Is Wal-Mart functioning as a monopoly?

[5cents]

*Originally posted by minty green *
Are you crazy? Wal-Mart has only a small share of the overall market for retail consumer goods, maybe (I’m guessing) 10% for the kinds of products it deals in.

Watch who you are calling crazy. People in glass houses and all that.

Walmart jumped into groceries in 2001, and overnight became the largest grocer. They now (2 years later) have a 15% market share in groceries. Cite: http://www.forbes.com/resourceful/technology/2003/06/30/cz_mt_0630walmart.html

Walmart has been doing consumer goods for much longer, and is much better at it. The company I knew about had 25% of its goods sold to walmart. That was 5 years ago. I’d have to assume that share is much higher now, probably around 50%.

Just look at the revenue: (cite: http://finance.yahoo.com/q/co?s=WMT and http://finance.yahoo.com/q/co?s=S)

Walmart: 247 Billion
Target: 44 Billion
Costco: 43 Billion
Sears: 41 Billion
JCPenney: 32 Billion
KMart: 31 Billion

I think you’d agree these are the 5 biggest competitors, right? 5 competitors total revenue: 191 Billion. Walmart is 25% bigger that all 5 combined. Take out groceries (not completely fair - Costco and KMart are big into groceries, Target to a lesser extent) and Walmart is still bigger than the 5 combined.

Then look at revenue growth - Walmart is the king, Costco and Target are the only ones close, everything else is pretty stagnant. You have to guess at KMart and JCPenney, but I doubt either of their revenue growth is better than Sears.

[msmith537]

*Originally posted by 5cents *
It is rational to ignore quality?
**

It is rational to sacrifice some quality in order to afford a cheaper product.

As you said, a person looking for a decent bike is not going to go to Walmart. They will go to a designated bike store that sells quality bikes. If they want a cheap disposable bike that junior can ride for a couple years before he outgrows it, they go to Walmart.

[minty_green]

You can’t simply look at the revenue of Wal-Mart and its top 5 competitors and determine that Wal-Mart’s market share is overwhelming the rest of the market. You have to know how big the market is overall before you can make any such conclusions. And I darned sure want a good cite for that “25%” figure you keep tossing around like it’s the gospel truth. Not that 25% is even remotely near the market share where a company can start raising prices to monopolistic levels–which, of course, Wal-Mart has not done–but it would be helpful if you could provide solid data on that point.

And 15% of the grocery business? B.F.D. Again, that’s nowhere near monopolistic levels. Note also that the Forbes article you linked says they’re making no headway in metropolitan areas that are already well-served by the major grocery chains. Instead, they’ve become the largest grocer in the nation by identifying underserved markets–rural areas and small towns with only limited grocery service–and providing those consumers a better option. Good for them.

[jacksen9]

Wal-Mart offers low prices to consumers. Everybody wants lower prices so this is good. However, the power they have with suppliers could indirectly and over time, hurt consumers. You could consider Wal-Mart as a director of popular culture.

Wal-Mart and the others have perfected the art of the oligopsony, making demands on its suppliers and standardizing choices. They are now doing the same with these media companies. The underlying motivation, one favored evangelical Christian producer notes, is to have a major impact on popular culture. “That is our goal, to impact the culture of this country.” That’s their right in an open market of course, but it’s interesting how silently it is happening. A few companies have increasingly have power over American cultural expression, and, to some extent, political expression, and few people are noticing.

oligoply watch

[RTFirefly]

Umm, minty, with all due respect, please read the thread and stop repeating answers to arguments that by and large aren’t present here.

You keep on talking as if we’re talking about the classical route to exploiting monopoly power - drive the competitors out of business, then jack up prices. That’s not the route we’re claiming WallyWorld is taking. If it was, your argument would be spot on - as long as a competitor remains in business to undercut the monopolist’s jacked-up prices, the monopolist loses.

What Wal-Mart appears to be doing is using its market share in the other direction - to lower its costs in ways that would be hard for any competitor to match, by virtue of the pressure it can put on its suppliers.

