Let's Praise Wal-Mart for a Change

Big, bad Wal-Mart (NYSE: WMT  ) ... you know the drill. It's easy to vilify the retail behemoth, and many in the financial press and elsewhere routinely do. But let's face it -- not everything is always so black and white.

For example, a study by Steven Horwitz details how, during the Hurricane Katrina disaster, private-sector companies such as Home Depot (NYSE: HD  ) , Lowe's (NYSE: LOW  ) , and, yes, Wal-Mart did a better job of serving victims than FEMA did. Horwitz cites the "nearly unanimous agreement by local officials that Wal-Mart's response was crucial in preventing the crisis from being even worse than it was."

Through its local employees, Wal-Mart gathered information that was then used by a central disaster management team at headquarters. During the first few weeks of the crisis, Wal-Mart delivered nearly 2,500 truckloads of supplies -- including some free stuff, such as prescription drugs -- to the area, and Home Depot sent more than 800 truckloads.

Empowering management
It helped immensely that local managers were empowered to make some big decisions. A Wal-Mart assistant manager in Mississippi simply gave away many basic supplies from her store to local residents when she couldn't reach higher-ups for an OK. She gave drugs from the pharmacy to a local hospital, too.

Many retailers these days are jumping on this empowerment trend. Some, for instance, are permitting employees to negotiate prices with customers. I witnessed this myself the other day, when a friend successfully bargained with a Home Depot worker for a lower price on a cordless drill. I'd never seen that happen at a mainstream retailer before -- it reminded me of the typical negotiations that go on in Middle Eastern markets. 

What's going on? Some analysts point to an eBay (Nasdaq: EBAY  ) effect -- consumers are more accustomed nowadays to getting a better price for what they want. Others simply point to our sputtering economy and say that when retailers such as Best Buy (NYSE: BBY  ) and Circuit City (NYSE: CC  ) show that they're willing to be flexible on prices, they can attract more consumers. Of course, others argue that this approach can backfire, since consumers might abandon store loyalty to seek out the lowest price anywhere they can find it.

I think that empowering employees benefits the employee-employer relationship. It can boost workers' job satisfaction and performance if those workers are allowed to think for themselves and make decisions.

What it means for us
It's easy to get excited about the trend toward bargaining, once you start imagining yourself saving $20 on a pair of shoes or $100 on a new television. It's not necessarily smart shopping if you don't really need those items. But when you really do have to buy certain items, especially big-ticket ones, it's certainly worth seeing whether you can negotiate a lower price.

As investors, we should follow this development with interest, since it might affect the retailers we invest in. Even our Foolish investing newsletter teams will be watching. Wal-Mart, for example, was recommended nearly two years ago in our Motley Fool Inside Value newsletter service (and it's up a market-beating 27% since then), with lead analyst Philip Durell explaining that he liked the company's high degree of predictability, international opportunities, continual improvements in logistics, and focus on customer wants. Although it's a notoriously tough negotiator for low prices with its own suppliers, I don't know whether Wal-Mart will jump onto the bargaining-with-customers bandwagon. But even if it doesn't, the trend could still affect Wal-Mart if its competitors succeed at it.

If you'd like to read more about some retailers that seem like promising investments, and to gather other recommendations of companies whose stock has fallen to bargain levels, check out our Motley Fool Inside Value newsletter service, which seeks companies that seem significantly undervalued. A free, no-obligation, 30-day trial will give you full access to all past issues, so you can read about each recommendation in detail.

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10/20/2016 4:03 PM
WMT $68.73 Down +0.00 +0.00%
Wal-Mart Stores CAPS Rating: ***
BBY $39.48 Down +0.00 +0.00%
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CC.DL2 $0.10 Down +0.00 +0.00%
Circuit City Store… CAPS Rating: *
EBAY $29.02 Down +0.00 +0.00%
eBay CAPS Rating: ****
HD $126.25 Down +0.00 +0.00%
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LOW $69.89 Down +0.00 +0.00%
Lowe's CAPS Rating: ****