how cost-efficient is the Walmart way vs smaller shopkeepers specifically in the area of retail?

General Questions
#1

AFAIK along with the “big box store that sells lots of stuff” aspect Walmart also has a big inventory/supply chain department that buys the stuff they sell in bulk for as cheap as possible, possibly much cheaper than competitors thanks to their skill in this field of endeavor. So, hypothetically, Walmart might have been successful purely on the strength of cheaper procurement even if the big box store retail is suboptimal or else equivalent to other alternatives.

Well, so what do we know about the cost of selling an item in a big box store vs a small shop? In other words, suppose instead of selling by themselves Walmart were to subcontract selling to Payless Shoes or to a shop run by an owner willing to work for effectively less than minimum wage and, unlike Walmart itself, not liable to lawsuits, affirmative action, restrictions from “smart growth” sort of local government and so on. So, in effect, they would have cut down on their retail business and concentrated purely on the supply chain business. Would that have made sense? Or is the big box store really the most cost-effective retail business model in this day and age, regardless of the cost of supply chain procurement?

#2

The more separate shipments and the more supply chain management they have to worry about, the more overhead.They simply go from running store deliveries by the truckload to sending a few boxes to dozens of stores. Then there’s the billing, lines of credit, payment and collections issues, etc. This sort of fragmented supply chain is what made mom-and-pop stores so expensive. If every store in town carries the exact same thing ( which they would if it all came from Walmart) then they would be reduced to cut-throat competition since the only differentiation would be price. You would get the worst of both worlds, expensive-to-buy merchandise but schlock with poor selection range.

One of Walmart’s (alleged) economies of scale is that they tie sales information directly into the supply chain. They can predictively order just-in-time as inventory sells out, thereby keeping inventory in stockwhile minimizing total inventory costs (proactive not reactive). To do the same with other stores, those stores’ cash registers would have to be tied in.

Plus, a superstore benefits from the supermarket effect - “I came for shoes or detergent, but I might as well buy the aspirin while I’m here…” Walmart tries to keep the prices competitive or lowest for their top 200(?) items, but for lots of other stuff it may in fact be the same or more expensive.

Then there’s the current trend of “selling shelf space”, the retailer sells the manufacturer a guaranteed allocation or placement of shelf space in the section. That only works if you’re th retailer, and is much more attractive if you can make the same deal for 10,000 stores instead of 1.

Finally, Walmart has perfected the time-honored tradition of large reatilers, known as “extortion”. they carry a product until the manufacturer is dependent on them for a large proportion of their sales.Then they squeeze; “if you want us to keep carying your product, you have to cut the cost by 20%”. Sometimes you’ll see a compromise - instead of cutting the price, only the Walmart version of the DVD comes with this extra book or DVD included in the package. Usually the manufacturer has to decide - lose 20% of my total sales, lay people off, and give shareholders bad news, or lose some profit and gouge the other customers to make it up?

Some mom and pop operations complain that Walmart sells it retail for less than they can get it wholesale, especially with box goods like small kitchen applances.

#3

I don’t think that this can be overstated. Where else can you go on a Saturday afternoon and get:

  1. New tires and an oil change
  2. A haircut
  3. Groceries
  4. New Prescription Lenses
  5. A new Blu-Ray disc
  6. That 10mm socket that you needed
    and
  7. make a deposit at the bank

ALL IN ONE STOP?

Yeah, I know the poor mom and pop mechanic didn’t get your business on that day, but it is only open 8-5 Monday through Friday. Mom and Pop stores killed themselves largely due to keeping 1950s bankers hours when peoples’ lifestyles have changed.

#4

One other factor is the randomness of retail. I once worked for a small retailer that eventually folded for lack of business. I imagine many of the customers had no idea how slow business was because it would seen the customers all came in bunches. It might be hours before anybody came, but then we had them 3 deep at the counter, then hours before any more. In a large store, it averages out. They may have 6 check outs going, and all of them are busy much of the time, but no long lines.

WalMart’s new look and upscale push isn’t working. They abandoned the customers that made them a success. I used to like to go to WalMart if I had 4-5 things on my list because I knew they would have them all and for less than elsewhere. Now if I have to hit Lowes or Dollar General for a couple of things Wal*Mart no longer stocks or is high on, I skip them altogether.

#5

I don’t claim any special knowledge of Wal-mart, Target, or other large retailers, however I have noticed a few things over the years.
It’s very common knowledge that retail is volume driven, especially grocery (an area Wal-Mart has publicly dedicated itself to in recent years). You don’t make much profit on one item, but you sell enough of them that your little profits add up over time. It’s better to sell 100 items and make a dime off of each than to sell two and make 20 cents from each one. Wal-Mart, unlike smaller individual stores, has entire divisions devoted to market research, supply, logistics, etc. They also have huge distribution centers than can move merchandise around to where its needed, as its needed. This gives them some huge advantages:
Research: what people will buy, how much they’ll spend, trends in food, clothing, etc. Every single thing in a big chain is carefully controlled by corporate: not just where the produce area it is, but where exactly the bannanas are in produce, the shape of the bannana display, how often the bannanas are restocked, etc. That’s why every Wal-Mart looks almost exactly the same, down to the placement of individual items on shelves. But there’s some small differences, for example in the southwest there’s more mexican type food on the shelves because there’s more of a demand for it there.
Supply: Because they buy so much more than smaller places, they can get huge discounts, and even have stuff specially manufactured for them. I don’t know how many stores a distribution center serves, but there’s going to be a huge difference negotiating with a manufacturer to supply one or two small stores vs supplying dozens, or even hundreds, of big stores.