I’m not wading in yet to the broad argument there over whether this is legitimate, because (astonishingly ;)) I haven’t had time to think through the broad implications of this strategy since yesterday afternoon when I read the OP and the linked article. For now, I’m sticking to the question of Wal-Mart’s being able to sell under cost to drive out stores that compete with Wal-Mart in only one of its many areas, rather than across the board.

ISTM that if Wal-Mart lowers prices below cost to drive Toys R Us and other toy stores out of business, then something counterproductive for the consumer is going on. Wal-Mart will return to pricing its toys above cost, and consumers will have less choice of where to shop for toys, and likely less overall selection in toys as well, since a multitude of competing stores will almost surely carry a wider selection of toys than a single toy retailer.

[5cents]

*Originally posted by minty green *
You can’t simply look at the revenue of Wal-Mart and its top 5 competitors and determine that Wal-Mart’s market share is overwhelming the rest of the market. You have to know how big the market is overall before you can make any such conclusions.

Sure, but its a start. I couldn’t find a cite for consumer goods market share.

**
And I darned sure want a good cite for that “25%” figure you keep tossing around like it’s the gospel truth.
**

That’s the percentage of sales that went to walmart for the particular supplier that I had knowledge of. I can’t divulge the name of the company, but it’s a well known brand and widely distributed.

Not that 25% is even remotely near the market share where a company can start raising prices to monopolistic levels–which, of course, Wal-Mart has not done

But I contend that was 5 years ago, and since then Walmart has grown a tiny little bit and a few sizeable competitors have been ground into dust.

So do you have a cite for you “not more than 10%”?

OK, here’s a cite. http://www.chainstoreage.com/mediakit/2004-RetailMarket.pdf

Retail and service sector sales represent two-thirds of the Gross Domestic Product. Retailing is a $3.6 trillion dollar industry. Excluding automobiles, fuel dealer and foodservice sales, retail sales total $2.5 trillion. Chain stores make up more than 70% of non-automotive/non-foodservice retail sales, more than $1.8 trillion.

OK, so if you accept these figures, the total market that Walmart competes with is somewhere south of $2.5 trillion, right? Walmart has 10% of total retail, just right there.

But Walmart doesn’t compete is the full retail market, they’re only in the discount department store market. I mean, I’ve never seen trailer park Barbie at Saks, have you?

How should I estimate that market? Could I use the “70% chain stores” figure? Given that, and assuming I didn’t miss any huge competitors in the list I gave earlier, how about I add Walmart, the next 5, and another 60 billion for the little chains I missed (like Kohls, which is somewhere south of $10 Billion in sales) for the total for chain stores. That gives $500 Billion for discount (and some non-discount, like Sears/Penney/Kohls) “chain stores”. Add 50% (because we only counted chain stores, which is only 70% of the full market) and you get $750 Billion. Sound like a reasonable number? Is it reasonable to say that discount stores rake in 33% of the total (i.e. $750 Billion of $2.5 trillion) for the non-auto/fuel/foodservice retail industry?

If you think $750 Billion is a reasonable estimate, then that means Walmart has a 33% share in its market. In some particular items I’m sure the share is higher or lower (hey, it’s only at 15% in groceries), but could you accept that as an average? Knock out groceries from Walmart bringing it down to $200 Billion in a $750 Billion market, and that gives Walmart a mere 27% of the market. How about we split the difference and say that Walmart has a 30% market share?

Can you agree that these figures are at least in the ballpark, and if not, why not?

[5cents]

*Originally posted by minty green *
You can’t simply look at the revenue of Wal-Mart and its top 5 competitors and determine that Wal-Mart’s market share is overwhelming the rest of the market. You have to know how big the market is overall before you can make any such conclusions.

Sure, but its a start. I couldn’t find a cite for consumer goods market share.

**
And I darned sure want a good cite for that “25%” figure you keep tossing around like it’s the gospel truth.
**

That’s the percentage of sales that went to walmart for the particular supplier that I had knowledge of. I can’t divulge the name of the company, but it’s a well known brand and widely distributed.

