100 Most Valuable Public US Companies by Market Cap and HQ Metro; Dec 17, 2019

[iheartthed]

Originally Posted by Gordo

Manufacturer X sells 100 widgets to Retailer Y.
Retailer Y sells 100 widgets to 100 consumers.

The retailer will always show more revenue, in spite of the fact that very little additional economic activity likely occurs. Revenue inflates the importance of extraction companies and retailers, and obviously each step along the manufacturing chain will be bigger than the next even if little additional value is added (Boeing will always be larger than all of its suppliers combined, at least for the portion that they sell to Boeing).

Okay, so how does that contradict that Retailer Y is the most important link in the chain?

[mhays]

Retailers typically have tiny margins and tiny headquarters. Costco's headquarters is a good example...maybe 3,000 people based on their square footage, despite being larger than Microsoft in sales.

A brick & mortar retailer's main economic impact is generally about its percentage of a region's low-wage jobs it can suck up. The impacts are spread out.

At a tech, by contrast, most of the impact is at the headquarters, and the jobs there tend to be both far more numerous and far higher paying.

[Gordo]

Originally Posted by iheartthed

Okay, so how does that contradict that Retailer Y is the most important link in the chain?

Retailers as a component are important, but any one retailer is not particularly important (or at least not as important as revenue would imply). Walmart expanded by killing other retailers and being a little bit more efficient, not by inventing retailing. If Walmart wasn't around to sell iPhones for example, most of the iPhones sold there would likely just be sold somewhere else. Retailers are very fungible. Profit isn't perfect either, obviously. Walmart (and the retailing portion of Amazon) are clearly more important to the economy than their small profits would indicate, just because they're also a "platform" so to speak.

[iheartthed]

Originally Posted by mhays

Retailers typically have tiny margins and tiny headquarters. Costco's headquarters is a good example...maybe 3,000 people based on their square footage, despite being larger than Microsoft in sales.

A brick & mortar retailer's main economic impact is generally about its percentage of a region's low-wage jobs it can suck up. The impacts are spread out.

At a tech, by contrast, most of the impact is at the headquarters, and the jobs there tend to be both far more numerous and far higher paying.

Costco directly employs hundreds of thousands of people, and Costco's stores support millions of jobs through its suppliers and service providers. There may not be as many high paying jobs as Google, but those jobs are just as much responsible for the livelihoods of those who hold them as a 100k job in tech.

[iheartthed]

Originally Posted by Gordo

Retailers as a component are important, but any one retailer is not particularly important (or at least not as important as revenue would imply). Walmart expanded by killing other retailers and being a little bit more efficient, not by inventing retailing. If Walmart wasn't around to sell iPhones for example, most of the iPhones sold there would likely just be sold somewhere else. Retailers are very fungible. Profit isn't perfect either, obviously. Walmart (and the retailing portion of Amazon) are clearly more important to the economy than their small profits would indicate, just because they're also a "platform" so to speak.

Tech created new services, but they also decimated existing industries in the process. Tech did for the media industry what Walmart/big box did to Main St. Additionally, Google didn't invent search engines, Facebook didn't invent social media, Apple didn't invent smartphones, and Amazon didn't invent online retail. Those companies are just as fungible as any large retailer.

[JManc]

Originally Posted by Gordo

Retailers as a component are important, but any one retailer is not particularly important (or at least not as important as revenue would imply). Walmart expanded by killing other retailers and being a little bit more efficient, not by inventing retailing. If Walmart wasn't around to sell iPhones for example, most of the iPhones sold there would likely just be sold somewhere else. Retailers are very fungible. Profit isn't perfect either, obviously. Walmart (and the retailing portion of Amazon) are clearly more important to the economy than their small profits would indicate, just because they're also a "platform" so to speak.

iPhones are not a good example because most consumers probably get them from Apple or their providers but if Walmart refused to sell a certain brand of clothing, microwave, TV or vacuum, those manufactures would certainly feel the pressure. They are often the single largest buyer and seller of many products. Amazon is a distant second.

