Let's face it. No matter where you spend your money, there is going to be a rather significant portion that is going to ultimately wind up in the cash register at Walmart. Why is that? Because for all the haters, the fact is that most people actually shop at their stores.

This is why it just makes sense to own Walmart stock.

If you eat out at a restaurant, the waitress will likely spend a portion of her income at Walmart. Same goes for the dishwasher, the bus boy, and even the guy who trucks in the supplies and food for the restaurant.

They will all spend a portion of their money at Walmart.

Go to a gas station for a fill up and a Coke? The cashier will likely be spending a portion of their paycheck at Walmart. Spend at The Dollar Tree or Dollar General? I bet the workers there will spend a portion of their paycheck at Walmart.

The fast-food worker? They are going to spend a portion of their paycheck at Walmart too. From food stamps to social security checks? A large portion of that money will also be spent at Walmart.

Everyone shops at Walmart even if they tell you they don't because let's face it as well, Walmart simply offers everything under the sun at a value that even the die-hard haters can't pass up.

Beyond that, one has to admit that despite Walmart being a retailer in the retail sector, it is as diversified as stocks can be when you really get down to it. Because it carries pretty much anything under the sun. Call it an ETF of sorts that holds some sort of value in Unilever, Proctor & Gamble, Georgia-Pacific, Colgate-Palmolive, Kraft Foods, and any number of other companies both public and private.

Owning Walmart stock means you own a piece of every bit of spending happening in their stores. And likely you will shop there as well, meaning every dollar you spend will have a tiny discount attached to it when you get your quarterly dividend check.

Granted, it's not a fantastic yield at 1.47%, or $2.28 per share on an annual basis. But sharing in the profits of the largest retailer in the world that will capture the lion's share of every single paycheck that exists seems to me like a great thing to own, and I think everyone should own at least a few shares.

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Walmart's Reign As "King of Retail" In Jeopardy

There was a time when I would have thought, hey, Walmart is an unstoppable force. A company that could only go up in value, and that would continue to be the price leader in the retail sector. But what I am thinking now about Walmart is that since Sam Walton died, I think he took his company to the grave with him, and while the company has still grown considerably following his loss, the company now faces a plethora of challenges ahead, and same store sales are abysmal compared to years past.

The truth is that it seems to me that Walmart is failing in every way possible, and I think that makes Walmart not only go down in value eventually, I think it leaves open every single possibility for competing retailers to pick up the slack. And there's a ton of slack to pick up mind you. It's almost as if Walmart thinks its brand is too strong to fail.

I think they're dead wrong.

Besides the fact that most Walmart stores are cluttered and dirty, there is the issue of customer service which is seriously lacking. But rather than place the blame entirely on the employees, I think a large part of the blame should be directed at management. It's no secret that Walmart employees are not necessarily treated well. When it comes to cost cutting, the first order of business is to sock it to employees. Hours are cut, benefits are cut or non-existent, and while Walmart still enjoys nice margins and is still one of the largest—if not the largest—employer in the United States, employee wages are just slightly above the minimum wage.

Normally I don't complain about wages. You get what you earn and companies pay what they feel an employee is worth to the value and profitability of the business. But in a world where the focus has shifted from manufacturing to retail and service sector jobs, with Walmart being the leader in retail, I think that Walmart could have done a lot to prove the point that we could actually move into this kind of an economy and actually survive. But that has not happened. And I'm not sure it's entirely for lack of ability to do so.

I can find no reason why Walmart, being that is the largest employer in the country, could not have found a way to make its business model a powerhouse and take care of its employees as well with liveable wages, strong 401k plans, health benefits, and other fringe benefits similar to what manufacturing jobs may have offered.

And no, I am not suggesting that Walmart should have unionized, or that it needed to follow the path of unionized manufacturing. We see what happened with that.

But one thing that stands true for me is that when you are a company that relies, in large part, on the customer experience, the front line handing over that experience are the people who work in the stores. Friendly faces and helpful presence, and of course happy employees are going to work harder every day to keep the customers, a retailer's and retail employees' bread and butter, as happy and satisfied as possible. With Walmart's current—and really it has never actually been good mind you—state of employee relations, there are a good many employees who are simply punching the clock, collecting their paycheck, and going home. It's a job. There is no connection with the company's needs, and there is no connection with the consumer's needs either. And that's a huge problem.

The bottom line is that if you are a Target, a Dollar Tree, hell even a Kmart for that matter, all they need to do is examine where Walmart is going wrong, and close the gaps. If they do that customers will flock to their stores and Walmart will get trounced. What's more, a small and emerging company would be well positioned to take the reigns—although certainly a smaller company will have difficulty being price competitive.

But speaking about price, fortunately Walmart is making it easier these days for customers to try other places to shop because for a guy like me who knows what things cost, Walmart is no longer the price leader, and more and more items I buy wind up in other store's carts than in Walmart's. Whenever I step into a competitor's store it is their opportunity to win me over on other benefits like customer service. And in some instances, on some items, I may actually also be willing to pay a slight premium for that.

What's more, one day the economy will get better. In fact, I actually believe that we are on the cusp of something big in terms of jobs and median income, especially considering the jobs market has been so bad over the last 30 or so years. Employees are getting restless, that is unquestionable, and I don't think the status quo will be able to remain much longer. Companies are going to have to change their employee relations, and as the jobs market heats up not only is a company like Walmart going to have to ramp up their customer experience, they are going to have to ramp up their employee relations in order to find and retain a workforce that helps them achieve their goals.

Long and short for me here is two-fold. I don't like the future prospects for Walmart as a company and therefore I see no reason to own stock in them. As well, I can find many reasons to also avoid shopping in their stores.

