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Woe Unto Walmart: Strictly Bush League

Posted at 2:01 p.m. EDT on Wednesday, Oct. 14, 2015


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That's the only word I can use to describe what I feel about every aspect of the world's largest retailer right now. I am talking about Walmart (WMT - Get Report) and its hideous news about how poorly it is really doing.

First, I have disliked Walmart, the store chain, for ages. Why? Because it is a total drag to shop at, a depressing experience. When I go, I feel I am stepping back in time to when going to the store was a huge waste of your time and a totally unpleasant experience. Go to one, see what I mean. Now go to any of the quality retailers, a Home Depot (HD), a Target (TGT - Get Report), a Costco (COST), it's night and day! The oldest rule in investing is don't own something you don't like. Who in heck can like Wal-Mart other than those who virtually have no choice, and as the economy improves more and more people have a choice.

Second, I have heard over and over that Walmart, with a stock that's been a hideous performer, down another 8% today and 28% for the year, was always a quarter or two from turning around. Nope, nothing. Just floundering. In November 2013, Walmart picked the very young Doug McMillon as CEO -- he turns 50 on Saturday, happy birthday, Doug -- and I thought he would be a breath of fresh air. He took over Feb. 1, 2014, when the stock was at $77. He made a lot of the right noises and the stock subsequently soared to $90 on Jan. 8 of this year. But then on Feb. 19, McMillon revealed that all was not well at the house of Walmart and that starting in April new employees would be getting $9 an hour and by next February all employees would be getting $10.

When I heard the report, I was astonished that the wages were so pitiful. That's because the real success stories of retail, the Costcos and the Starbucks (SBUX) and Chipotles (CMG), find employees and pay them more than anyone in retail. They offer bountiful benefits. Chipotle's got 19-year-old kids running stores and getting stock options and perks and generating remarkable returns for the company. Starbucks is sending people to college, for heaven's sake. (Target, Costco and Starbucks are part of TheStreet's Action Alerts PLUS portfolio.)

Costco? I once asked CEO Jim Sinegal the secret of that incredibly successful chain's profitability, and he told me it was pretty darned simple: His company pays its workers more than anyone else and offers better benefits than any retailer. Workers start at about 15% more than Walmart, but that doesn't tell the story at all. Long-term employees can make double or even triple what Wal-Mart workers earn and Costco offers unbelievable benefits. Go to its website and you will see the full array of health care offered and I can tell you it is better than what you get unless you are in the C suite and it costs you far less per employee.

When I asked Sinegal how he could compete with stores like Walmart, he said it was simple: He has very little turnover because he...