Is Wal-Mart Financially Bad For the Country?

Factual Questions
1

I’m posting this in General Questions because I’m more interesting in finding out whether this theory is correct, rather than necessarily advocating a particular side. I also realize that some of these statements aren’t new, I’m just trying to put them all in one question. You may completely disagree with my theory, and that’s fine. I’m more interested in the facts around this issue than the theory.

Let’s say a Super-Walmart (SWM) moves into a small town. The SWM contains all the regular Wal-Mart departments, but they are even bigger, and it also has a grocery store.

The SWM has prices that are lower than anything else in the town. It immediately affects the business of the local hardware store, the local grocer, the local electronic shops, etc. Eventually, a few, if not all of those stores succumb to the pressure of keeping their prices low to compete with the SWM. However, not having the same purchasing power, the small local stores really have no chance to compete. Either some of these places go under or they are forced to make some cut-backs in order to compete.

Now it’s true that the SWM will create new jobs, but it does so at just above the minimum wage (I believe, correct me if I’m wrong), somewhere in the range of $7-$9/hour. Even if the SWM creates more jobs than it destroys, does paying people that little wage create any real opportunity for those people? Do people making that little money live above or below the poverty line (assuming there is no other source of income)? Does a net increase in jobs do anything for the community if those jobs pay under $10/hour?

Further, in effort to keep prices down, the national office uses their purchasing power to pressure suppliers to keep the prices down on their products. Some of these manufacturers therefore outsource jobs to other countries to keep their costs down.

Back to that hypothetical small town. Other than SWM, the other main source of jobs was the manufaturing plant that making products for Wal-Mart. Under pressue to outsource jobs to keep costs down, the plant is closed down. The town has now lost even more jobs.

However, the SWM does offer low prices to that small town and so people can save money on some things, partially offsetting the effect of the losing jobs. But are those lower prices enough to completely offset the other effects the SWM has had on the town? I wouldn’t imagine so.

One might also argue that a SWM might attract new businesses to the area and therefore create new jobs. I certainly suppose that is a possibility, but is there any evidence which suggests a SWM does attract new businesses to the town?

So my question is: Is there a Wal-Mart effect and, if so, how does it affect those small towns?

2

Here’s my take:
If you can’t compete with Wal-Mart on price, atmosphere and quality then you are inefficient and obsolete.
Ultimately economies run best when all businesses are efficient, and doing well enough to compete on their own merits, without subsidies or intervention.
Certainly, there will be growing pains as our economy sheds businesses that didn’t add as much value to society as they were charging for their goods and services. A lot of people will get hurt.
With regards to forcing suppliers to go overseas for manufacturing… raw supplier shareholder desire for profit will make that happen anyway if it is fact the best option for that supplier.
I hate to see little shops go away. I hate seeing downtowns boarded up. But the truth is, boutique stores that DO offer enough “something special” don’t get run out of business by Wal-Mart or other large competitors.

3

trade improves everyone’s wealth, and wealth is the best measure of whether something is good for the economy. However, that is a macro view and if you are the guy who owns the hardware store you would have a different view. Ultimately, though, WalMart is good in the sense that they are able to provide goods more efficiently than others can, whether this is through superior operations, bulk discounts, foreign sources, etc. Most suppliers would love to sell through WalMart because they have so many stores. Its only when you look at specific constituencies or externalities that there is any real beef with them.

4

To play devil’s advocate with the OP, having lower-priced goods for sale increases the incomes of EVERYONE who shops there, in a practical sense. They are getting stuff for less money, and so can either pocket the extra money or buy more stuff. That’s a real benefit, and has to be considered in the equation.

5

One other point the OP overlooks is that more goods are now being purchased. That means that the suppliers make more money, maybe build new plants, hire more employees. Their wealth has also been effectively increased along with that of the purchasers at the stores.

The outsourcing argument is a red herring. Even if for sake of argument the majority of manufacturing is being outsourced - extremely unlikely - then that just pushes the economic advantages to a larger scale, so that those companies, their employees, and their economies are benefiting so that they make more money, buy more goods, etc. etc.

Makers of buggy whips are the proverbial example of companies too stupid to change with their times, but if you went back to the people who lost their jobs in those factories, I’ll bet they didn’t see anything funny about their situation at the time.

In any economic system there are gains and losses, and economic effects may hurt some communities at the expense of others. Overall, however, a profitable and liquid organization is an economic plus.

