Three years ago, I questioned how bad it really was for mom-and-pop stores to be overtaken by retail giants (see Amazon Kills Mom and Pop). I'm saddened whenever I see it happen, as I like to root for underdogs, but I also have to admit that retail giants do offer some advantages.

For starters, they typically sell items at lower prices than mom and pop could -- due to their significant economies of scale. Being big, they can demand (and get) favorable terms and prices from suppliers. A wider selection is another plus.

Over the years, I've often run into people who are disdainful of such companies as Wal-Mart (NYSE:WMT), (NASDAQ:AMZN), Barnes & Noble (NYSE:BKS), Home Depot (NYSE:HD), and even McDonald's (NYSE:MCD) and Yum! Brands (NYSE:YUM). They'll go out of their way to shop elsewhere for pots and pans, books, power tools, and lunch. I've been more tolerant, buying my books, shirts, and tacos wherever it's most convenient or cost-effective.

What's bad about Wal-Mart
But recently, here and there, I've noted some not-so-nice allegations about Wal-Mart, and occasionally, about some other companies. Let's focus on Wal-Mart, though.

One recent article pointed out how little, on average, its employees are paid (most of them reportedly earn less than $20,000 per year) and how so many of them struggle to make ends meet. As is the case with many employees in the U.S. these days, many Wal-Mart workers are finding that they can't afford the health-care plans offered by their employers because the portion of the cost that they'd have to pay is too expensive.

Some people may say that as long as the company isn't breaking any laws, then it can do what it wants, and workers are free to go elsewhere. But others will point to the company's annual revenues of close to a quarter of a trillion dollars ($245 billion -- gasp!) and annual net profits of $8 billion, and will ask whether some of those massive earnings could have been spent on being a little more generous with employees. They might also argue that since the firm employs more than a million people in the United States and another 300,000 internationally, it's increasingly hard for workers to just "go elsewhere." There aren't a million alternative openings.

Powerhouse retailer
Thinking about these issues is confusing to me, as a bleeding heart investor. I can't help but admire how Wal-Mart beat the odds and became an incredible success story, rewarding its long-time investors more than handsomely. Over the past decade, you'd have more than quadrupled any money invested in Wal-Mart stock. Over the past 20 years, you'd have increased your investment's value by more than 60 times -- and that's not even including dividends. A $5,000 investment in 1983 would now be worth $300,000, plus dividends.

It was recently named "America's Most Admired Company for 2003" by Fortune magazine, which lists some amazing facts about it. Examples: Wal-Mart accounts for 2.3% of America's gross national product. Its sales on one day in 2002 totaled $1.42 billion -- topping the GDPs of 36 countries. In 21 states, it's the No. 1 employer, with more people in uniform than the U.S. Army. Overall, Wal-Mart is America's second-largest employer, after the U.S. government

But even if companies abide by the law, is there a point at which their actions are, simply, bad? By bad, I mean bad for society, bad for employees, unfair in the vague but grand scheme of things, and maybe even bad for business?

An article in the Las Vegas Sun recently alleged that a large percentage of Wal-Mart employees do not have health insurance. It went on to note that as the company competes against and takes business away from local supermarkets and other stores that offer insurance, the state ends up with a net gain in uninsured workers and a net increase in health-care costs it must bear. If this is indeed going on, then it's happening all across the nation. Meanwhile, a BusinessWeek article in February detailed what may be the largest sex discrimination lawsuit in history -- against Wal-Mart.

Wal-Mart's 2003 revenues of $245 billion were 12.3% higher than 2002 levels. That's astonishing for such a large company -- indeed, for the world's largest company, in terms of revenues. (It surpassed ExxonMobil (NYSE:XOM) for that title a few years back.) Its 2003 earnings topped 2002 levels by a mind-boggling 21%. As companies get bigger (and few will ever get as big as Wal-Mart), their growth rates typically slow down.

The giant retailer is simply a powerhouse. Its growth is clearly coming from somewhere. Unless you and I are buying 12.3% more stuff for our homes and lives from year to year, it is taking sales away from other companies. Since it's such a massive buyer of merchandise, what leverage do manufacturers and suppliers have against it? Wal-Mart is the largest buyer of many companies' wares. It's one of the biggest employers in the world. It clearly has the power to wring every possible dollar of profit out of its suppliers -- and out of its employees, too.

Shareholders = customers = employees
In a free market society, perhaps that's just how the cookie crumbles and we should applaud Wal-Mart's efficiency. But at some point, is too much efficiency a bad thing?

Here are some possible undesirable results when a company shortchanges employees:

  • Grouchy, resentful employees at best, and perhaps poor performance and even sabotage, at worst. From a company's point of view, unionization is probably the worst-case scenario here.

  • Negative media coverage, leading to a less lustrous reputation, an increase in customers' desire to shop elsewhere, and possibly even boycotts.

  • Society and government are drained, picking up the company's slack. If employees are uninsured or underinsured, then they put pressure on the health-care system. If they're having trouble making ends meet and living near or below the poverty line, they'll require more government services.

Arguably, this issue all boils down to whether shareholders or employees or customers should come first. I addressed this issue before in a previous article, and in this case, I think it's clear that Wal-Mart is serving its shareholders and customers well. But it may be underserving its employees. In my view, companies should probably try to serve all three constituent camps -- shareholders, customers and employees -- equally well, or as close to equally well as possible.

Right now, many communities fight to keep Wal-Marts away. Perhaps if the company were even more admired in America, if it were known not only for low prices and shareholder rewards but also for employing an enormous number of people and compensating them with somewhat generous pay and benefits, more communities would welcome it with open arms. Perhaps those better-paid employees would have more discretionary income to spend in their communities, boosting other businesses. Happy employees will take more genuine pride in their employer, and customers will see that. Satisfied employees generally don't need unions. They'll be less likely to sue, too, perhaps reducing the company's legal expenses.

There are enough allegations out there to make me think that at least some of them are likely true. And if they are, I think that maybe Wal-Mart and even its shareholders could benefit if the company shares a little more of its wealth with employees. If its 2003 net profits came in only 10% higher than in 2002 (instead of 21%) due to increased benefits and fairness for employees, would that really be such a bad thing? Alternatively, if it raised prices by, say, 1% to 2% and used the proceeds to defray personnel costs, would it be the end of the world?

These are just some thoughts and ideas of mine. What do you think? Share your opinions with others (or just read others' reactions) on our Fool on the Hill discussion board or on our Wal-Mart discussion board.

To learn more about Wal-Mart and the issues from both sides of the debate, drop by the company's own website, as well as, WalmartWatch, and CorpWatch.

Selena Maranjian is smarter than a speeding bullet and faster than a tall building. For more about her, view her bio and her profile. You might also be interested in books she has written or co-written:The Motley Fool Money GuideandThe Motley Fool Investment Guide for Teens.The Motley Fool is Fools writing for Fools.