Financial Uproar

While watching CNBC today, one of the big stories was Wal-Mart’s quarterly earnings. While earnings beat analyst’s expectations by 3 cents, the stock is down in this afternoon’s trading session because Wal-Mart’s U.S. same store sales were down 1.8%, marking the 7th consecutive quarterly decline.

For those of you in the dark about same store sales, the metric is relatively simple. It measures sales in stores that have been open for at least a year, comparing that number to last year’s period. It’s considered a key metric for retailers. While same store sales haven’t been great for retailers in general, (thanks to mediocre consumer activity in general) other retailers have managed to eke out small gains.

Wal-Mart is in a tough spot. While they did well during the economic downturn, they’ve struggled as more affluent consumers have migrated to higher end stores as the economy recovered. Stores like Target and Sears showed a slight increase in same store sales, indicating Wal-Mart shoppers are making the move to these stores. Dollar stores have also seen soaring popularity since the recession, taking Wal-Mart’s traditional demographic. Add all of these together and you get weaker sales for Wal-Mart.

Wal-Mart has been making efforts to take their stores a little higher in the market. The clothing section has been revamped, with the retailer bringing in clothes that are a little more trendy and higher quality, essentially copying what Target has done. Wal-Mart also invested heavily in toys for the Christmas season, an investment that didn’t translate in increased sales. Wal-Mart execs blamed their large product sizes on things like detergent and toilet paper for the sales weakness as well, implying that lower end customers just couldn’t afford the large sizes.

Another problem for Wal-Mart is their weakness in credit. I don’t know current numbers, but when I was a shareholder in Sears Canada back in about 2006, over 50% of purchases at Sears in Canada were made on Sears cards. Besides the sales, retailers also get the profit on interest charged on the credit card. Over half of Sears’ profit was from their credit division. Wal-Mart’s credit division is still in it’s infancy, with only 20% of purchases coming from some sort of credit card. When people have a store credit card, they buy more, it’s that simple.

While the company is struggling in the United States, it’s still growing sales internationally. The company is a behemoth, recording revenue of over a half a trillion dollars annually for 2010. The problem with a company that large is even 10% growth annually becomes next to impossible, simply because of their sheer size. Picking up an additional $50 billion a year in revenue is no picnic. To put the number in perspective, Loblaws (Canada’s biggest retailer) has annual revenue of $30 billion.

Wal-Mart’s struggles with their staff have been well documented as well. Wal-Mart has been accused of paying their staff peanuts, hiring illegal immigrants, withholding overtime pay to eligible employees, not offering affordable medical coverage and sexism against women. It’s no wonder unions are chomping at the bit to unionize Wal-Mart associates.

I’m not sure there’s a more hated company in America than Wal-Mart. Besides what I mentioned, they’re blamed for the demise of American manufacturing, the struggles of locally owned small business, numerous environmental sins, as well as securing their new stores all sorts of perks from willing communities. There are numerous websites, books and documentaries out there that portray an anti-Walmart message. All sorts of people have responded by taking their shopping to other stores.

I deliver potato chips to Wal-Mart everyday. Wal-Mart has the classic bloated big company sickness. Inefficiencies run rampant, there are all sorts of store policies that make no sense. Since wages are so low, Wal-Mart is forced to hire people who are dumber than my big toe. Management seems to either try too hard or not hard enough, resulting in staff that resent them.  Admittedly, my sample size is small, so take it with a grain of salt. Ultimately though, finding good staff to run a growing number of stores is difficult.

Every massive retailer seems to reach an apex, then crash and burn. A&P dominated U.S. grocery in the early 1900s. The company began a slow decline which inevitably ended in their bankruptcy last year. Sears dominated U.S. general merchandise for a similar time period, before being overtaken by discounters like Wal-Mart and Target. In Canada, Hudson’s Bay Company peaked in the 1980s, only to slowly lose market share over the next 30 years.

Is what we’re seeing the beginning of the end for Wal-Mart? The market isn’t in love with the name anymore, the stock only trades at 10x earnings, a valuation typically reserved for unloved stocks. Other retailers are doing a better job than Wal-Mart, as evidenced by the decline in same store sales. Wal-Mart is more and more dependent on acquisitions to fuel growth.