So, to the Op’s question: How cost efficient is the Walmart way vs smaller shopkeepers? It’s night and day, the small chains just don’t have the resources or the sales to keep up. There are items at my local Walmart that are startlingly lower priced than smaller places. Again, it’s a volume driven business. Big chains spend huge amounts of overhead compared to little places (even if you broke it down to a store vs store cost), but the sheer volume they go through means they make huge profits. Which how the “little corner stores” vanished in the first place. Now the smaller grocery and retail stores are disappearing as well. Is this a good thing or a bad thing? Well that depends on your point of view. I like saving a lot of money on my food (I don’t buy Wal-Mart’s shitty clothes or electronics), but the downside is having less variety, since they all stock the same things, the same brands, etc.

#6

Another economy of scale comes in the employees. At a Walmart store, you’ll have what, maybe ten cashiers on duty? Then a greeter, maybe two or three folks at the specialty counters (jewelry, electronics, etc.), and the same number walking the floor to help out customers, and a manager and assistant manager at the customer service desk for when problems come up. All told, you’ve got less than 20 people there, most of them unskilled and making minimum wage. Meanwhile, to replace that Wal-Mart, you’d probably need about 20 mom-and-pop stores, each one of which will have 2 or 3 people working, and half of them managers (who need to be paid more). So the small stores will need to pay a lot more in salary to move the same amount of product.

#7

*anecdote alert:

I’ve heard that the Wal-Mart computers track the weather. For example, if a huge snowfall is going to hit the Buffalo area, the computer increases supply of snow shovels, salt, kerosene heaters, winter coats, etc. to all of its Buffalo and surrounding stores based on past sales when the weather was like it is projected to be. All done by computer with no human intervention required.

#8

Someone needs to define what ‘mom and pop’ stores really are, then drill down to what – exactly – is so noble, wonderful and honorable about them.

All the ‘mom and pop’ small-business owners I’ve known were no better off than a moderately successful WalMart employee… if that!

We keep rolling out these mom and poppers. They’re like the strawman-in-waiting for whenever WalMart comes up.

#9

The Home Depot closed here. I mostly blame the Mom and Pop Ace hardware. Well really, it is the kids now.

#10

Chronos, you have seriously underestimated the number of folks working at your nearby Wal*Mart. I respect your posts here, too bad you had to be so wrong in this case.

#11

I’ve worked at two packaged-goods companies which sold a lot of stuff through Wal-Mart.

Wal-Mart, in particular, is so huge that it’s able to get far better prices on products from manufacturers than any other retailer can. For many manufacturers, Wal-Mart may account for 30-40% of their total volume. And, Wal-Mart knows this.

Every year, Wal-Mart seeks to reduce the cost of what they pay for products. So, they go to their suppliers, and say, for example, “you know those products which you sell us for $1.20 each? We want you to lower that price to $1.15. If you don’t, well, you know, there’s that competitor of yours who would love for us to carry more of their product…which, of course, might mean that we’d carry less of yours.” And, when Wal-Mart accounts for that much of your sales, you tend to say “yes.”

#12

I think this is very much OT, at least in the sense that my OP had no moral implications - I am asking about economic efficiency of the various arrangements, such as the hypothetical arrangement of small stores being supplied by Walmart at prices similar to how they supply their actual stores.

Nevertheless, I will point out that having retail done through small stores (even if supplied in borderline monopoly manner) does have certain externalities that are of “moral” significance. One such is the reduction of centralized control over the retail process. Walmart headquarters could hypothetically use other-than-economic reasons in deciding what/where/at what price they will stock, maybe because the government tells them so or else because of their personal opinions and prejudices. By contrast, if you have retail being done by lots of small stores, there is no central point of control and manipulation and so personal prejudices of various owners/managers cancel out as far as the public is concerned. While having the small stores supplied by one major organization (let’s say Walmart itself) puts a damper on their ability to resist centralized manipulation/tyranny, it does not fully eliminate it since, after all, they could just switch to sourcing from somebody else (short of the black helicopters showing up to impose massive and well-enforced restrictions and other such unlikely scenarios).

#13

Wal-Mart did operate a supply chain business for a decade or so, through McLane Distribution, but sold the company to Berkshire Hathaway in 2003. Mostly handled groceries/consumables and smaller general merchandise, and distributed to mom-and-pops, small regionals, big box chains, restaurants, and hotels/motels. It was a profitable business, but growth was stagnant-- ownership by Wal-Mart turned a lot of potential customers off (though one major client was Target)-- and profit margins far lower than if Wal-Mart could also run the retail side of things.

