Wal-Mart Wins, But...

Wal-Mart recently won a big battle in its fight to suppress unions at its stores.  This is detailed in the Wall Street Journal, in an article entitled “Canada’s Top Court Backs Wal-Mart in Store Closing” (11/28 & 29/ 09, Section B5).  At issue was Wal-Mart closing a store in Quebec that had unionized.  Wal-Mart has a lengthy history of fighting unionization among its employees.  So when the Quebec store went in that direction, Wal-Mart pulled the plug.  This was then taken to court, where it was ruled that Wal-Mart had the right to do this.  Canadian unions were not totally dissatisfied, however. According to the article, “Wayne Hanley, national president of UFCW Canada (United Food and Commercial Workers) said the door was opened in that employers can be put to a test to justify why a business is being closed, which should make companies ‘think twice’ before doing so.”  In other words, anybody who closes a store rather than accept a union in Canada is going to have a fight on their hands.  This might be true, but overall, I’m sure Wal-Mart is feeling pretty good about the victory.

            At issue here is ability for workers to organize.  Wal-Mart is vehemently opposed to unions.  Wal-Mart believes that unions will ultimately make the products they sell more expensive.  I believe they are right.  Wal-Mart can be low cost leader in large part because they don’t pay their employees very much.  Wal-Mart has also gotten into trouble, according the book Leading for Growth by Ray Davis, because it allegedly “used illegal immigrants, forced people to work off the clock, and paid so poorly that a large percentage of its workers had to rely on Medicaid.”  Winning on this issue in Canada, which has, in many ways, a more worker-friendly government that of the U.S., is a clear signal to American employees that they will not win either, should they try and unionize.  In this light, the ruling was a major triumph for Wal-Mart.

             Unions are the result of employees who are dissatisfied and do not feel empowered to change their situation.  I can understand why Wal-Mart would not want unions, but on the other hand, I can understand why some employees would want them—given the working conditions they have to endure.  Wal-Mart should do more to address these problems.  The company is on top right now, and given the economy, many people will happily work there, and simply be thankful that they are employed.  However, conditions in the labor market may not always be this advantageous for the Wal-Mart.  If they do not get serious about addressing their worker-related problems, they could face a serious backlash from employees, as well as customers one day. 

Michael Dell and the Direction of His Company

The difficulties for Dell are detailed in a Wall Street Journal article entitled, “Dell Playing Keep-Up With Rival H-P” (11/19/09, Section C1).  The Austin-based company is lead by its innovative founder and CEO Michael Dell.  Dell has been an enormously successful computer company, but according to the Journal has recently lost “market share in its core PC business…(and) fell to the world’s third-largest PC vendor…putting it behind H-P and Taiwan’s Acer.”  So with its rivals doing well, Michael Dell is looking for a way to position his company to do the same, and regain some of its lost market share.  This isn’t exactly an easy thing to do.  According to the article, analyst Jayson Noland thinks “Dell is ‘not currently positioned well for the long term’ and may need further acquisitions to compete.”  He is alluding to Dell’s recent deal to acquire Perot Systems for close to four billion dollars.  This move, according to business coverage, was done in order for Dell to better compete with its rivals.  The computer world is moving in the direction of offering service systems in addition to hardware, and this has been the case for a while now.  In a service-based economy, it is a smart move for Dell to gain a piece of this market.  Dell needs to be able to compete with the likes of IBM who are masters of service-based renderings. 

Dell was obviously hurt (like everybody else) in the recent economic downturn.  But it also seems to me that they are too dependent on computer sales, much like IBM was too dependent on mainframe sales prior to the Lou Gerstner-era. Of course, there are probably other reasons for this backsliding as well.  The article mentions that Michael Dell has been trying for two years to turn around the slumping company.  I believe the Perot Systems buy will be able to help the company, but I also agree with analyst Jayson Noland that Dell will likely need to acquire more companies in order to position itself to regain its past share of the market.  This is risky, as it could entail taking on a lot of debt in a time when credit is harder to come by.  One of the biggest reasons many companies failed when the credit markets froze up in the Fall of ’08 was that they were overleveraged.  Perhaps Dell should look for ways to grow from within, though this is understandably a slow and difficult process, and may not be feasible at this point. 

            Michael Dell is going to have to make a lot of tough decisions regarding the future of his company.  These decisions are made tougher by the fact that industry leader H-P seems to be doing well at the moment.  Dell is on the decline side of the Sigmoid Curve.  It will be interesting to see what they do from here.      

