Line About Wal-Mart Style Companies: Explain?

Great Debates
1

I am reading Power Down by Richard Heinberg. He says something, with no citation, that I find confusing. Not to suggest that he is lying, or anything, Heinberg has obviously done his homework. But I’m just wondering:

Page 236-237:
“Corporate globalization has hit local economies hard. In town after town, local businesses have succumbed to ‘big box’ chains like Wal-Mart, which buy in huge quantities and often sell mostly imported items made by low-paid workers. Once a local economy has been destroyed by dependance on the ‘big box’, the chain frequently pulls out, forcing members of the community to drive tens of miles to the nearest larger town for basic consumer needs.”

I might be misreading this, but what I believe he is saying is that sometimes, a mega-store will go into a local community, drive all of the local companies out of business, then close up shop once their economy has been ruined. Does this actually occur? Why would a corperation intentionally destroy a local economy, then suddenly leave (right when there was no competition)?

Or, if I am misunderstanding this line completely, you can go ahead and expose my ignorance.

Thanks,
Joey

2

I’m very sorry, the book I am reading is The Party’s Over, not Power Down.

3

The idea is that you build in stores in every community and drive the local businesses into bankruptcy. But once you’ve eliminated the competition, you no longer need to have a store in every town. You can close three quarters of your stores - customers will be forced to travel the distance to your remaining stores because there no longer are any local stores.

It’s the hidden flaw with free market theory - businesses don’t have to offer competitive services if there’s no competition.

4

This is a horrible, alarmist statement.

Companies don’t go to the trouble of opening stores just to ruin people that are of no real competition to them. It’s like saying the NFL goes around playing local high schools just to injure their players so they can’t compete.

If Wal-Mart (or any other big chain) opens a store it’s because their marketing studies have shown that the store can be profitable. If is is profitable, it stays open. If if is unprofitable, a corporate decision may be made to close it. Sometimes between the time that the decision to build and open a store is made and when it actually starts operations the situation can change. Not all plans work out. In the mean time, the economics of the area can change drastically. Wal-Mart and their ilk undoubtedly cause smaller businesses to fail. Blame capitalism before you heap all of the blame on Wal-Mart.

Wal-Mart is not blameless in using their muscle to hurt other businesses. Usually it is the suppliers that they hurt. They can be ruthless in dealing with suppliers. They are almost as bad as Sears, Robuck was in their heyday. Nonetheless, they operate very efficiently and have forced their competition to clean up a lot of the wasteful practices that were commonplace in the retail business. Basically, their business plan has been to beat the living crap out of their suppliers in order to sell at lower prices to their customers. Whether that is good or bad is the point to be argued, not whether their effiecient methods hurt others that could not be as efficient.

5

Little Nemo has it right, IMHO. Walmart can afford to play a long-term strategy that smaller stores cannot. It can build a store (often receiving some nice tax breaks from the local community) even if it knows that the store is going to be closed in favor of a more-distant Super-Walmart once the business has been captured. Here is an example:

6

[QUOTE=FrantzJ]
…what I believe he is saying is that sometimes, a mega-store will go into a local community, drive all of the local companies out of business, then close up shop once their economy has been ruined.
[/QUOTE]

Yes, but I don’t think he is saying that they do it on purpose like Standard Oil.

7

If the locals business refuse to adapt to local changes, they deserve to fail, like those video stores who did not invest in DVDs.
I use to work for a chain which voluntarily closed its doors and decided to concentrate on specialty stores.
Mom and Pop’s which survive here do so because they have become specialty stores or convenience stores.
I no longer do my major shopping near my home.
Neither do most of my friends and relatives.
They shop near their work or in the areas they drive past getting home from work.
Shopping at M & P’s was catch-as-catch-can.
Shopping at the chains meant Oh, roast beef is on sale, so I guess we all eat beef.
Shopping at a big block means I eat what I want since everything is on sale.

8

What’s to keep a person from starting a business again after the Wal-Mart has packed up and left?

Also, while it’s straying from GQ, although I certainly believe the anecdotes like the one Antonius Block posted are true, my hometown’s experience (granted, it’s about nine times bigger than the town in the story) has been the opposite. While there have been a few businesses whose closing could probably be attributed to the Wal-Mart, there have been many more that opened in the area, no doubt attracted by the traffic the Wal-Mart generated. I wonder how many more there are like my town, that the Wal-Mart hating crowd never hear of.

