Eliminating lazy thinking about Wal-Mart

[Aeschines]

We got into this topic in a recent Pit thread re suburban sprawl, and I thought it deserved a thread of its own.

My basic political perspective is liberal. I’m neither a huge WM fan nor a hater, but I shop there now and then, as the need arises. I acknowledge that the company has had numerous issues in how it treats its employees and has often displayed cluelesses on this topic. But, as far as corporate citizenship goes, neither does WM seem particularly below the average for a company of its size and complexity.

I’d like first to address the lazy thinking that occurs about Wal-Mart, then some of the specific charges leveled at it.

When people complain about WM, they usually fail to distinguish between the concept of WM as a big box store and its particular actions and policies at the corporate or individual store level.

WM’s actions and policies are open to criticism; the company should be admonished whenever it does wrong. But even if WM does a lot of things wrong, its concept (big-box retailer) is solid, has been in existence and evolving for nearly 100 years, and will not go away until we have matter replicators in our homes that can turn out whatever products we need.

Big box retaliers like Wal-Mart, Target, K-Mart, and specialized stores like Pep Boys, etc., exist for reasons that anyone can understand: They sell the basics, commodities, products that require very little service to sell, at low prices. They’re usually open quite late, if not 24 hours.

Yesterday I went to Meier, a local big-box supermarket/everything store, and bought chips, candy, antifreeze, wine, and cough medicine. I could be reasonably sure that I was paying, if not lowest price in Indiana for those things, at least a pretty low price.

You may not like the decoration or layout of a particular big box; you may find their service below average; but you can’t say that, were that particular store not to exist, another would not quickly take its place. So, Wal-Mart haters, I encourage you to fight whatever injustices that company may commit, but don’t think those examples diminish in any way the power and viability of the big box concept.

Now let’s pounce on some of the myths concerning Wal-Mart.

Wal-Mart puts “mom and pop” businesses out of business.

As a supplier of commodities, WM only has the power to deep-six small businesses that sell commodities. And how many of those are left, anyway?

On the other hand Wal-Mart helps many small businesses that sell specialized products. It doesn’t help them by being WM; it helps them by being an anchor in the strip mall. People go to WM or Target or the grocery store and at the same time patronize the restaurants and shops in the mall.

Wal-Mart stores are big and ugly and ruin communities.

The WM business model used to be, Go to a mid-size rural community and supply it with all the basics under one roof. It was a godsend to many of these communities, which were poorly served by their current retailers, if served at all. I recall being a camp couseler in the backwoods of South Carolina in 1991. It was my first real WM experience, and it was great–you could actually buy stuff there.

As far as uglifying communities, true, strip malls are not Renaissance Italian plazas with beautiful architecture and fountains, but proper zoning keeps them where they ought to be, and they are pleasant enough places.

I’m curious what the WM haters’ vision for retail is.

[Gary_Robson]

@Aeschines

Now let’s pounce on some of the myths concerning Wal-Mart.

Wal-Mart puts “mom and pop” businesses out of business.

Have you done any research on this at all? It’s not a myth. It’s a part of their corporate strategy when they open a new store. Read some Wal*Mart books and watch the documentary.

[Aeschines]

@InvisibleWombat

Have you done any research on this at all? It’s not a myth. It’s a part of their corporate strategy when they open a new store. Read some Wal*Mart books and watch the documentary.

I agree that they can put small businesses out of business if all they do is sell commodities. The myth lies in the more general label “mom and pop” business. Wal-Mart cannot put a mom and pop nail salon out of business, but they could anchor such a business.

[DanBlather]

I’m a moderately pro-business liberal (we own a retail store). I don’t think there is necessarily anything wrong with big box stores, but there are some problems.

If one retail chain gets too big it can acquire near monopoly power. This hurts consumers if it drives other retail outlets out of business since then there will be no competitive pressure to keep prices low or service high. It hurts suppliers because one customer has too much say over prices. In a competitive market you can tell a store to take a hike if they demand prices that are too low. If one chain makes up a very large percentage of the retail sales then that is harder to do.

You mention that WM can act as an “anchor” store in a mall, but the range of goods and services sold at WalMarts and Costcos (which I like better) don’t lend themselves to being an anchor since they overlap so much of what other stores do. Some Walmarts sell food, prescriptions, tires, clothes, greeting cards, craft supplies, hardware, provide haircuts, have banks and restaurants, etc. That doesn’t leave much else. Traditionally an anchor is thought to be something like Sears, Nordstroms, Macy’s, etc.

[DanBlather]

@Aeschines

I agree that they can put small businesses out of business if all they do is sell commodities. The myth lies in the more general label “mom and pop” business. Wal-Mart cannot put a mom and pop nail salon out of business, but they could anchor such a business.