[mhays]

Originally Posted by iheartthed

Costco directly employs hundreds of thousands of people, and Costco's stores support millions of jobs through its suppliers and service providers. There may not be as many high paying jobs as Google, but those jobs are just as much responsible for the livelihoods of those who hold them as a 100k job in tech.

1. If Costco went away tomorrow, someone else would sell the same goods from the same suppliers.

2. A $120,000 tech job supports several other jobs (multiplier effect). A $45,000 Costco job (or a $25,000 Walmart job) has very little multiplier effect.

[Gordo]

Originally Posted by JManc

iPhones are not a good example because most consumers probably get them from Apple or their providers but if Walmart refused to sell a certain brand of clothing, microwave, TV or vacuum, those manufactures would certainly feel the pressure. They are often the single largest buyer and seller of many products. Amazon is a distant second.

Hence my "platform" mention. However, no one is claiming that the economy has been hurt by Kmart and Sears evaporating over the last 20 years, in spite of them combined being larger than Walmart 20 years ago. Retailers all do basically the same thing, and it's very low value add (see the low profit margins).

[Gordo]

Originally Posted by iheartthed

Tech created new services, but they also decimated existing industries in the process. Tech did for the media industry what Walmart/big box did to Main St. Additionally, Google didn't invent search engines, Facebook didn't invent social media, Apple didn't invent smartphones, and Amazon didn't invent online retail. Those companies are just as fungible as any large retailer.

All true. Not sure what any of this has to do with profit vs revenue for understanding importance of a company on an economy though?

[iheartthed]

Originally Posted by Gordo

Hence my "platform" mention. However, no one is claiming that the economy has been hurt by Kmart and Sears evaporating over the last 20 years, in spite of them combined being larger than Walmart 20 years ago. Retailers all do basically the same thing, and it's very low value add (see the low profit margins).

That doesn't mean they were not critically important 20 years ago. This is why the federal govt felt it necessary to intervene to keep the automakers from collapsing a decade ago. Companies go out of business all the time, but there was enormous concern about whether the fragile economy could absorb the shock of an automaker failure that abruptly sent hundreds of thousands (or millions) of people to the unemployment line.

[JManc]

Originally Posted by Gordo

Hence my "platform" mention. However, no one is claiming that the economy has been hurt by Kmart and Sears evaporating over the last 20 years, in spite of them combined being larger than Walmart 20 years ago. Retailers all do basically the same thing, and it's very low value add (see the low profit margins).

More like 30-40 years back but other than Sears during their per-war catalog heyday (they were Amazon of the era) there's been no retailer with the sheer clout of Walmart. Most other discount and department stores had steady competition where if one fell, another quickly filled the void. No really noticed Sears' and Kmart's demise. When I was a kid in the northeast, there was Bradlees, Kmart, Sears, and Zayre. Today, Walmart absolutely dominates everywhere. And even then, there's only one other major big box competitor, Target. And they are no where as ubiquitous as Walmart.

[Gordo]

Originally Posted by iheartthed

That doesn't mean they were not critically important 20 years ago. This is why the federal govt felt it necessary to intervene to keep the automakers from collapsing a decade ago. Companies go out of business all the time, but there was enormous concern about whether the fragile economy could absorb the shock of an automaker failure that abruptly sent hundreds of thousands (or millions) of people to the unemployment line.

Automakers are far harder to replace than retailers that literally just take finished products and sell them. Losing the last leg of an assembly chain would have put hundreds of suppliers out of business too.

[Gordo]

Originally Posted by JManc

More like 30-40 years back but other than Sears during their per-war catalog heyday (they were Amazon of the era) there's been no retailer with the sheer clout of Walmart. Most other discount and department stores had steady competition where if one fell, another quickly filled the void. No really noticed Sears' and Kmart's demise. When I was a kid in the northeast, there was Bradlees, Kmart, Sears, and Zayre. Today, Walmart absolutely dominates everywhere. And even then, there's only one other major big box competitor, Target. And they are no where as ubiquitous as Walmart.