Not that 25% is even remotely near the market share where a company can start raising prices to monopolistic levels–which, of course, Wal-Mart has not done

But I contend that was 5 years ago, and since then Walmart has grown a tiny little bit and a few sizeable competitors have been ground into dust.

So do you have a cite for you “not more than 10%”?

OK, here’s a cite. http://www.chainstoreage.com/mediakit/2004-RetailMarket.pdf

Retail and service sector sales represent two-thirds of the Gross Domestic Product. Retailing is a $3.6 trillion dollar industry. Excluding automobiles, fuel dealer and foodservice sales, retail sales total $2.5 trillion. Chain stores make up more than 70% of non-automotive/non-foodservice retail sales, more than $1.8 trillion.

OK, so if you accept these figures, the total market that Walmart competes with is somewhere south of $2.5 trillion, right? Walmart has 10% of total retail, just right there.

But Walmart doesn’t compete is the full retail market, they’re only in the discount department store market. I mean, I’ve never seen trailer park Barbie at Saks, have you?

How should I estimate that market? Could I use the “70% chain stores” figure? Given that, and assuming I didn’t miss any huge competitors in the list I gave earlier, how about I add Walmart, the next 5, and another 60 billion for the little chains I missed (like Kohls, which is somewhere south of $10 Billion in sales) for the total for chain stores. That gives $500 Billion for discount (and some non-discount, like Sears/Penney/Kohls) “chain stores”. Add 50% (because we only counted chain stores, which is only 70% of the full market) and you get $750 Billion. Sound like a reasonable number? Is it reasonable to say that discount stores rake in 33% of the total (i.e. $750 Billion of $2.5 trillion) for the non-auto/fuel/foodservice retail industry?

If you think $750 Billion is a reasonable estimate, then that means Walmart has a 33% share in its market. In some particular items I’m sure the share is higher or lower (hey, it’s only at 15% in groceries), but could you accept that as an average? Knock out groceries from Walmart bringing it down to $200 Billion in a $750 Billion market, and that gives Walmart a mere 27% of the market. How about we split the difference and say that Walmart has a 30% market share?

Can you agree that these figures are at least in the ballpark, and if not, why not?

[5cents]

*Originally posted by minty green *
You can’t simply look at the revenue of Wal-Mart and its top 5 competitors and determine that Wal-Mart’s market share is overwhelming the rest of the market. You have to know how big the market is overall before you can make any such conclusions.

Sure, but its a start. I couldn’t find a cite for consumer goods market share.

**
And I darned sure want a good cite for that “25%” figure you keep tossing around like it’s the gospel truth.
**

That’s the percentage of sales that went to walmart for the particular supplier that I had knowledge of. I can’t divulge the name of the company, but it’s a well known brand and widely distributed.

Not that 25% is even remotely near the market share where a company can start raising prices to monopolistic levels–which, of course, Wal-Mart has not done

But I contend that was 5 years ago, and since then Walmart has grown a tiny little bit and a few sizeable competitors have been ground into dust.

So do you have a cite for you “not more than 10%”?

OK, here’s a cite. http://www.chainstoreage.com/mediakit/2004-RetailMarket.pdf

Retail and service sector sales represent two-thirds of the Gross Domestic Product. Retailing is a $3.6 trillion dollar industry. Excluding automobiles, fuel dealer and foodservice sales, retail sales total $2.5 trillion. Chain stores make up more than 70% of non-automotive/non-foodservice retail sales, more than $1.8 trillion.

OK, so if you accept these figures, the total market that Walmart competes with is somewhere south of $2.5 trillion, right? Walmart has 10% of total retail, just right there.

But Walmart doesn’t compete is the full retail market, they’re only in the discount department store market. I mean, I’ve never seen trailer park Barbie at Saks, have you?