I’m not bullish on Wal-Mart going forward. Perhaps they’re not going away, but I don’t think the stock is a buy at these levels.

Readers, are you bullish or bearish on Wal-Mart? And if you worked there, how excited would you be to do the morning cheer?

Get out your pitchforks and torches! There’s gonna be an angry mob waiting for me at the end of this post!

I donated such a small amount of money to charity last year I should probably be ashamed of myself. I donated a small amount to the library, as well as a small amount to the food bank and some stuff to the Salvation Army for them to resell at the thrift store. The value of all three of those donations equals about $100. Pretty sad, I know.

I donate some of my time as well, sitting on my town’s public library board. While I take my commitment seriously, I have to admit it isn’t very much work. I show up to 1-2 meetings per month most months, eating up about 5 hours of my time. Every 3 months or so there’s a bigger project that requires 5-10 hours of work, whether it’s a special all-day meeting or some sort of fundraising effort. I think volunteering is important, especially if you’re a single guy like me with time to spare.

I almost contradicted myself there, didn’t I? I think volunteering is important, yet I donate a tenth of one percent of my salary. Why do I feel that way?

Time Is Money

First of all, my time is valuable. I don’t want to put a dollar value on it, but it does have value. So even though I’m not contributing money, I’m still contributing something of value.

By committing my time to a non-profit that I like, I’m still making a significant commitment. I’m not giving them money, granted, but I’m still contributing something. That’s the most important thing.

Spreading Out Donations Isn’t Very Effective

When I give $25 to the food bank, it doesn’t really make that big of difference. Hell, the boxes of outdated chips I deliver every so often probably go farther than my $25 did. If you’re a family collecting from the food bank, wouldn’t a bag of chips be a nice treat?

Many people take their charity money and spread it out among many, basically giving cash to any charity that asks them for it. I’d argue that giving is much more effective if someone picked only one or two charities that they really believed in and donated more money to them. That way their dollars would be more effective and can be earmarked for specific projects or items.

There are all sorts of charities out there who aren’t very responsible with donations. They’re inefficient or they have issues with staff either being paid too much or having too many staff in general. By giving money to those organizations, the giver is allowing this to continue. I’d want to see everybody get intimately involved with one or two organizations so they can know their money is being put to good use.

My Strategy

Unless something changes a great deal in the coming years, I plan to accumulate a lot of capital by the time I retire. I won’t say any specific numbers, let’s just say I plan to not be suffering any during my retirement. If I play my cards right, I’ll end up with a sizable estate to pass on to my children. (Assuming, of course, I can get a girl to touch my, you know)

Too bad my kids will barely see a penny of it.

I plan to give my kids a token amount at certain points in their lives- money for college, a down payment for a house and maybe when I die- and that’s it. I don’t plan on letting my kids leech on my hard work. I want to give them enough money to do anything, but not enough to do nothing. If I lend them money, the expectation will be they pay me back. Family or not, my offspring will learn the importance of paying their bills.

What’ll happen to all my money as I grow old? That’s the point of my life when I’ll start aggressively donating to charity. Once I reach a certain financial position and age, I’ll start to make substantial donations to causes I’ve known for years. I’ll pick and choose my spots, picking a few charities that are doing things I really believe in. Hopefully I’ll have enough money to fund some really cool projects, projects that will change people’s lives.

Bill Gates was really good at making computer software. Now he’s a really good philanthropist. His foundation is one of the best I’ve seen at figuring out a return on their charitable investment. When The Gates Foundation tries to cure malaria in Africa, they try to figure out the way to save the most lives. It’s like calculating an investment return. When I donate, I want to be able to see where my money is going and have a role in the way it’s spent. I can’t do that if I spread out a few hundred dollars a year.

Am I Heartless?

One could make the argument that I can both donate now and later. That’s true, I could easily up my donations to a few hundred (or even thousand) dollars a year and not have that amount greatly affect my estate. At this point in my life though, I’m much more interested in making the money then I am giving it away. At this point in my life, I wouldn’t be a good giver.

Like most people, there isn’t a lot left after I take care of my bills, pay my taxes and eat. What I do have left I mostly invest. Being that I’m still a relatively young guy with ambition, my focus at this point in my life is to make money. Once the focus of my life switches to philanthropy, then I’ll donate the money.

And if that makes me an ass, then so be it.