Wal-Mart, American Welfare, and the Way to Invest Well

Wal-Mart, American Welfare, and the Way to Invest Well

Last fall, investors and many Americans argued passionately about cuts to the Supplemental Nutrition Assistance Plan (SNAP). Today, we learned that Wal-Mart -- a company considered uber-capitalistic -- took a financial hit from the SNAP cuts.

We can also ponder the overall investing landscape given many Americans' lack of spending power as too many corporate managements utilize methods that hurt instead of help.

Wal-Mart has joined the litany of retailers issuing financial warnings after a dismal holiday season. However, its warning said more about its struggling customer demographic, which reflects a lot about our larger economy. Cuts to the SNAP program, which many bitterly viewed as unnecessary welfare for lazy Americans, are hurting this blue-chip company.

Sometimes it's easy to blame Wal-Mart for everything that ails us, but in this case, Wal-Mart's the one that signifies how badly Americans are taking some hits.

SNAP hurts more than individuals
In times of lower unemployment and more available jobs, the argument that some Americans don't feel like working is easier to defend. The key factor now, though, is that there aren't enough jobs to go around, which translates into pared income and spending power.

When Americans "give up" looking for work, "laziness" isn't a logical excuse for most jobless people. Sadly, when investors celebrate reductions in unemployment -- recently, the figure fell to a still-daunting 7.3% from 7.4% -- the ominous element is that those who have given up are no longer counted in the stats.

While Wal-Mart did compete well when it comes to sales during the holiday season, its overall customer traffic lagged, leading to lowered guidance for the fourth quarter and the year. The culprit: reduced food stamps as well as harsh winter weather in many areas. The negative SNAP headwind was more significant than expected. Wal-Mart represents about 18% of food stamp use, about $14 billion of sales as of September 2012.

Dangerous games
We're also seeing more layoffs, which can tell us that whatever is improving in our economy, it's not the employment outlook for many Americans.

Zynga shares are soaring today due to news of its $527 million acquisition of video game company NaturalMotion. Zynga's delivering 314 pink slips to workers, or 15% of its staff, may cut costs but sour the company's outlook over the long term.

Why does this matter beneath the numbers? Let's ponder morale. Many remaining employees are probably suffering from their own disappointment as well as survivor guilt -- given Zynga's disappointing post-IPO stock performance and layoffs that has already occurred; last year, it let go 520 employees. Survivors might worry about their own long-term futures as well as feel bad for former colleagues.

Maybe the employees of the newly acquired company will feel a little bit guilty themselves -- they've got a parent that's replacing other workers, pretty much at the exact same time.

January job slashing
Many investors believed Best Buy showed turnaround signals in 2013, but high hopes have fallen after the holidays. Today, Best Buy said it's cutting 950 jobs at its Canadian unit, representing 6% of its total workforce.

So far, many companies are starting 2014 with tidings of fewer jobs even though we already have a significant number of Americans already struggling:

  • Target: The discount retailer has announced 475 worker layoffs, focusing on those at its headquarters, and it will not hire for 700 previously open jobs;

  • Wal-Mart: Sam's Club is letting go 2,300 employees, about 2% of its employee base;

  • Macy's : The retailer is letting go 2,500 people, or 1.4% of its workforce;

  • Intel : The chip giant plans a 5% decrease in its employee base in 2014; it has kept quiet about any number of actual pink slips and, granted, it's claiming much of the shrinkage will relate to attrition. However, it would be good for our economy to replace those workers.

This is just the first month of 2014.

The real answers for investing and prosperity
People call for cuts to programs like SNAP in a vacuum. What replaces the reduced spending even on necessities? It's unrealistic to say that the large numbers of people who need some help these days are either lazy or failures.

Better management policies and innovation are needed to spark economic growth instead of tripping it. Some managements do know the importance of employees -- and should function as models for a better way.

Lincoln Electric has a no-layoff policy. According to Frank Koller, who has extensively studied the remarkable company, it has laid off exactly zero employees over the past 65 years. For 80 years, it has paid employee bonuses.

Newly public The Container Store survived tough times by finding novel yet simple ways to reduce costs without letting go of workers.

During the recession, Costco didn't lay off employees -- it gave them raises. Costco has been a great stock for investors over ensuing years, and its generous ways haven't crippled its long-term viability. Costco is such a gold standard stock, I'd rather see it at a bargain but it's always a good portfolio holding.

Putting our money into companies like these -- and encouraging more long-term thinking in corporate managements at large - is the real way programs like SNAP could one day stop being so important and pervasive. Until then, more downward spirals suck too many people down, ultimately ruining the investment landscape.

Check back at Fool.com for more of Alyce Lomax's columns on environmental, social, and governance issues.

The article Wal-Mart, American Welfare, and the Way to Invest Well originally appeared on Fool.com.

Alyce Lomax owns shares of Costco Wholesale. The Motley Fool recommends The Container Store Group. It recommends and owns shares of Costco Wholesale and Intel. 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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