How should I estimate that market? Could I use the “70% chain stores” figure? Given that, and assuming I didn’t miss any huge competitors in the list I gave earlier, how about I add Walmart, the next 5, and another 60 billion for the little chains I missed (like Kohls, which is somewhere south of $10 Billion in sales) for the total for chain stores. That gives $500 Billion for discount (and some non-discount, like Sears/Penney/Kohls) “chain stores”. Add 50% (because we only counted chain stores, which is only 70% of the full market) and you get $750 Billion. Sound like a reasonable number? Is it reasonable to say that discount stores rake in 33% of the total (i.e. $750 Billion of $2.5 trillion) for the non-auto/fuel/foodservice retail industry?

If you think $750 Billion is a reasonable estimate, then that means Walmart has a 33% share in its market. In some particular items I’m sure the share is higher or lower (hey, it’s only at 15% in groceries), but could you accept that as an average? Knock out groceries from Walmart bringing it down to $200 Billion in a $750 Billion market, and that gives Walmart a mere 27% of the market. How about we split the difference and say that Walmart has a 30% market share?

Can you agree that these figures are at least in the ballpark, and if not, why not?

[5cents]

Sorry for the triple post. Connection to server was acting up and it didn’t look like the message posted.

[minty_green]

*Originally posted by RTFirefly *
Umm, minty, with all due respect, please read the thread and stop repeating answers to arguments that by and large aren’t present here.

I am responding directly to 5cents’ claims and arguments, thank you very much.

What Wal-Mart appears to be doing is using its market share in the other direction - to lower its costs in ways that would be hard for any competitor to match, by virtue of the pressure it can put on its suppliers.

I’m not ignoring that point. I’ve already said that pressure is a good thing for consumers and for competition overall, and that the occasional bad effect it has on individual companies is outweighed by the tremendous good it does for consumers.

ISTM that if Wal-Mart lowers prices below cost to drive Toys R Us and other toy stores out of business, then something counterproductive for the consumer is going on. Wal-Mart will return to pricing its toys above cost, and consumers will have less choice of where to shop for toys, and likely less overall selection in toys as well, since a multitude of competing stores will almost surely carry a wider selection of toys than a single toy retailer.

Which is precisely why the concern for Toys R Us is pointless. As long as there is sufficient demand for other toys, there will be other retailers happy to sell them for a profit. And if Wal-Mart wants to sell every toy in the world under cost as a loss leader, so much the better for consumers.

[minty_green]

*Originally posted by 5cents *
Sure, but its a start. I couldn’t find a cite for consumer goods market share. . . . [25% is] the percentage of sales that went to walmart for the particular supplier that I had knowledge of.

Then report that number as such. It is indicative of nothing whatsoever as to Wal-Mart’s overall market share.

So do you have a cite for you “not more than 10%”?

Of course not. I stated up-front that it was a guess. You’re the one throwing around 25% as if it was an actual number instead of your guess. Which revelation, by the way, really makes your current estimate of 50% market share look pretty ridiculous.

OK, here’s a cite. http://www.chainstoreage.com/mediakit/2004-RetailMarket.pdf . . . .

OK, so if you accept these figures, the total market that Walmart competes with is somewhere south of $2.5 trillion, right? Walmart has 10% of total retail, just right there.

Looks like my estimate was a lot better than yours, huh? But of course, you’re only comparing Wal-Mart’s total revenue of $247 billion with the overall retail market of $2.5 trillion. Problem is, Wal-Mart’s total revenue includes all sorts of things that are not part of that $2.5 trillion figure, including grocery sales (Wal-Mart’s sales were $50 billion two years ago, according to your Forbes article), automotive sales (Isn’t Wal-Mart the nation’s #1 tire retailer? Regardless, they sell a lot of tires and batteries), credit card revenues (my wife has a Wal-Mart Visa in her purse), and any number of other goods and services. So in reality, Wal-Mart’s total share of “retail sales” comes to much less than 10%, maybe 6 or 7%. Significant, and staggeringly successful, but no threat to the Republic.

But Walmart doesn’t compete is the full retail market, they’re only in the discount department store market. I mean, I’ve never seen trailer park Barbie at Saks, have you?