6

Yes… but aside from a well-run tyranny, there is nothing more efficient than a profitable, well-managed monopoly.

This does not make it a good thing for everyone else.

7

There’s an interesting Fast Company article this month about what Wal-Mart does to suppliers.

What was interesting about it is, along with the companies that said Wal-Mart killed them with their low price demands and the way they do business, there were companies that said doing business Wal-Mart’s way forced them to become more efficient overall, which was helpful with their non-Wal-Mart business.

8

Also, realize that the smaller stores will get better workers if they continue to pay more than Wal-Mart, which in turn can lead to better customer service, which can then justify higher prices.

As an example, a paint store that my wife used to work for had a worried owner, because Home Depot was coming to town. It turns out that he needn’t have worried, as Home Depot lead to him having more buisiness as people learned that he’d fix one set of Home Depot’s mis-tints for free, and then those people just went to his store next time.

-lv

9

Deflation (prices on average going down) is generally considered these days as being bad for an economy - it seems to be a particular problem in Japan lately. However, you’ll have to ask an economist if this is really true in the circumstances described.

10

There’s a small hardware store in my town. It is difficult to get to, what with the way the roads run by it these days. It’s been there long before I lived in this town. Even today, they still sell nails by the pound. That is, you tell them how many pounds you want, and they measure it out on a scale and sell you what you want. They became affiliated with one of the chain hardware stores you see everywhere within the last 15 years or so. The big thing they sell is service. I have never been in that store for more than 30 seconds before a clerk was next to me asking what I needed, offering expert suggestions when I was repairing something at home, and they always – always – took back what didn’t work.

About 25 years ago, a larger hardware store took over the building right next door to this place. It was much easier place to get to (it would take too long to explain, trust me) and they sold lumber, which the first hardware store did not do. But their customer service was, well, pretty much what you’d expect from most stores these days

Three years ago, a Lowe’s opened up about 2 miles away. The second place went out of business. The first place is still going strong.

Some of the smaller stores that claim they were driven out of business by the big box stores have no chance no matter what they do. But if the smaller stores would put more focus on customer service and especially product knowledge (ask some clerk at Home Depot how some tool works – it can often be entertaining), they would find they would be able to compete handily with the big boys.

11

I’d have to agree with Lord Vor.

If the shops in question have no “specialty” and no knowledge aside from just retail, yeah someplace liek a walmart will close them down… but then again so would ANY new store with better prices.

But look around… how do butcher shops stay open with lots of grocery stores nearby? Quality and knowledge. WHy do smaller owned hardware stores stay open? people who can tell you what you need to fix a problem, not just a 17 year old stocking the shelves.

In all reality any store that doesn’t work to find some niche to make itself different from it’s competitor and to inspire loyalty will always lose out to someone with lower prices… be it a super WalMart ot just Joe’s Food N Drugs.

12

One thing to keep in mind when looking at Wal-Mart in small towns is that there are two basic strategies: differentiation and cost leadership.

Wal-Mart obviously is really big on the second strategy. It’s stupid for smaller local businesses to try to keep prices similar to Wal-Mart. They won’t be able to do it simply because of economies of scale. It wouldn’t matter if Wal-Mart, Target, K-Mart, etc… came into the town, they’d all plow the smaller companies under for that very reason.

What the smaller companies need to do is differentiate themselves based on something Wal-Mart doesn’t do- customer service, higher quality merchandise, etc… For example, Wal-Mart sells inexpensive bicycles, but there are a zillion independent bike shops in most cities. Why hasn’t Wal-Mart driven them out of business? Because they sell Gary Fisher, Trek, etc… and not whatever cheapo bikes Wal-Mart does. Wal Mart and Home Depot sell paint, but Sherwin-Williams remains in business for the same reason- they sell higher-end paint and in different colors. Same goes for restaraunts- McDonalds are everywhere, but there are plenty of more expensive hamburger joints as well.

Another consideration of the presence of a Wal-Mart in a town is that in many cases, Wal-Mart’s low costs bring a wealth of consumer goods into the reach of the average small town consumer that either weren’t sold locally, or were quite a bit more expensive due to a limited number of retailers. Wal-Mart’s DVD players are probably significantly cheaper than those from “Moe’s TV and TV Repair” down on Main Street, simply because Wal-Mart moves 10,000 per day nationwide, while Moe probably moves 75 per year. This is good for consumers.