Nissan's Electric Future

Automobile manufacturer Nissan is branching into the electric car market according to an article in the Wall Street Journal.  The article is entitled, “Nissan Turning Over a New Leaf” (11/18/09, Section D2).  According to the Journal: “By 2040, 75% of the driving done in the US should be done using electric power instead of petroleum combustion.”  Nissan is planning on launching three electric cars in the US.  The article cites Ghosn as saying: “’Our forecast is that sales of electric vehicles will be 10% of the total market…by 2020.’”  Mr. Ghosn also makes no mistake about the fact that Nissan is going in this direction due to the government incentives being offered to companies and consumers regarding electric cars.  “The government is offering $7,500 tax credits to buyers of electrical vehicles, and is spreading around billions in loans and stimulus program grants to launch electric vehicle production,” according to the Journal.  Nissan clearly sees an opening here to take advantage of the government assistance, and grab a large foothold in an emerging market.  There is risk associated with this approach however, as government funding could wind up being cut.  In addition, despite projections for growth, consumer demand for electric cars is not that strong currently.  Nissan and Mr. Ghosn are taking a big gamble on this.  I think it is a wise move, however.  The market for electric cars is only going to get stronger over time.  Also, should oil go back up to record highs, and gas hit $4 or $5 a gallon—Nissan is going to look pretty smart.  The challenge for Nissan, or any electric car manufacturer, will be achieving a price point where the average consumer will be able to enter the electric car market.  The article does not discuss how Nissan is planning on pricing its cars.  Its Nissan Leaf, however, is designed to be “a light commercial vehicle for use by companies such as FedEx.”  I think it is a great idea to also try to appeal to businesses.  Companies such as FedEx are incredibly sensitive to the cost of oil, and an electric fleet could help them develop more consistent energy costs.  Overall, I think that Nissan is doing exactly what needs to be done in their industry, and should be applauded.     

Goodbye AOL, Time for Time Warner to Get Going

I’ve recently been reading about Time Warner in the Wall Street Journal.  The article is entitled, “Time Warner Profit Hurt by Time Inc., AOL” (11/5/09, Section B7).  Time Warner is an absolutely enormous company that is a part of every American’s life.  They own the magazines at your dentist’s office—People and Time.  They own the TV station playing while you work out at the gym—CNN.  They own successful film franchises such as Harry Potter and Batman.  And they own AOL, everyone’s ex-internet provider.  So overall, Time Warner plays a part in your life, like it or not.  And I’m sure that Chief Execute Jeff Bewkes likes that fact quite a bit.  But that said, Time Warner isn’t doing so hot these days.  Their advertising sales continue to fall (that’s seven consecutive quarters of negative gain if you’re keeping track).  In addition, they are still hampered by AOL, who merged with Time Warner in 2000.  I can say without hyperbole that this merger one of the worst business moves in history.  According to an article I found on the BBC’s website, in 2002 Time Warner lost $99 billion in a single year, which at the time was “the largest annual loss in US history.”  Wow, that’s a bad merger.  So what is Time Warner doing to try and turn it around?  Well, they’re getting rid of AOL for starters.  According to the Journal, “Time Warner plans to spin (AOL) off into a separate company before the end of the year.”  In my view, dumping AOL will be a financial, and perhaps more importantly, a psychological boost for Time Warner.  But that’s certainly not the end of their troubles.  Time Warner is heavily invested in magazines.  The Journal cites that they own over two dozen of them.  Print media isn’t exactly burning up the financial chart these days, and that is certainly the case here.  In addition, the aging Harry Potter didn’t do as well at the box office this last time around.  Also, add revue is down at CNN because there isn’t a Presidential election to cover this year.  Ratings have also fallen at TNT and TBS.  Of course, you could blame a lot of this on the economy, and they are.  Management has been cutting costs as a result.  They also see “some signs of strength in its film and cable-TV businesses,” according to the Journal.  But the article also states that after the AOL spinoff Time Warner will “rely on its cable-TV networks for the vast majority of its profits.”  This doesn’t seem to me to be a place where a diverse content provider like Time Warner should be—dependent upon one source for most of its profits.  Time Warner had the right idea to branch into the Internet with AOL, in my opinion; they just picked the wrong company to merge with.  I think that now that they are freeing themselves from AOL, it is time to look into the Internet again.  This will take guts, but there is no doubt that this is where the future resides.  Overall though, I’m confident that Time Warner will be able to figure out new ways of generating revenue.        

Richard Branson Wants a Bank

The Wall Street Journal is reporting that Virgin Money, a subsidiary of Richard Branson’s Virgin Group, is looking to become a bank.  The article is entitled, “Virgin Seeks Bank Role,” (10/26/09, Section C5).  Nicknamed “The Rebel Billionaire” by some, Richard Branson is known for taking chances.  According to the article, Virgin had tried to acquire a troubled British bank called Northern Rock in 2007, but was unsuccessful.  The British government eventually nationalized Northern Rock.  The article cites a spokesman for Virgin who has stated, “since Northern Rock, we’ve stated our ambition to become a bank.”  It is unclear whether Virgin will continue to pursue Northern Rock once the British government puts it on the market.  However, this appears to me to be the most likely scenario. 