9

[QUOTE=Antonius Block]
Little Nemo has it right, IMHO. Walmart can afford to play a long-term strategy that smaller stores cannot. It can build a store (often receiving some nice tax breaks from the local community) even if it knows that the store is going to be closed in favor of a more-distant Super-Walmart once the business has been captured. Here is an example:
[/QUOTE]

Does Wal-Mart close unprofitable stores? Do they open stores that they know will be unprofitable? Answer those questions first. If the store was profitable and they left an empty building some other retailer could come in and operate profitably in that community. Wal-Mart got their start by operating in smaller communities that other retailers (such as K-Mart and Sears) didn’t want to touch. They know that market better than anybody. People aren’t going to drive 30 miles to Wal-Mart if there is a reasonable alternative just because they feel they need to shop at Wal-Mart. If anything, many people don’t WANT to shop at Wal-Mart but the price difference is compelling. Wal-Mart is just as subject to market competition and customer loyalty as any retailer. We’ve already seen the first signs that their size is stifling their growth. It’s a cycle that has always existed in retailing.

I’m not a fan of Wal-Mart but a lot of the venom and accuasations that are spouted towards them are just silly.

10

[QUOTE=Little Nemo]

It’s the hidden flaw with free market theory - businesses don’t have to offer competitive services if there’s no competition.
[/QUOTE]

Except it’s also illegal. If there were any provable pattern of Wal-Mart engaging in this practice, Uncle Sam would have brought an anti-trust action against them years ago.

11

Spartydog: I must respectfully disagree. I have seen Wal-Mart do just this, in particular in sparsely-populated areas of south Texas. In particular, from what I’ve seen, they pick a more or less central location, then establish a store there, then establish one or more stores in areas juuuuust far enough away that driving there would be a hassle… then the local stores close… and Wal-Mart closes its doors a year or so later, leaving a main drag full of empty storefronts, a horde of unemployed people, and a big dead empty box of a store that no one local can afford to do anything with.

…and now everyone in a thirty-mile radius has the option of buying their batteries and hardware at the local seven-eleven type convenience store… or driving to Wal-Mart. 60 Minutes also documented this procedure in their segment “Up Against The Wal-Mart,” which featured an interview with this amazing sweaty nervous Wal-Mart exec with a pasted-on cheese-eating grin telling us how much Wal-Mart loves little retailers in little towns…

Garfield226: Nothing is stopping you from waltzing in and reopening any kind of store you want in a town whose Wal-Mart has abandoned it. However, the locals may be a bit strapped for cash, since many of them are now unemployed, their regular retail outlets have gone bankrupt, and those with a few coins to rub together may wish to invest in something other than going up against the greatest retail giant on the planet, particularly after it devastated the entire local economy in such a short time.

No doubt it didn’t mean to.

friedo: I am no business lawyer; I do not know if it is illegal or not. However, I would not want to be the one who had to prove that they were intentionally destroying local economies in order to make them dependent on Wal-Marts. I think that proving they were cheerfully doing it on purpose solely for profit would be difficult, involving getting high executives of Wal-Mart to admit to it.

Jeffrey Wigand, anyone?

12

[QUOTE=Garfield226]
What’s to keep a person from starting a business again after the Wal-Mart has packed up and left?
[/QUOTE]
It’s a lot harder to start a business than maintain one (e.g. one that was around before Walmart came in), and banks will be much less likely to lend money once the local population’s buying patterns have changed.

[QUOTE=Spartydog]
Does Wal-Mart close unprofitable stores?
[/QUOTE]
Yes, of course they do. Homer, LA and Bunkie, LA, Hearne, TX. The lone-star state alone has 40 empty stores.

[QUOTE=Spartydog]
Do they open stores that they know will be unprofitable?
[/QUOTE]
We don’t have access to Walmart board meetings, so would only know this if a Walmart official was foolish enough to go on public record as saying it. They’re not stupid. They know their markets, and plan for the long term.

[QUOTE=Spartydog]
If the store was profitable and they left an empty building some other retailer could come in and operate profitably in that community.

[/QUOTE]
Not in Hearne, TX, at least:

13

[QUOTE=Spartydog]
Does Wal-Mart close unprofitable stores? Do they open stores that they know will be unprofitable?
[/QUOTE]

They don’t have to. They simply close stores that aren’t profitable enough. And there’s nothing particularly sinister or unique to Wal-Mart about it. Automakers drop models and add new ones, airlines drop cities and add new ones. Retailers move into and out of cities.

14

[QUOTE=Antonius Block]
It’s a lot harder to start a business than maintain one (e.g. one that was around before Walmart came in), and banks will be much less likely to lend money once the local population’s buying patterns have changed.

Yes, of course they do. Homer, LA and Bunkie, LA, Hearne, TX. The lone-star state alone has 40 empty stores.

We don’t have access to Walmart board meetings, so would only know this if a Walmart official was foolish enough to go on public record as saying it. They’re not stupid. They know their markets, and plan for the long term.

Not in Hearne, TX, at least:
[/QUOTE]

Your links aren’t very compelling. They don’t offer any proof that the stores were or were not profitable.

Predatory pricing IS illegal. If predatory pricing can be proven then there is every reason for legal action to be taken against Wal-Mart or any other retailer.