Sure they can, and they will if there is enough money to be made.

[foolsguinea]

I think the OP has missed the macro case against WM. The out-competing mom’n’pops tugs the heartstrings, but the larger issue is the massive market penetration. WM’s ubiquity is different than Coca-Cola or Levi’s in that they control the store itself. They control access.

Therefore, the larger an area they cover, the more they can undermine their own suppliers’s independence.

I seriously suggest you read this piece:
http://www.harpers.org/BreakingTheChain.html

Popular notions of oligopoly and monopoly tend to focus on the danger that firms, having gained control over a marketplace, will then be able to dictate an unfairly high price, extracting a sort of tax from society as a whole. But what should concern us today even more is a mirror image of monopoly called “monopsony.” Monopsony arises when a firm captures the ability to dictate price to its suppliers, because the suppliers have no real choice other than to deal with that buyer. Not all oligopolists rely on the exercise of monopsony, but a large and growing contingent of today’s largest firms are built to do just that. The ultimate danger of monopsony is that it deprives the firms that actually manufacture products from obtaining an adequate return on their investment. In other words, the ultimate danger of monopsony is that, over time, it tends to destroy the machines and skills on which we all rely.

[TV_time]

@Aeschines

Wal-Mart puts “mom and pop” businesses out of business.

As a supplier of commodities, WM only has the power to deep-six small businesses that sell commodities. And how many of those are left, anyway?

On the other hand Wal-Mart helps many small businesses that sell specialized products. It doesn’t help them by being WM; it helps them by being an anchor in the strip mall. People go to WM or Target or the grocery store and at the same time patronize the restaurants and shops in the mall.

In smaller communities there are many of those businesses that sell commodities. I have seen a number of times that Wally World has moved into a “hub” community and the community itself all but dries up. Their is no “mall” there is the town and there is Super Wal-Mart. In one town I know, La Junta, Colorado, two grocery stores closed, three general commodity stores closed, a sporting goods store closed, one or two jewlers closed, a pharmacy closed, two or three clothing stores closed as did at least one or two lawn and garden stores.

Yes, the super store had a better selection and better prices so it was, for all practical purposes, survival of the fittest, but they have a number of advantages over their local competitor. Traditionally, while the town store takes out advertising with the local media, thus supporting town radio stations and newspapers Wal-Mart does not. It also doesn’t buy yearbook ads, doesn’t go in on the high school fund raisers, or buy local produce dairy products or meats.

Their employees are minimum wage while most of the local stores have employes they have had for years and yes, are perhaps paid more than they are worth sometimes, but that may because the local owner of the store knows that the employees family possibly depending on that pay check.

I can point to a number of different towns that Wal-Mart have done this to, but suffice it to say, that Wal-Mart is not necessarily a boon to small town America.

[Revtim]

@Aeschines

I agree that they can put small businesses out of business if all they do is sell commodities. The myth lies in the more general label “mom and pop” business. Wal-Mart cannot put a mom and pop nail salon out of business, but they could anchor such a business.

The Wal Mart nearest me actually has a nail salon it. Why couldn’t that put mom & pop nail salons out of business?

[Aeschines]

@DanBlather

If one retail chain gets too big it can acquire near monopoly power. This hurts consumers if it drives other retail outlets out of business since then there will be no competitive pressure to keep prices low or service high.

I’m curious, has Wal-Mart been accused of price-gouging in this fashion?

In theory, anti-trust law would deal with the issue of monopoly or monopsony.

You mention that WM can act as an “anchor” store in a mall, but the range of goods and services sold at WalMarts and Costcos (which I like better) don’t lend themselves to being an anchor since they overlap so much of what other stores do. Some Walmarts sell food, prescriptions, tires, clothes, greeting cards, craft supplies, hardware, provide haircuts, have banks and restaurants, etc. That doesn’t leave much else. Traditionally an anchor is thought to be something like Sears, Nordstroms, Macy’s, etc.

Wal-Mart is de facto an anchor in many, many places. It can anchor banks, restaurants, hair salons, etc., of a chain or independent variety.

[Aeschines]

@Revtim

The Wal Mart nearest me actually has a nail salon it. Why couldn’t that put mom & pop nail salons out of business?

It could if it were better. But it has no intrinsic advantage over other salons. Again, WM succeeds because it sells commodities for cheap without much service. A nail salon is all about the skill of the individual workers.

[foolsguinea]

@Aeschines

In theory, anti-trust law would deal with the issue of monopoly or monopsony.

