Wal-Mart Finally Caves to the Recession

We knew the recession was bad when well-known retailers such as Starbucks (Nasdaq: SBUX  ) started closing some of their weaker outlets. But now even mighty Wal-Mart Stores (NYSE: WMT  ) is following suit, yielding to the growing pressure of shrinking consumer spending.

Wal-Mart will shutter 10 underperforming Sam’s Club locations, costing 1,500 employees their jobs, although the company said it’s trying to place those workers in other stores. The news is surprising, since Wal-Mart’s ability to command steep discounts and appeal to budget-conscious consumers should give it a strong defensive position against even the worst economic headwinds. However, even the Bentonville Behemoth surely has areas where it might have overexpanded, or possibly isn’t competing well with warehouse rivals, such as Costco (Nasdaq: COST  ) .

Wal-Mart's cutbacks don't exactly bode well for investors hoping for any near-term improvement in unemployment rates. Early this week, AOL (NYSE: AOL  ) , newly liberated from Time Warner (NYSE: TWX  ) , announced that it will laying off as many as 1,200 workers, in addition to the 1,100 who recently accepted a buyout. Last week, UPS (NYSE: UPS  ) said it’s cutting 1,800 jobs. You get the drift. Jobs are still bleeding out of the economy, which makes for a tougher retail environment overall.

I’m not worried about Wal-Mart’s ability to thrive. The company said it doesn’t expect the closings to have an adverse effect on its fourth-quarter financial results, which will be released on Feb. 18. Still, the news is a bit daunting, and it makes all that “green shoots” talk from last year seem premature (if not slightly delusional).

Given the weak consumer spending environment, many retailers could be forced into similar cuts as they go into survival mode in 2010. Strong retailers like Wal-Mart will survive, emerging leaner and more successful over the long haul. Don't forget that investing savant Warren Buffett recently used Berkshire Hathaway (NYSE: BRK-B  ) to acquire more shares of Wal-Mart, a testament to the redoubtable strength of the retailer’s moat in good times and bad.

But Wal-Mart's retail rivals don't all enjoy that kind of strength -- and some of them may face far less fortunate fates.

Berkshire Hathaway, Costco, and Wal-Mart are Motley Fool Inside Value picks. Berkshire Hathaway, Costco, and Starbucks are Stock Advisor recommendations. UPS is an Income Investor selection. The Fool owns shares of Berkshire Hathaway and Costco. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax owns shares of Starbucks. The Fool has a disclosure policy.  


Read/Post Comments (11) | Recommend This Article (12)

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  • Report this Comment On January 13, 2010, at 3:18 PM, TotoMMB wrote:

    Four of those Sam's Clubs are in CA...and I say good riddance. I'll take Costco any day.

  • Report this Comment On January 13, 2010, at 3:23 PM, brickcityman wrote:

    I don't see this as principally a consumer issue...

    Remember many of these warehouses do business with small-businesses, and so this could be as much a sign of the state of small businesses that use Sams Club as part of their supplier network as it is consumers who are paring back non-essential expenses.

  • Report this Comment On January 13, 2010, at 3:48 PM, madmilker wrote:

    less money to kite fly from less stores comes out to less.....

  • Report this Comment On January 13, 2010, at 3:55 PM, ChannelDunlap wrote:

    But, but, but... where will I buy my 3lb jug of cheese puffs??? NOOOOOOOOOOOOO

  • Report this Comment On January 13, 2010, at 4:33 PM, Glick wrote:

    Stores have alredy cut hours. 40 to 32. Part-time workers down to 8-16 hours. some have no hours at all. My store in Texas has cut drastically.

  • Report this Comment On January 13, 2010, at 6:50 PM, rfaramir wrote:

    This is where government interference in the free market leads. No surprise that so many closing are in California, either.

  • Report this Comment On January 13, 2010, at 7:24 PM, savetheworld wrote:

    The mighty Wal-Mart will still donate $600.000 to Red Cross emergency relief efforts in Haiti

  • Report this Comment On January 13, 2010, at 8:23 PM, tomnoonan wrote:

    it is time for Wal Mart to sign the UFCW Union Contract for Sam's Club Cashier Worker and Sam's Club Meat Cutter@Meat Wripper Worker and Sam's Club Cart Attendance Worker and UAW Union for Sam's Club Tire@Car Installment Worker and Teamster Union Contract for Sam's Club Forklift Driver right of away and right now please by give Sam's Club Worker a living waged with affordable Health Care this is why Sam's Club Worker want a living waged right of away and right now please so they can get a Home Mortgage Loan to buy a House or a Townhome or a Condo or a Mobile Home Trailer Park and get a Auto Loan to buy a Car or Truck or RV Camper and pay off their Credit Card Bill on time and this is why Sam's Club Worker want an affordavle Health Care right of away and right now please so they can go to the Doctor and Dentist Office and it is time for Wal Mart let Sam's Club Worker Organize their Sam's Wholesale Club right of away and right now please with UFCW Union Card Check and UAW Card Check and Teamster Union Card Check and let Employee Free Choice Act join the UFCW Union and UAW Union and Teamster Union Contract right of away and right now please without close down all the Sam's Wholesale Club and get Wal Mart keep 10 Sam's Wholesale Club open to the Member and Business Member Ferbury 18 2010 right of away and right now please