I think that a strategy of opening unprofitable stores with the objective of closing them in order to destroy smaller retailers could be fairly easily demonstrated. Use store locations, catagorize them as to Superstores, regular stores, etc. Chart their date of opening and closing and use a map and a compass to derive some empiricle data. Give it some scientific scrutiny, then make the case. Put some doctoral candidate on the case write a disertation about it. Certainly, there are antecdotal cases where it looks like Wal-Mart set out to destroy the local economy. That does not prove a strategy. To use those antecdotes as proof is irresponsible.

Your Boulder link is just typical, shrill rhetoric designed to inflame the locals. As I said earlier, Wal-Mart beats the crap out of their suppliers but that is old news and a different argument.

The supermarkets (name any number of chains) destroyed the local grocers yet they gave us better food at lower prices. So what else is new?

15

Ever wonder why, if Sam Drucker’s general store and Mom & Pop’s toy store were such esteemed, important members of the community, the people of their community chose to shop at Wal-Mart instead?

Yes, Wal-Mart comes into small Southern towns and plays hardball. But if the people of those small Southern towns really cared about their communities as much as they claim, Wal-Marts would go belly up left and right. Wal-Mart wouldn’t survive long if the good people of River City rose up as one and said, “We’re sticking with our small, neighborhood stores, thank you very much.”

In reality, Mom and Pop were quickly abandoned by their neighbors, who preferred to go someplace where they could buy their goods cheaper.

So, as long as people are cursing Wal-Mart, why don’t they curse the supposedly saintly folks of Small Town USA?

16

I’ve seen similar things happen here, and we’re far from a “small town”. Once a lesser chain has some success in one area, a big box store (not usually a WalMart) tries to open a store nearby solely to drive it out of business.

The result is an immense number of empty or underutilized (think thrift stores and such) buildings.

Kroger has been trying to knock off our local grocery store for years, but kept getting denied permission to build on empty land since there were too many vacant buildings in the area. So they finally bit the bullet and took over a vacant building, cleared it and built a new store. (Leaving a vacancy in their old, farther away site of course! There are at least 3 former Krogers in our area now, 2 completely vacant.)

Now our local grocery will go dead. I doubt Kroger will stick any longer around than they have with their other stores.

It is completely pointless to argue about the profitably of individual stores. Chains like WalMart, Kroger and Home Depot have thousands of stores. Strategies are worked out at a very large scale.

I repeat, they don’t worry about individual stores. Their point of view is much larger. If you think that the WalMart execs worry about store 13021 making money or not, you have no idea how big chains work.

17

Are there a lot of people in your community that have a few idle million sitting in their checking account? Starting up a department store is an expensive business. And going head to head with one of the largest corporations in the world would be a quixotic decision that most businessmen would avoid.

How is it illegal? There’s no law requiring a business to keep its outlets open.

From a business standpoint, what they’re doing is sound business practice. Suppose you have stores in Springfield and Shelbyville. You sell products people essentially need to buy. You’re the only store in either town that sells these products and there’s no other stores within seventy miles. It doesn’t take a genius to realize that if you close your Shelbyville store, you’ll half your overhead with no effect on your income - the people in Shelbyville will just drive to Springfield to buy your product.

18

[QUOTE=Little Nemo]
Are there a lot of people in your community that have a few idle million sitting in their checking account? Starting up a department store is an expensive business. And going head to head with one of the largest corporations in the world would be a quixotic decision that most businessmen would avoid.
[/QUOTE]

Supposedly, people are bemoaning the loss of the small mom-and-pops that Wal-Mart puts out of business. Doesn’t take “a few idle million” to set one of those up, else I’d wager there would have been a lot fewer of those and a lot more Wal-Marts a lot earlier in the history of this country.

19

If you think Wal-Mart would intentionally waste 9 cents operating a store, you have Wal-Mart confused with someone else.
They don’t have a vested interest in driving their competition under. If they run a competitor out of business and then proceed to not serve a market then competitors will magically appear like mold on a loaf of bread.

People like to imagine all kinds of things about economics that just don’t happen in the real world.
It’s like “selling stuff at a loss to drive competitors out of business”. Any business that did that on a long-term basis would wind up out of business itself, and doing it temporarily just doesn’t work… as soon as there’s a vacuum in the system, something pops up.

20

[QUOTE=astorian]
So, as long as people are cursing Wal-Mart, why don’t they curse the supposedly saintly folks of Small Town USA?
[/QUOTE]

Small business owner checking in.

Cursing them for what?

Not qualifying for the bulk discounts walmart gets?

Not having 10,000 other stores to support them while they start up.

Not having decades of experience in retail store management.

In many respects a Walmart can help small businesses, especially service sector ones. Walmart isn’t in the business of servicing anything they sell so let them sell $299 eMachines. The guy in electronics dosent know jack shit about MAC filtering or registry mods. Sure the CompUSA 10 miles away loses a chunk of its business, but the support/repair types get plenty of spillover fixing the machines walmart sells.