We weren't just talking about Walmart though, but all retailers, since there are many that show up in any top revenue list. Walmart is a bit of an outlier in importance because of what you mention (still not twice as important Apple or three times as important as Ford), but more important than just a profit measure would indicate.

But just think - is Kroger really more important to the economy than General Electric? That's what a revenue metric tells us.

[iheartthed]

Originally Posted by Gordo

Automakers are far harder to replace than retailers that literally just take finished products and sell them. Losing the last leg of an assembly chain would have put hundreds of suppliers out of business too.

Any company can be replaced. But what we're talking about is how disruptive a company failure would be to the economy. An abrupt Walmart failure would be extremely disruptive and would almost certainly slow the economy down.

[JManc]

Originally Posted by Gordo

We weren't just talking about Walmart though, but all retailers, since there are many that show up in any top revenue list. Walmart is a bit of an outlier in importance because of what you mention (still not twice as important Apple or three times as important as Ford), but more important than just a profit measure would indicate.

But just think - is Kroger really more important to the economy than General Electric? That's what a revenue metric tells us.

Totally agreed.

Retailers come and go all the time with another waiting in the wings to replace them. There's a lot more intellectual capital to replace a Ford or Apple. Also, Walmart is a juggernaut that has disrupted the global shipping industry and supply chain logistics.

[Gordo]

Originally Posted by iheartthed

Any company can be replaced. But what we're talking about is how disruptive a company failure would be to the economy. An abrupt Walmart failure would be extremely disruptive and would almost certainly slow the economy down.

Again, Walmart is perhaps an outlier (though a Walmart failure would certainly be less disruptive than a GM or GE or any other OEM - Walmart is mostly just selling finished goods, and supply chains for finished goods can change really fast). Other retailers are not.

[iheartthed]

Originally Posted by Gordo

Again, Walmart is perhaps an outlier (though a Walmart failure would certainly be less disruptive than a GM or GE or any other OEM - Walmart is mostly just selling finished goods, and supply chains for finished goods can change really fast). Other retailers are not.

Walmart is the largest private employer in the world. A sudden collapse would probably be at LEAST as disruptive as a sudden collapse of GM or GE. But I think we're at an impasse here because of some subjective evaluation of the goods or services that a particular company provides, which actually is not as relevant as its being made out to be when talking about the economic impact. I personally don't think that much of what tech does is a systemic risk anymore than brick and mortar retailers, but the size of a tech company could be relevant to systemic risk.

If Google were to have a sudden failure tomorrow, it could be a systemic risk because of the uncertainty that it would present to all of the people and companies who depend specifically on Google for their livelihood. Google's intellectual property would still exist, and it would be quickly snapped up, at a discount, by other companies. So there's not really any risk that we won't have a search engine if Google disappeared. Market cap is just what the stock market thinks something is worth, and many humongous companies don't even have market cap because they are privately held. But effect on the real economy is revenue.

The exact same thing is true of Walmart, whose most valuable asset is probably its name. If Walmart were to suddenly collapse then all of the employees, goods manufacturers, etc., that depend on Walmart to pay them and/or distribute their products are at an extreme risk of collapsing due to the uncertainty that would exist if Walmart suddenly disappeared. Walmart is a special case because of its size, but the same is true of any other company with far reaching human impact. Although not perfect, revenue is a better measure of the human impact than market capitalization.

[Gordo]

We're definitely at an impasse and not even really speaking the same language it appears.

[JManc]

You both make points; Gordo is claiming retailers don't really offer value but merely are middlemen and iheartthed is claiming a company like walmart has such a presence in human capital. Yay? Nay?

[iheartthed]

Originally Posted by JManc

You both make points; Gordo is claiming retailers don't really offer value but merely are middlemen and iheartthed is claiming a company like walmart has such a presence in human capital. Yay? Nay?

This is what kicked it off:

Originally Posted by iheartthed

Revenue is a far more relevant measure of economic importance.

Which I stand by.