Well, yeah. And the anti-Wal-Mart crowd are trying to do something in practice, by enforcing such a law; or writing one if a new one is necessary, & enforcing that one.

[Aeschines]

@TV time

In smaller communities there are many of those businesses that sell commodities. I have seen a number of times that Wally World has moved into a “hub” community and the community itself all but dries up. Their is no “mall” there is the town and there is Super Wal-Mart. In one town I know, La Junta, Colorado, two grocery stores closed, three general commodity stores closed, a sporting goods store closed, one or two jewlers closed, a pharmacy closed, two or three clothing stores closed as did at least one or two lawn and garden stores.

I can comprehend how that would happen, but we need to know the details to know how much at “fault” WM was in that case. They could have all been extremely marginal businesses that WM just pushed over the edge.

Here in the Indy area we have tons of big boxers but lots and lots of small businesses, too. I had an independent shoe store as a client, and he’s doing just fine, business is great. There are tons and tons of clothing stores catering to all styles. They sell stuff you can’t buy in Wal-Mart; that’s how they do it.

Traditionally, while the town store takes out advertising with the local media, thus supporting town radio stations and newspapers Wal-Mart does not.

WM puts fliers in the paper, doesn’t it? The Indy Star is full of that kind of thing.

It also doesn’t buy yearbook ads, doesn’t go in on the high school fund raisers, or buy local produce dairy products or meats.

C’mon, WM throws some money around, if only for PR purposes.

Their employees are minimum wage while most of the local stores have employes they have had for years and yes, are perhaps paid more than they are worth sometimes, but that may because the local owner of the store knows that the employees family possibly depending on that pay check.

Comparing small business wages and benefits to those of Wal-Mart, I bet WM would come out ahead. From what I’ve read, they both are pretty cruddy.

I can point to a number of different towns that Wal-Mart have done this to, but suffice it to say, that Wal-Mart is not necessarily a boon to small town America.

It’s business model has worked because people in those towns want to pay the lower prices. The kinds of businesses that WM puts out of business in such towns can’t, by their very nature, be the major employers anyway (the town has to have mining, tourism, a factory, something).

[Aeschines]

@foolsguinea

Well, yeah. And the anti-Wal-Mart crowd are trying to do something in practice, by enforcing such a law or writing one if a new one is necessary, & enforcing that one.

OK, but what’s their vision of a Wal-Mart-free USA? How will that make my life better, or the lives of the poor better, or the lives of people in small towns better?

I remember life in the 1970s in Indy. There was no Wal-Mart, but we had Ayr-Way, which later became part of Target. We had Sears, which was a big-box retailer in its own right (I don’t remember anyone saying Sears would put hardware stores and small clothing retailers out of business). We had Marsh, a large grocery store that is still around (though recently acquired by another company). Apparently people used to bitch about supermarkets in the 1930s (they were killing the small grocers), but by the 1970s no one was too worried about that any more.

Things haven’t changed that much, but the selection and variety are now pretty much world class. We even have a big-box Asian store called Saruga with a mind-blowing selection.

[Der_Trihs]

@Aeschines

I agree that they can put small businesses out of business if all they do is sell commodities. The myth lies in the more general label “mom and pop” business. Wal-Mart cannot put a mom and pop nail salon out of business, but they could anchor such a business.

Given that they tend to impoverish the communites they latch on to, no they don’t; lower wages and fewer jobs mean that there are fewer people who can or will patronize most any business.

[Aeschines]

@Der Trihs

Given that they tend to impoverish the communites they latch on to, no they don’t; lower wages and fewer jobs mean that there are fewer people who can or will patronize most any business.

Cite?

[Sage_Rat]

@Der Trihs

Given that they tend to impoverish the communites they latch on to

Cite? And over what period of time are you talking? 1year? 10 years?

[foolsguinea]

There’s a whole complex of Wal-Mart-created problems. Looking at it simplistically is as likely to lead you to be pro-WM as con. But when you take the raw power WM has developed, their abuses become more worrisome than if they were smaller.

1. Total retail power. Once the consumer is acclimated to buying all necessities at WM, WM can manipulate them into buying whatever WM supplies. Once suppliers are left with little choice but kowtowing to WM’s demands to have presence nationwide, they can be manipulated as well. This makes the other aspects more problematic than they would be coming from, say, Meijer (whose stores look a lot like WM’s, but whose presence is far smaller).

2. Inferior merchandise. In its quest to keep prices low & appear to be turning back inflation (as if it were in their power) WM has cut real spending per unit drastically, where possible. They buy a lot of cheaply-made, inferior construction goods, exploiting everything from exchange rates to underpaid foreign labor to low-quality materials to just plain badly made junk to appear to be selling you something “cheap.” But that item seems so cheap because it is.