  • Report this Comment On January 13, 2010, at 9:42 PM, tydi25 wrote:

    WALMART is a bad investment !, stay away from companies in unproven transition's like Wal-mart. Wal-marts efforts to reduce inventory, wage hours (people- some stores by as much as a third) and other expense's all seem to have had unexpected negative side effects.Estimates show a Nov for WM that may have been 40% off-in profit! & negative in COMP sales as well! Which escalated there cost cutting, further reducing inventory, markdowns,& staffing, RESULTS? A spiral DOWNWARD. & DEC appears to be worse! Regardless the FORTH QUARTER for WM is goin 2B terrible. A recent article about Mike Duke (cleverly nick named scrooge mc Duke by online bloggers) bragged about how he & his predecessor, Lee Scott "purged" any "SAM WALTON STYLE" &-loyal executives, nick-named "the boots" (alot of them came in cowboy boots and hats) WHO BELIEVED in SAM’s philosophies! This article was promoted by wal-mart like they're proud of the fact that his influence is gone. What a tragedy that the "new" walmart doesn't understand the lessons of the past.

    The finally anounced recent LAYOFF'S & CLOSINGS are nothing compared to what they haven't anounced!

    I was recently informed that not only do they continue the plan to reduce employee’s overall, devastating the customer service so many used to count on, but the remaining few will be expected to do much more, with less hours, and for less. WM’s new “TASK MASTER” system will be requiring even less time per box or task. Cutting compensation will apparently be coming in several ways including cutting TENURE, HEALTH COSTS ,(WM’s H.S.A., highly touted just a couple years ago, associate price doubled to about $75 a month while the benefit got cut in half, to $1200 from $2400 last year. All with a $6000 deductable!), HOURS and anything else WM CAN TAKE FROM IT’S WORKERS.

    WM may be horrible to it’s workers and vendors but it’s got the best prices, RIGHT? so it’s good for the poor and good for the economy? That’s the OLD WM that went with SAM’S influence.. Even the ROLLBACK PRICES touted so much were rolled up in good percentage before rolled back!!! (examples. How about some of the hot toys this season? BAKUGAN 3-PACK $8.00 Rollup to 11.97 to rollback to $10. Littlest pet shop 2-pack’s rolled up to 5.97 before rolled back to $5-funny thing is these are still cheaper at WALGREENS &even grocery stores like SMITH’S at 4.99!!) &now the rollbacks all rolled back up, the latest survey’s show from no price advantage at WM to huge price disadvantages in some categories! .

    Yes this does all sound familiar, TRIED BEFORE?! ON “SUSAN CHAMBER’S memo” recomandations quite a few years back WM reduced similar costs, but not nearly to the extent they plan now! RESULTS: WM did indeed save about a billion dollars in WAGE HOUR COSTS, but SHRINK doubled, for about an extra billion in costs! So even steven? NOPE, ACCIDENT COSTS and HEALTH CARE cost also skyrocketed for a huge PROFIT LOSS for the year! Can we expect the same results? Absolutely-magnified exponentially! Stay away from this TITANIC DISASTER!!

    And with the huge impact WM has on the economy, raising prices while cutting 25% of it’s workforce, (of over 2 million) the FED as well as the UNEMPLOYMENT office might start bracing for a ugly blindside kick. (WM USUALLY refuses to announce any layoff, but (ILLEGALLY in some states) simply uses “attrition” (a whole bunch of workers-especially TENURED ONES just suddenly became bad workers) to keep workers from getting there rightful UNEMPLOYMENT benefits! Most stores & warehouses have demoted or reclassified huge amounts of workers into the most turnover laden positions, to help get rid of excess &if that doesn’t work, cut hours to unlivable amounts to speed up the process! Most WM associates don’t know or are afraid to get UNEMPLOYMENT WHEN THEIR HOURS/PAY GET CUT. but need to, to keep the UNEMPLOYMENT OFFICE IN THE LOOP. AS for UNION REP, I'M Betting all the workers wish they had it now! The UFCW should see this as the biggest OPP in WM's history.

  • Report this Comment On January 14, 2010, at 11:55 AM, Fool wrote:

    Closing a store and being efficient is not because of a recession. spin it another way.

  • Report this Comment On January 14, 2010, at 11:57 AM, Fool wrote:

    Unions are killing and have killed America. Unless you have blinders on like the fools above, you get this.

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