Les Jones: Target No Better Than Wal-Mart?

May 09, 2006

Economics > Target No Better Than Wal-Mart?

So says Alternet. Wages are similar, and there are no unionized Target stores. Via Katie Allison-Granju.

One beef: the Alternet story says that "In comparison, Wal-Mart, with revenue of $288 billion in 2005, donated $200 million (or 7/100ths of a percent) to charities and organizations in 2005, according to its web site." First of all, the word revenue can mean gross sales, or it can mean gross margin. By looking at Wal-Mart's Yahoo Finance profile, it's obvious they're talking about gross sales, which is the larger of the two numbers.

Second, comparing total numbers is meaningless without considering profit margins. Wal-Mart's profit margin is only 3.6%, according to the information on Yahoo derived from published SEC statements. So of that $288 billion, only $10.4 billion was profit, meaning Wal-Mart gave about 1.9% of its profits to charity. In contrast, Target has a profit margin of 8.22%. It wouldn't suprise me if Target gives more as a percentage of gross sales, but the question is, do they give more as a percentage of their net profit? There's not enough information in the article to answer that question.

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Comments

I would suggest that measuring the percentage of profits given to charity does not measure the effect of the money given. The charity to which the money is donated and the total dollar amount the charity gets is more important. And the percentage of the money given to a charity that actually reaches the intended group is an even more important measure of the charity's success. For example, some "homeless" advocacy charities keep over 70% of the money donated to support their administration of the charity and advertise for more donations. An example of a good charity is Catholic Charities, which transfers >70% of all money they get to the end users.

Posted by: Austin Mike at May 09, 2006

An interesting aspect of Target's charitable activity is that they donate large amounts of merchandise, otherwise probably scrapped or closed out at a loss, to Goodwill for sale in their thrift stores.

Regarding Austin Mike's comment, I would note that even the most top-heavy of charities get a larger percentage of their budget to the target than do government welfare programs.

Posted by: triticale at May 10, 2006