Plummeting McDonald's Sales May Be An Economic Signal

A couple of years ago I wrote that one thing about downturns in the economy is that it causes people to, of course, scale back their purchases, and that means low-end retailers such as Dollar Tree, Dollar General, Walmart, and even thrift stores like Goodwill will tend to do very well since consumers are more concerned about value than necessarily quality, or customer service. That is not to disparage any of those companies on either quality of product, or quality of service, but simply to suggest that price becomes king in that kind of an environment. In that commentary I suggested that when the economy begins to fire up a bit, retailers to look at to buy shares in are slightly higher end, or steps up from the deep discounters. Places like Target and Kohl's, for example.

During the same period I also wrote about how well McDonald's stock performed throughout the entire recessionary period. To put it literally the stock was on fire, and that was because people were flocking to McDonald's stores, particularly interested in their value menu which offered consumers the best bang for their buck when it came to dining out. Even when it came to coffee, a cheap cup of what is arguably a noteworthy brew was just what the hurting consumer needed to get their coffee fix at a price that went easy on their wheezing wallets.

Interestingly enough, Starbucks did not fare all too poorly during the recession either, but that's another story. There's a different dynamic going on there.

McDonald's sales have taken a turn for the worst, having seen percentage decreases for nine straight months, and even Walmart has been seeing some declining sales.

With gas prices lower and jobs numbers higher, the shortfall in sales at McDonald's may actually be a lagging indicator of better times ahead. What it suggests is that people may be stepping up to slightly
higher end operators like Wendy's, Chipotle, and Panera Bread to name a few. Five Guys burgers are a strong competitor in this sector as well, and have been one of the fastest growing quick serve hamburger chains for some time now.  My gosh, if they went public, I would be one of the first guys in line.

Shake Shack may shake things up a bit as well for McDonald's. And actually Wendy's stock has been seeing new highs, so to my mind these are very clear signs that there is a paradigm shift in where consumers are spending their dollars.

And the begging question? Could it be that with lower gas prices and better job prospects, consumer confidence may be rising, and consumers are now willing to spend a little more elsewhere?

If that's the case, it could well be a signal that the economy may be getting better. I think it is too soon to tell for sure. Certainly I am not going to use hamburger sales alone as any indicator in the macro-economic picture. But in the micro it seems to at least make a suggestion which I think is worth taking a close look at.

People are beginning to make a shift in their spending, and McDonald's horrible sales numbers are making that all too clear. Stocks that I think are ripe for this environment are Wendy's and Chipotle (I'd stay away from Shake Shack), Whole Foods, Target, and I will go ahead and throw Darden Restaurants into the mix as well. These are companies I want to own right now. I think these companies are primed to benefit from any improvement in the economy, and I think stocks to avoid right now are stocks like Dollar Tree, Walmart, and yes. McDonald's. But do watch the company very closely. McDonald's has historically been able to weather many storms and has an uncanny ability to right its ship eventually. I do not recommend writing it off completely in the short term. But these other companies, I think, have a lot more going for them as it currently stands, and that is where I would put my investment dollars.

We're up for a ride, and the ones who will win are those who are treats to the American consumer if it becomes all too clear that we are headed for better times. In this case playing the value play is not as good a bet as playing the upgrade play.

Unions Are Full of Donkey Poop

 

My wife started her new job at a local grocery store. She will not be a cashier, but rather will be working in the pharmacy since she has 28 years of experience there. She also will be starting far above the minimum wage.

None of that is the point.

We will call her store Weber's Fine Foods to protect the identity of both my wife, and the store she works for.

The fact is that Weber's Fine Foods is a union store. And as such of course she will be required to join the union to work there. So with that there is also a union orientation, which is really code word for "presentation and propaganda spewing."

"Do not shop the non-union stores like Aldi, Walmart, Sam's Club, or Whole Foods." They go on to say that "every dollar spent in a union store is a dollar spent toward ensuring the future stability of every union employee and employer."

Ahem. Waders please. And it is beginning to stink in here a bit.

How much does Weber's Fine Food's pay their cashiers? $8.00 an hour. How about another local discount grocer in the same union local? $7.25.

Average starting wage of a Walmart or Sam's Club employee? Around $11.75. How much is the average starting wage for a cashier at Aldi? $12.00. How much is the average starting wage of a Whole Foods associate? Around $10-$12.

So tell me again how the union is ensuring the future stability of every union employee and employer when every union employer is below the radar when it comes to employee wages—which by the way are further reduced by union dues?

Your union if full of donkey poop quite frankly and every indication is that working for a non-union store pays better, from the start and to the finish. But unions don't like to spout off numbers. Rhetoric is so much easier to spout off. And so long as they have captive audiences? All the better.

Chives Or Lobster?

That's right. You heard the question correctly. Chives or lobster? The reason I pose this very odd question? Did you know that McCormick sells a freeze dried chives container at Walmart that sells for...

Wait for it...

$492.96 PER POUND???

No my friends. That is not a typo. You read that number just as correctly as you read the question I posed in the title.

You have to say that seems a bit steep, no? I mean, since when is a chive, freeze dried or otherwise, ever worth nearly $500 per pound? I would venture to say right here and now, for the record, that there is never a time when chives are worth that.

Pot growers stand up and take notice. There is new crop out there you can grow. AND IT IS LEGAL TOO!

No more need to worry about the bad boys from the ATF knocking at your door, or coming to your crop fields looking to burn down your crops and haul you off to jail in handcuffs. Now you have chives!

So, I ask the question? Chives or lobster. Because obviously lobster only runs about $30 per pound.