In praise of Wal-Mart

By Kiplinger's Personal Finance Magazine

Wal-Mart is certainly a company that merits superlatives. It is the world's largest retailer, with more than 4,000 stores in the United States and nearly 2,300 abroad. Annual sales exceed $330 billion, a figure larger than the gross domestic product of all but 20 nations. Wal-Mart is the largest private employer in the United States and the second-largest employer overall, behind only the federal government. Its 1.3 million domestic workers would more than fill all of the stadiums in baseball's major leagues, and the number of Wal-Mart shoppers over two weeks exceeds the nation's population.

But few companies arouse as much animosity as Wal-Mart. Critics contend that the company treats its workers badly, denies them benefits and buys its products from sweatshops in developing countries. Criticism of the company mounted after author Barbara Ehrenreich went underground to "expose" Wal-Mart in her 2001 best seller, "Nickel and Dimed." On top of this, some urban scholars blame big-box retailers in general, and Wal-Mart in particular, for putting mom-and-pop stores out of business, hastening the decline of downtowns and depersonalizing the shopping experience.

Attacks on Wal-Mart almost surely contribute to its share price being lower than it ought to be. (In fact, Kiplinger thinks Wal-Mart's reinvention of itself is a great investment opportunity. We also consider it one of the best stocks to own for 2007.)

A different picture

But when I examine the facts surrounding Wal-Mart, a very different -- and far more favorable -- picture of the company emerges. For millions of people, Wal-Mart is a lifesaver that provides what they want at prices they can afford.

I'm not saying that Wal-Mart is without fault. No large employer is. But if jobs at Wal-Mart are as bad as critics assert, why is it that 25,000 people applied last January for 325 job openings at the company's new store in the Chicago area?

This huge rush to get jobs at Wal-Mart is not because there are no jobs elsewhere. The current unemployment rate of 4.4% is well below recent levels and has been lower in only four of the past 35 years. Applicants want these jobs because Wal-Mart pays more than $10 an hour, on average, which is considerably higher than the U.S. and state minimum-wage rates.

Although Wal-Mart workers have lacked benefits in the past, this is changing. The company now offers as many as 18 health-care plans for as little as $11 a month in many locations. But critics would like to force Wal-Mart to pay even higher wages and offer even more benefits. Recently, the Chicago City Council voted to hold Wal-Mart and other large store operators to higher wage standards than other employers in the city.

Fortunately, Mayor Richard Daley vetoed the Wal-Mart bill. This type of legislation sends the wrong message to prospective employers -- namely, "We will penalize you for being a large, efficiently run company that offers consumers the lowest prices." Would Chicago prefer less-efficient companies with higher prices and fewer jobs? That would have been the outcome had the bill become law.

Impact on prices

Studies have shown that Wal-Mart's prices have a huge impact on consumers' purchasing power. Global Insight, an international research firm, found that Wal-Mart's growth between 1985 and 2004 resulted in food-at-home prices that were 9.1% lower and overall prices (as measured by the Consumer Price Index) that were 3.1% lower than they would otherwise have been.

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