Don't Take Wal-Mart's Red, White, and Blue Bait

Wal-Mart (NYSE: WMT  ) 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 StarbucksAmerican-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 (NASDAQ: COST  ) , 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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Read/Post Comments (7) | Recommend This Article (6)

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  • Report this Comment On January 18, 2013, at 8:36 PM, SuntanIronMan wrote:

    Cynical much?

    It is an expectation to hire more than 100,000 war veterans. That's the number of veterans they expect will apply and be hired. They obviously would want to hire as many as veterans as possible. Veterans are excellent team players and work extremely well under pressure. If 1.3 million honorably discharged veterans each year wanted to work for Wal-Mart, Wal-Mart would likely want to hire close to all 1.3 million of them. Who wouldn't want to hire an honorably discharged veteran?

    There are only about 3 million people in the US armed forces currently (active and reserve). You say Wal-Mart needs to make 1.3 million new hires each year. Well, there certainly aren't 1.3 million men and women leaving the armed forces each year.

    That 100,000 isn't a cutoff number. It is just Wal-Mart's projections over the next 5 years. Nobody in human relations is going to say "Oh, you are our 100,000 war veteran hire during our 5-year commitment period. Alright then. Everybody else interviewing: Go Home!"

    And that doesn't include the veterans they already have working for the company. Oh which they have many in their employee ranks.

  • Report this Comment On January 18, 2013, at 11:16 PM, SuntanIronMan wrote:

    *Meant to write 480,000, not 1.3 million.

  • Report this Comment On January 18, 2013, at 11:30 PM, ortho1g wrote:

    ive made a lot of money with walmart

  • Report this Comment On January 18, 2013, at 11:31 PM, ortho1g wrote:

    isnt making money what its about

  • Report this Comment On January 19, 2013, at 6:40 PM, rkhargrove wrote:

    Had Walmart been given an opportunity to respond to this story, we would have clarified what is being reported about the company’s commitment to veterans and U.S. manufacturing.

    Veterans

    Questioning whether we will be helping veterans in a big way by hiring 100,000 veterans is a disservice.

    We’re not aware of any other retailer that has made a commitment to hire 100,000 veterans, which is a projection that could be higher. We recognize that it will take others to help solve the unemployment issue with our veterans, but we’ll do our very best to place veterans where they want to be. It’s unfair to put the focus on just Walmart to reduce the unemployment rate among our veterans.

    We hope others in the industry will support this effort and as an industry, we could set a goal of slashing the unemployment rate among veterans in half. It’s important that others join this effort.

    In calling out her support, First Lady Michelle Obama expressed her interest in working with Walmart and with the entire business community to join forces to build upon this commitment.

    Manufacturing

    We will maintain our two-thirds ratio of spending and in fact will build on that. The $50 billion we’ve committed over 10 years is additional growth on top of the two-thirds we’re already spending to buy products that are made, sourced or grown in the U.S.

    That growth will include dollars that we aren’t currently spending on products that we’re not offering today as well as growth in existing products and shifting existing items to U.S production.

    Importantly, we believe there should be sufficient volume for us to develop this U.S. sourcing initiative over the next 10 years, as well as continue to source merchandise from a variety of countries around the world, including those we currently source from.

    We believe in providing opportunities for those men and women who served and sacrificed to provide opportunity for us. And Walmart is committed to American renewal through the additional $50 billion in U.S. products we announced we will purchase over the next 10 years.

    Randy Hargrove

    Walmart Corporate Communications

  • Report this Comment On January 19, 2013, at 11:36 PM, neamakri wrote:

    to Randy Hargrove;

    this is to give you feedback on your Walmart inventory stock, so you can improve.

    Today I purchased some ingredients to make some chili at home. I looked all around Walmart and even asked a clerk where to get a can of Green Chilis. None found. I went to Tom Thumb and found Green Chilis easily (more than one brand, too). So, you have lots of food people might want, but no Green Chilis.

    Last year I wanted a new electric shaver. Real simple; I wanted a plug-in shaver with round heads. None found at Walmart. I went to Walgreens and spent $45 for a new shaver that I wanted. So, you have lots of shavers that people might want, but no plug-in shaver with round heads.

    Goood luck Randy on improving stock inventory.

  • Report this Comment On January 20, 2013, at 12:24 PM, Thomas1985 wrote:

    Randy,

    You said this much more eloquently than I would have. I love that he quotes a secondary source as his reference when he could have looked up the statement made by the CEO and quoted the primary source. I also like that he try's to paint the fact that Walmart already buys mostly U.S. sourced products as a bad thing.

    Tom

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