            So why exactly would Virgin want to go into the banking industry?  I think there are several reasons.  Virgin, it must be remembered, is a company known for taking chances.  It started off as a record company, and then made a successful venture into the airline industry.  Virgin has since gone into the mobile business as well.  In fact, Virgin consists of over 400 companies.  The leadership has clearly demonstrated a desire for vast diversification.  I personally believe that Virgin, with its keen eye, sees great opportunities in the banking sector.  There are a variety of reasons for this.  If you are in the market to buy a bank, you can’t do much better than the times at hand.  Government takeovers yield terrific buying opportunities.  In the case of Northern Rock, the British government is spinning off the good parts of the company, and keeping the bad parts.  If Virgin were to buy this scrubbed-clean version of Northern Rock, and then slap its very well liked brand name on it, they could have an instant hit on their hands.  It is also a good time to become a bank owner because so many banks are struggling these days.  Starting fresh automatically gives you a leg up on almost everyone, as many banks are still coming to grips with troubled assets.  Lastly, Virgin would basically be starting off in the banking sector as a brand new entity—not as one those banks that almost caused the world economy to collapse.  I feel this would hold great appeal for customers who are upset with their current institutions.           

While many things are uncertain, it does appear to me that Virgin will likely be a bank owner someday.  I, for one, am interested to see how this will play out.  My only personal experience with Virgin was when I flew to London a couple of years ago on their airline.  I have to say, it was a most pleasurable flight.  They were obviously intent on providing excellent service, and keeping their customers as happy as possible on that long trip across the ocean.  If Virgin were to bring these same principles into the banking industry, I believe they would be wildly successful. 

Less People are Leaving Home Without It

American Express is doing better these days—a fact which might be signaling an end to the recession. Maybe. This issue is detailed in the Wall Street Journal article “AmEx Chief Sees Reason For Hope, Cautiously” (10/22/09, section C1). The hope is that the company’s recent earnings, which were less bad than expected, is signaling that the economy is turning around. The article reports that American Express is “a barometer of affluent consumer and corporate spending patterns.” This means that if rich people and businesses are reaching for their American Express cards more often then they must feel like their situation is improving. From a leadership perspective, American Express’ Chief Executive Kenneth Chenault seems to be encouraged. In a recent statement, Mr. Chenault reported: “While there is reason to be cautious…trends in card member spending are encouraging and there are signs that the recession may be approaching an end.” This is hopeful—not only to American Express, but to everyone who is looking for a recovery to occur sooner rather than later. Not so fast though, says Capital One, who is not as sanguine about the economy’s prospects. Capital One has “expressed wariness that early signs of stabilization translate to real trends at this point,” states the Journal. Capital One’s profits, however, are actually up over this time last year. So while credit card companies performance in general is better-than-expected, it may be too early to say it means anything. I am thankful that at least we have some good news. Of course, when you compare this article to its next-door-neighbor article, about how the one-hundredth bank failure of the year is approaching, you get an idea of why Capital One would want to be cautious. On the other hand, bold leadership may be called for in these troubled times. If American Express thinks the economy is turning around, but others don't, then it might be time to consider expanding market share while competitors are playing it safe.

The Indispensable Warren Buffett

Is it surprising to anyone when the Wall Street Journal writes: “By many measures, Warren Buffett had a good financial crisis” (“Finding value in Berkshire after Buffett,”10/9/09, Section C1).  No matter the market, Buffett seems to prevail.  Berkshire Hathaway, his company, “didn’t suffer major blows, (and) Mr. Buffett used his vast cash stockpile to scoop up bargains, including a $5 billion investment in Goldman Sachs,” reports the article.  However, “Berkshire shares tumbled in 2008 with the rest of the market, and are up just 4% this year compared with the 12% gain by the Dow Jones Industrial Average.”  So what gives?  Well, could it be that Mr. Buffett is 79 years old?  Such an iconic figure is hard to imagine as replaceable, in my opinion.  However, an expert quoted in the piece thought that Buffett the financial analyst is replaceable, but that his “iconic status isn’t.”  I take issue with this point of view.  There is a reason that Warren Buffett is, well, Warren Buffett.  It is because he has an uncanny knack for dissecting companies, determining their profitability, and knowing when to invest in them.  If others knew how to do this, there would be lots of Warren Buffett’s in the world—but there isn’t. 

            All of this brings me to the topic of leadership.  What kind of leader is Warren Buffett?  This is hard to say.  Unlike Bill Gates, a much younger man who has effectively stepped away from the helm at Microsoft, Mr. Buffett continues to dominate Berkshire Hathaway.  This has investors questioning what the future will be like without him.  “Looming large is the leadership plan,” reports the Journal.  It goes on to say that Mr. Buffett, “continues to hold an iron grip on Berkshire, (and) has kept his succession plan close to the vest.”  Looking at these facts, I think there is reason for concern.  Mr. Buffett will not live forever, but in terms of how he is leading his company, he seems to be acting like it.  I believe that Mr. Buffett should do more prepare his company for that eventual time when it will be without him.