(This doesn’t, can’t, apply to everything they sell. I was pretty well served by some rubber work boots I bought, because it was quick, at WM, 6 years ago. They just this winter cracked & started leaking. Not a bad run. Unfortunately, I have no reason to believe that I could get something of the same quality there today. Even if it looked the same, there’s no guarantee of quality; the rubber could be adulterated & fragile. And while that could be true anywhere, WM’s “let’s pretend we’re anti-inflationary” policy gives them additional incentive to demand that from their suppliers when they can. Maybe I’ll contact the manufacturer & see if WM has been nicer to them than too some others.)

3. Profit redirection. Wal-Mart didn’t invent large-scale capitalism, & they’re hardly the worst offenders in this regard. In fact, they’ve traditionally offered stock to their employees as a general policy. But there is some concern about how much money from a small town that sees several retailers replaced by Wal-Mart will end up in NW Arkansas rather than more local concerns. I’m not sure this is really that big a deal, but if WM gets into many more markets, it could get scary enough to provoke them being run out of whatever towns have the stones to do it. Especially in combination with…

4. In some places, WM is a major employer of the working poor. But despite the employee stock policies of Sam Walton, sometimes a WM wage is still a bit low for that locality. Instead of being a company that stands up for its employees first, WM is a company that stands for low prices first. They’ve been accused of throwing the responsibility for their employees’ health care costs onto the government. That may have been overblown, I haven’t done the research. But many people accustomed to the 20th-Century Midwestern corporate paradigm are unsurprisingly distressed at WM’s theory that the government should tax other people (whom?) to take care of WM’s workers.

5. Wal-Mart as censor. This is weird, but due to WM’s power & influence, if they take a political or cultural stand, it can be an irritating roadblock to various publishers, whether of music, books, what have you. (Fortunately, people who really care about such things tend to know better than to treat WM as book/music store. But I’ve seen people in the comics & gaming industries fret about how WM treated them, & so I mention it.)

Now, there's an upside. Some of these problems are mild; some contain their own solution, at least for a majority of customers. If WM doesn't provide a good enough product, or a diverse enough selection, people can go to a more conventional specialty store; & they do. But that doesn't mean WM is good; it means the market can respond. But customer & vendor choices can't solve everything. And even on matters which are little problem to someone in Indianapolis, Kansas City, or Springfield, Mo.; when WM comes into small towns, & starts messing with agricultural produce, they can still do *a lot* of damage as a gargantuan gorilla in a very small pond.

[Little_Nemo]

Aeschines, you can’t study business by looking at a snapshot. It’s disingenous to say WalMart isn’t a monopoly because it only controls 70% of the market on March 3, 2007. Because if you look back, you’ll see it controlled 67% of the market on March 3, 2006 and 64% on March 3, 2005 and 61% on March 3, 2004 and 58% on March 3, 2003. So it’s not unreasonable to project this trend and predict that WalMart will control 100% of the market on March 3, 2017. And presumedly there’ll be plenty of people arguing that WalMart isn’t a monopoly on March 2, 2017.

If you look at the trends, you’ll see there are consistent trends; every year, WalMart expands into new geographical markets; every year, WalMart expands into new segments of the market; and every year, WalMart expands its share of the markets it is in. WalMart has candidly admitted its corporate plan is based on ongoing expansion and they’ve shown they put their theories into practice. So while WalMart may not be competing against independent nail salons yet, you can rest assured that they will at some point if the trends continue.

Now is this a bad thing? That’s harder to say. Socialists claim the economy runs better when one central agency is controlling everything. Sam Walton may have achieved what Lenin failed at. But there’s a lot of empirical evidence to indicate that a free market economy works better than a planned economy.

[Jophiel]

If nothing else, I have to argue the “anchor” argument by pointing out that the majority of Wal-Marts I see out here are free standing and not an anchor to a strip mall.

I work for a company that bids a lot of sub-contract work in constructing buildings and I see a lot of plans for Wal-Marts. I don’t think a one out of the last five I’ve seen since the first of the year has been a strip-mall anchor.

[Aeschines]

Little Nemo, do you have any actual figures? Around here, we have lots of choices as to where to shop.

If Wal-Mart chooses to conquer nail salon-dom, then it will have to put out a product that people want to buy. If they can do it, more power to them.

Jophiel, the Wal-Mart on Michigan Road in Indy is an anchor. Quite often they are not. Sometimes you have a “shadow anchor” phenomenon in which a store is near enough, though not necessarily connected, and provides the same sort of support. I am a real estate broker and am not just making this up. There are parts of Indy just begging for a big box to come and save the retail of the neighborhood.