And my final comment would be that yes, it is good for the local economy if Wal-Mart creates a bunch of sub $10/hr jobs, assuming that those employees would be twiddling their thumbs at home or working for less money somewhere else. More people working = more money in the community to spend = more vibrant local businesses (inc. Wal-Mart) which hopefully will encourage investment and growth in the area.

13

A SWM opened about 12 miles from me a year ago. I shop there occasionally, and have had some conversations with folks who work there. In general, they seem happy (but note small sample size). Many are retired, or “empty-nest” mothers.

I think a lot of these discussions may overlook people like these who are not trying to support a family of 4 on their wages. Other examples are teenagers working at fast food jobs. Their income from these jobs is nothing amazing, but that doesn’t mean they are below the poverty level.

14

One thing that hasn’t been mentioned and was done on Dateline was Wal-Mart is notorius for closing stores that don’t make ENOUGH profit. Not just a profit, but enough. So they will run the other businesses out of town then take their store out of that town.
Net result is no stores in town.

Stores like Wal-Mart in reality do not create jobs beyond their doors. I am not talking about cities or suburbs I am talking about smaller isolated towns. Also Wal-Mart unlike KMart and Target stay out of urban cities. For example there are no Wal-Marts within the city limits of Chicago.
Wal-Mart recognizes there are other dynamics to city living. For example I live off of one subway stop. There is a grocery store on the next stop. I go there. Is it cheaper? Better? No but the next gorcer is two bus trips away. It is simply better to take a subway one stop (and there is always room for the bags on the subway) then spend 1/2 hour on two buses where I may have to wait even longer as the buses don’t have room.

Wal-Mart recognizes urban shoppers don’t have car access and they target areas where they can wipe competition out.

Texas Instraments did a similar thing to Bomar in the 70s. They lowered the price of their calculators (when they first came out) to the point where they lost money. Bomar couldn’t compete went out of business, boom Texas had a lock (for a while anyway)

15

That’s not any different from any other business. Making a profit isn’t enough. It’s all about return on investment. If the ROI isn’t enough to justify the investment, stores close, factories shut down, employees get laid off - or, the business goes under from going too long just scraping by and having a competitor come in who can take them out (see Kmart).

I’d have to say that is incorrect, at least as a general blanket statement. I have seen areas where there was nothing until Wal-Mart came in. Then, once the traffic is established, smaller strip centers get built up around the area.

Of course, I’ve also seen a Wal-Mart go in across the street from a Kmart, Kmart deciding to build a SuperK next door, and then the SuperK going under a few years later. How much of that was Wal-Mart’s fault and how much was Kmart’s? For a long time, Kmart was the only game in town as far as the big discount stores went, and they got sloppy. Even after the SuperK opened, they couldn’t compete on price or service.

16

A fascinating example of small stores that took a very different approach to surviving big box stores is the Canadian example of Home Hardware.

Home Hardware, decades ago, was a chain of neighborhood hardware stores with some lumber sales and such. When the Home Depots and Building Boxes started arriving in Canada, they were directly opposed by much larger stores with lower prices. The hardware side of the business had already been whittled down by the mightt Canadian Tire (a big box hardware/auto parts/outdoorsy goods chain in Canada.) Imminent death was expected.

Instead, they decided to be both. First of all, they began to invite other neighborhood stores to join them. The company is entirely owned by neighborhood store owners, who pooled their money to build a central HQ that could handle advertising and warehousing. No corporate masters; they just got together. But even as the chain grew, they stuck to their basic store type; local neighborhood hardware and building centers, specializing in providing top service to local civilians and contractors. In fact, they consciously marketed to small stores in SMALL towns, avoiding the big markets that Home Depot and the like went after. They even purchased other small chains - but immediately divested all the stores in the small chains to local ownership. Local neighborhood stores is the company’s modus operandi.

Home Hardware, to my amazement, has flourished. Even while the Home Depots have grown like fungus, Home Hardware’s EVERYWHERE. Every little town has a locally owned Home Hardware happily plying thier trade as a local neighborhood store, all locally owned, and the Home Depots and Building Boxes just can’t beat them, because they’ve got it all - personal, high quality service, with goods being pumped out of three giant roboticized logistics terminals, all owned by Mom and Pop Local, and a nationally recognized name brand. It’s a truly amazing success story and should serve as a model for others to follow.

17

Don’t forget that the Walton family is the very embodiment of the American dream and the American way of life. The man pulled himself up by the bootstraps and through hard work and dedication became a successful businessman and in turn passes the savings on to us! I am not whooshing.