Don't Take Wal-Mart's Red, White, and Blue Bait
Jan 18th 2013 5:00PM
Updated Jan 21st 2013 8:50AM
Wal-Mart peddled some interesting news this week. It committed to hire 100,000 U.S. war veterans within the next five years' time, and it also said it will offer more made-in-America merchandise. However, given Wal-Mart's abysmal reputation lately, these simply look like weak attempts to garner some much-needed consumer goodwill.
Time magazine was one of the news outlets that pointed out what many of us probably suspected: This all looks good on the surface, but doesn't actually add up to truly meaningful commitments on Wal-Mart's part. Time's Christopher Matthews calculated that Wal-Mart's total American workforce is 1.3 million, with a 37% turnover rate. Wal-Mart has to hire about 480,000 workers every year, and so Wal-Mart's five-year vow regarding jobs for veterans is skimpy. Veterans would actually make up only 4.2% of its hires.
Matthews' piece also poked a hole in Wal-Mart's "Made in America" vow, which entailed the retailer's commitment to spend $50 billion in American-made goods over the next 10 years. However, Matthews pointed out an interesting caveat given Wal-Mart's contention that two-thirds of Wal-Mart's spending already is focused on merchandise that is made, sourced, or grown in America. Therefore, this is pretty much a promise to do what it's already been doing. [Editor's note: Wal-Mart has since contacted the Fool to clarify that the $50 billion commitment is in addition to the two-thirds of their spending already focused on buying products made, sourced, or grown in the U.S.]
Made in China: Not so cheap anymore
Perhaps most interestingly of all, and going far beyond Wal-Mart's individual business, are the global macroeconomic factors that are starting to come into play. Remember when China offered dirt cheap labor? The difference between American wages and Chinese wages has been closing. In fact, pay in China and India has been increasing about 10% to 20% for the last 10 years, while American and European wages have been stagnant.
Therefore, Wal-Mart finds itself in good company: Many companies are mulling the idea of bringing more jobs back to American shores.
The migration of jobs back to America has already been happening. In 2011, Ford penned a new agreement with the UAW that allowed it to bring manufacturing back to Ohio and Michigan from China and Mexico, for example.
Other companies have been slowly bringing some manufacturing jobs back to America. Recall Apple's recent decision to bring production of a Mac line back to the U.S., and Starbucks' American-made Indivisible mugs.
In effect, our own companies' quests for greater and greater levels of profitability actually have been making America the land of cheap labor -- just think about our stagnant economy and still-high unemployment rate. Many skilled workers lack jobs domestically. It appears the situation is coming full circle, though, as much as many American workers likely haven't been enjoying the trip.
Don't buy what Wal-Mart's selling
In sum, corporate moves like the ones above should help improve America's sluggish economy (some work is better than no work, after all, for many jobless citizens), but let's just say Wal-Mart is hardly ahead of the curve. Nor are Wal-Mart's vows this week truly moving the needle terribly far in a new, better direction.
I have looked at the news circling around about Wal-Mart's initiatives, and I'm not the only cynic noticing that this seemingly patriotic news from Wal-Mart follows on the heels of the discount giant's high profile in the current gun debates, not to mention ongoing criticism of its treatment of American employees.
Wal-Mart shares have risen 13% over the last year. That's despite many, many controversies, including the Mexican bribery scandal. (By all means, let's not forget about that ongoing issue.)
Investors should resist being seduced by Wal-Mart's seemingly "cheap" forward price-to-earnings ratio of 13, as well as its attempts to look as American as apple pie and baseball. I'd rather pay 20 times forward earnings for Costco , which I believe is an all-around higher-quality company (and one that treats its workers far better as part of its overall mission, by the way, so go, America).
So, investors, watch out for Wal-Mart's red, white, and blue cloak. It's covering up a whole lot of reputational and investment risk.
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The article Don't Take Wal-Mart's Red, White, and Blue Bait originally appeared on Fool.com.Alyce Lomax owns shares of Starbucks. The Motley Fool recommends Apple, Costco Wholesale, Ford, and Starbucks. The Motley Fool owns shares of Apple, Costco Wholesale, Ford, and Starbucks. 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.
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