Now you’re going off the rails, market-wise. Wal-Mart competes with every other retailer that sells the same goods or types of goods that Wal-Mart sells. While you are correct that Saks is unlikely to carry very much that competes with Wal-Mart’s products, Saks is small potatoes (annual revenue ~ $6 billion), while Wal-Mart is smack dab in the middle of what American consumers buy. It competes directly with the vast majority of retail sales, and indirectly with even more.

How should I estimate that market? Could I use the “70% chain stores” figure?

No. Chain or independent, the competition is the same. Thus, the rest of your number-slinging is fundamentally flawed.

[5cents]

A few more cites:

From http://www.freerepublic.com/focus/f-news/1031239/posts**
Longer term, there’s little question that Wal-Mart has gained an edge. Its share of the $25 billion traditional toy business has grown from 10.8% in 1993 to 21% today (and some analysts estimate it’s more like 25%).
**

From http://www.freerepublic.com/focus/f-news/1037150/postsApparently this giant chain sells 30 percent of all the disposable diapers in the country

You can argue whether or not a huge market share is a problem, but to say that Walmart has:

Originally posted by minty greenWal-Mart has only a small share of the overall market for retail consumer goods, maybe (I’m guessing) 10% for the kinds of products it deals in

is way out of line with reality.

[minty_green]

My 10% guess explicitly described “the overall market for retail consumer goods.” I made no claims about market share for individual items like diapers and toys, nor do those numbers demonstrate much of anything standing on their own. 21%? 30%? B.F.D.

[AZCowboy]

Let’s take 5cent’s 33% market share estimate. Double it. 66% market share is still unlikely to be a monopoly. For example, back in the late 80’s, AT&T had a 75% market share in long distance (MCI had about 15%, Sprint had about 8%, and numerous other companies the remainder). At that time, AT&T was determined by regulators to be non-dominant.

On the predatory pricing front, if WalMart sold (most or all) toys below cost for long periods of time, drove Toys-R-US out of business, and then raised prices, I will guarantee they will be brought before a court to answer claims of predatory pricing.

But the fact is, that is simply conjecture, as there has been no cites provided in this thread that WalMart has ever raised prices on an unchanging product. Their mantra is lower prices, or more value, each and every year.

Creating a monopoly is not illegal. It is the mission of practically every company in business today. Using monopoly power to choke competition is illegal. So even if WalMart IS or BECOMES a monopoly, that alone isn’t sufficient to condemn them.

While I suppose it would be accurate to say that WalMart carries cheap products, it does not follow that all products sold at WalMart are low quality. Just happened to be at WalMart yesterday shopping for a 3 qt sauce pan. They carried at least four different ones, ranging from $15 to $35 (I selected one for $24.95, which will suit my purpose just fine). WalMart let’s suppliers charge premium prices if the additional quality will sell. The market manages that trade-off quite effectively.

RTFirefly wrote:
What Wal-Mart appears to be doing is using its market share in the other direction - to lower its costs in ways that would be hard for any competitor to match, by virtue of the pressure it can put on its suppliers.

Absolutely. And suppliers can choose whether they want to do business through that channel, with all its inherent risks. An excellent business plan, one worthy of praise, and certainly worthy of attracting additional capital. Free market forces, right?

On the unemployment rate, argue about the exact numbers, but the unemployment rate today is much lower than the late 70s, and millions of manufacturing jobs have been lost. Couple that with the increase in real average incomes, and I am hardpressed to see the argument that globalization has harmed American workers overall.

[5cents]

*Originally posted by minty green *
Then report that number as such.

I did:

Originally posted by 5cents
The company I knew about had 25% of its goods sold to walmart. That was 5 years ago. I’d have to assume that share is much higher now, probably around 50%.

