The reality of Wal-Mart’s profits

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Wal-Mart is an easy target for those who want to bash “Corporate America”, big box retailers, or big business in general. While no one seems to complain when they’re at Wal-Mart’s checkout line and receiving low prices, that doesn’t stop some from complaining that the company isn’t giving their employees enough pay or benefits.

It’s easy to cite the “huge” profits of Wal-Mart, but no one stops to consider the details. Here are a few, thanks to Yahoo Finance. For the trailing twelve months the company had:

Sales $321 billion

Gross profit $75 billion (which means that $246 billion of those sales dollars go straight toward the cost of goods)

Profit margin 3.55% (that’s about $11 billion)

Yes, the dollars are huge. But the profit margin as a percent of sales is not so huge. It gets even more interesting if you consider the profit per employee, and the fact that Wal-Mart doesn’t do quite so well based upon that measure.

From a paper by one of John Kerry.s economic advisors:

Overall, it is no easier for Wal-Mart to change compensation than many other companies. This year Wal-Mart will earn about $6,000 per employee. This is virtually identical to the average for the retail sector and somewhat below the national average of $9,000 in profits per employee in the corporate sector. Some companies make substantially more, like Microsoft ($143,000 per employee) or General Motors ($12,000 per employee). Overall, it is not much easier for Wal-Mart to change compensation than, say, a small business making $24,000 a year and employing four people.

If Microsoft paid each of its employees an additional $5,000 or expanded its health benefits, its profits would be largely unchanged. If Wal-Mart took the same step . and did not pass the cost on to consumers . it would be virtually wiped out.

In the last fiscal year, Wal-Mart had revenues of $288 billion and costs (including taxes and other charges) of $277 billion . a razor-thin profit margin of 3.7 percent of revenues. Even a very small increase in its costs, without a corresponding increase in revenues, would wipe Wal-Mart.s profits out entirely.

Thanks, Marquette professor John McAdams and his Marquette Warrior blog for this tidbit!