Regarding the number of folks working in a Wal-Mart and pay…

During the day at a supercenter, you’ll have the following employees:

10+ cashiers (front end)
2 CSMs (front end managers)
1-2 cart pushers
1-3 maintenance
1-2 cash office
2 personnel
2 UPC office
2 receiving
2-6+ unloaders
1-2 service desk
2 door greeters
1-2 Money Center
1-2 jewelry
2-6+ pharmacy (minimum one pharmacist, one tech)
2-4+ optical
2-4 lawn and garden
4+ Tire and Lube
1-2 hardware/paint
1-2 electronics
1 connection center
1-2 photo lab
4+ softlines
1 pets
2 bakery
2 deli
2-4 zone managers
2-4 managers/co-managers
10+ department managers
10+ stockers
2-4 IMS (backroom stock)
2+ mod crew
2+ loss prevention

I’m sure I’ve missed an area or two, and there are some stores which have extra departments-- a few have in-store snack bars, a number of stores have dot com staff to gather online orders, etc. You get the idea. Even at night, when all the service departments are closed and most of the support staff are gone, there are 2 managers, 1 cash office, 2+ cashiers, 1-2 CSMs, 15-30+ stockers, 4+ maintenance (more than during the day, for floor waxing), 2-4 IMS, 1 bakery.

The minimum a WM pays is the area average for retail workers; I suppose it’s possible that there are areas where minimum wage is the area average, but I’ve actually never seen one. And this minimum rate applies to only a few job codes: cart pushers and door greeters are the only ones off the top of my head.

#14

OK, it’s clearly been a while since I’ve been to Wal-Mart (or maybe the one around here is just a small one)… I didn’t even realize they had half those departments. Of course, that also increases the number of separate stores that they obsolete.

#15

This is very very true.

For example: Alot of places sell Win7 home premium for $129 regular price and put it on special at $99 fairly often. My main wholesaler charges $107 + shipping, Amazon.com pretty regularly runs them for $89. However many of the other components are a tiny bit cheaper via the wholesalers. If I buy quantity from my wholesalers they will cut me a small break like a couple dollars off each item but not much. If I want to take the time to go hunting I can sometimes piece together parts for a complete new PC for $20-$30 less via Amazon than via my primary wholesaler.

The plus side is RMA policies at my wholesaler are much much better and they manage alot of the RMA for the manufacturer so I can return a dead part to them for a warranty replacement and they handle it for the first year. RMA to the manufacturer can take several weeks instead of a few days.

#16

Also anecdotal, but our one and only local Wal-Mart seems to be unable to account for regional differences. In the spring, we need dehumidifiers, but the store only gets 1 or 2 and they are immediately sold out and gone for the season. We also need chemicals to remove the iron in our well water, but the shelves are usually empty. The manager says they only get one shipment every few months and they sell out quickly because everyone knows they won’t have any more. The manager also told me that they can’t override the computer’s ordering quantities; Computer Knows Best is the company motto.

Guess where I go when the shelves are empty? The local hardware store, which has plenty, at 3 times the price. :rolleyes:

So with all the fancy-schmancy Wal-Mart computer programs, they can’t compete with a tiny Mom&Pop hardware store in some areas.

#17

It’s not about the OP, it’s about responses in the thread and other threads that toss around “mom and pop” like it’s some defacto accepted thing that must be considered, accepted, in terms of some sort of ‘reality’ they’ve created.

When did we give ‘mom and pop’ some sort of standard acceptance that doesn’t need to be vetted out? Maybe mom and pop were – as a group – miserable, suffering, SOBs.

Based on my experience in a city of neighborhoods and small, mom ‘n’ pop stores, the owners lived miserable lives and, despite the whole goddam neighborhood caring about them, they were worse off than the local factory workers ans county employees.

#18

And yet I hear that K-Mart was many times worse in this regard. Or perhaps Wally World is now falling victim to stagnation and bureaucracy in the same way? One can only hope. I say this because WalMart is inconvenient for me, often being in out of the way locations, and has blaring advertisements everywhere straight out of 1984, so I would love for retail to move back to a more centralized and more aesthetically pleasing location.

#19

QFT

If I sold 5 computers a day at my store it would be no big deal to knock $100 each off the price of those machines. Make is 10 a day I could do $150 off current prices.

#20

Possibly excepting the tires and oil change (which a lot of people here don’t need here anyway, due to better public transportation), you can do all that at a Euorpean street market. It may not all be under one roof, but the total distance you need to walk will be about the same as if you had selected everything from Wal-Mart. The market down the street from where I live has butchers, fishmongers, greengrocers, pharmacies, DVD sellers, electrical merchants, barbers, and banks within fifty metres of each other. (Of course, once you walk fifty metres, you’ve got another set of the same shops.) I suppose if you’re in a hurry, the advantage of Wal-Mart is that for the goods you need to visit the checkout only once, whereas at the market you’ve got to pay several times.