Looks like my estimate was a lot better than yours, huh? But of course, you’re only comparing Wal-Mart’s total revenue of $247 billion with the overall retail market of $2.5 trillion. Problem is, Wal-Mart’s total revenue includes all sorts of things that are not part of that $2.5 trillion figure, including grocery sales (Wal-Mart’s sales were $50 billion two years ago, according to your Forbes article), automotive sales (Isn’t Wal-Mart the nation’s #1 tire retailer? Regardless, they sell a lot of tires and batteries), credit card revenues (my wife has a Wal-Mart Visa in her purse), and any number of other goods and services. So in reality, Wal-Mart’s total share of “retail sales” comes to much less than 10%, maybe 6 or 7%.

Ignorance is no excuse. I gave you the cite, don’t blame me if you didn’t read it.

Groceries are included in retail sales of $2.5 trillion. You can figure that groceries are about $450 Billion of that $2.5 Trillion, because walmart’s 15% share of groceries is $50 Billion. The $2.5 Trillion figure excludes automobiles (i.e. the whole shebang, not parts), foodservice (i.e. supplying restaurants) and fuel. Credit card revenues aren’t a major portion - it is a cobranded deal, the in-store card is by Monogram, the mastercard is from Chase.

Next objection?

Now you’re going off the rails, market-wise. Wal-Mart competes with every other retailer that sells the same goods or types of goods that Wal-Mart sells. While you are correct that Saks is unlikely to carry very much that competes with Wal-Mart’s products, Saks is small potatoes (annual revenue ~ $6 billion), while Wal-Mart is smack dab in the middle of what American consumers buy. It competes directly with the vast majority of retail sales, and indirectly with even more.

No. Chain or independent, the competition is the same. Thus, the rest of your number-slinging is fundamentally flawed.

Oh , I see, so Walmart competes head-on with everybody except saks? That’s a revelation. Next time I need lumber for a deck, I’ll go to Walmart.

Face the numbers.

[5cents]

*Originally posted by minty green *
**My 10% guess explicitly described “the overall market for retail consumer goods.” I made no claims about market share for individual items like diapers and toys, nor do those numbers demonstrate much of anything standing on their own. 21%? 30%? B.F.D. **

Short term memory problems?

*Originally posted by minty green *
Are you crazy? Wal-Mart has only a small share of the overall market for retail consumer goods, maybe (I’m guessing) 10% for the kinds of products it deals in.

Sounds like 21% or 30% is what you are talking about here, not 10%.

[minty_green]

Read your own bloody cites, 5cents. That “chainstoreage.com” .pdf you offered explicitly says that its $2.5 trillion figure for retail sales excludes “automobiles, fuel dealer (Wal-Mart sells gas too, ya know) and foodservice sales.”

And what am I bothering to argue with somebody whose grasp of economics is so pathetic that he can’t distinguish betwee “percentage of diaper sales” and “percentage of overall retail sales”? Feh.

[5cents]

In case the last post wan’t clear, please define what “for the kinds of products it deals in” means.

[5cents]

*Originally posted by minty green *
**Read your own bloody cites, 5cents. And what am I bothering to argue with somebody whose grasp of economics is so pathetic that he can’t distinguish betwee “percentage of diaper sales” and “percentage of overall retail sales”? Feh. **

Why am I arguing with somebody who doesn’t understand what foodservice is? Or who conviently forgets what they wrote two hours ago?

[5cents]

*Originally posted by minty green *
Read your own bloody cites, 5cents. That “chainstoreage.com” .pdf you offered explicitly says that its $2.5 trillion figure for retail sales excludes "automobiles, fuel dealer (Wal-Mart sells gas too, ya know) and foodservice sales."

Does walmart sell new cars? They must get a cut off of sales through their sam’s club deals, but they don’t get the whole shebang, as the sale goes through a local dealer.

New car market in 2001 was 17.1 million vehicles (cite: http://money.cnn.com/2002/01/03/companies/carsales/). Average price for a new car in 2001 is north of $20,000 (cite: http://www.ott.doe.gov/facts/archives/fotw219.shtml). That means that new cars are a $340 Billion market, which is included in the larger $3.6 trillion, but not in the smaller $2.5 trillion.

Care to guess the fuel and foodservice marketplace? You seem to like guessing. How big is Walmart into fuel?