Really? What evidence do you have to offer that bit of wisdom?
Let’s do the math. Wal-Mart employs 1.8 million people. Some of them are part-time. Let’s assume they average 30 hours of work per week. That’s 54 million man hours per week. If Wal-Mart gave them each a $2/hr raise, that would cost 108 million dollars per week, or about 5.6 billion dollars per year. It appears to me that 5.6 billion dollars per year would do a little more than ‘make a dent’ in the Wal-Mart family’s wealth. 5.6 billion represents about half of all of Wal-Mart’s profit. That would cause the stock price to crash. They would have to cut dividends in half, and all the employees who get bonuses based on profit-sharing would have their bonuses cut in half.
I wish people would think more rationally about this stuff. For example, a lot of activists want Wal-Mart to unionize. In Quebec, labor laws forced Wal-Mart to allow a vote to unionize, which it lost. So, it closed the store. People claim this was evidence for how evil Wal-Mart is (“It chose to close a store and lose all that money just so it wouldn’t have to pay its employees a living wage! Pure evil!”). But the reality is that Wal-Mart has to walk a very fine line. Its business model absolutely depends on being able to compete on price, since it has little else going for it. And the business it is in requires a lot of labor. Therefore, labor costs have to be controlled.
As you can see from the above math, if Wal-Mart paid its employees even $4/hr more in salaries and benefits, it would have no profit and no reason to exist. If it raised its prices to compensate, it would get slaughtered in the market because other stores could then match prices and offer more convenience and better service. Wal-Mart maintains its competitiveness by ruthlessly cutting costs wherever it can - the supply chain, labor, real estate, energy… It’s always striving for the highest efficiency it can manage. This is a good thing. A very good thing. It forces suppliers to cut their own fat, it drives innovation, and it provides all of us with cheaper goods than we would otherwise have.
But this ruthless drive for efficiency creates enemies, and they love to tell stories about how evil Wal-Mart is. Wal-Mart’s customers feel differently.
It is hard to believe that many of the anti Walmart crowd have ever been poor. I was living in New Hampshire in 1992 with a young child, going to school full time and working full time. I had to wear a dress shirt and tie for a crappy job that I absolutely had to have. I could get both for about $13 total at Walmart. Even Marshall’s on sale would cost $25 or so for the same thing.
I couldn’t possibly give a shit whether huge corporation Marshall’s or huge corporation Wal Mart got my money. The idea that I would go to a specialty menswear store was laughable given my budget. Now repeat that over and over again across many product lines and Walmart significantly impacted my quality of life and ability to provide for my family.
Take another example that isn’t Walmart. For ages dry cleaning was run by small local businesses and you really had no choice. If you had a professional job you had to go to a local cleaner and it didn’t really matter which one, you would pay $7 for a woman’s blouse and maybe $12 for a suit. Then the $1.99 chain opened. They will clean any garment for two bucks. Laundered shirts for one dollar. My typical visit is now about $30 instead of $100. Dry cleaners are outraged and shutting down. Local business owners can’t compete. This is a great thing. Thousands of people can get this common service for less than one third the previous price.
I don’t get the Island thing, anyways, because every walmart I’ve seen actually has stores inside of it. Mine has a hair salon, an eye glass center, a bank, a McDonalds, and maybe something else I can’t think of.
And they generally are not remotely cheap for groceries. The Mom-and-Pop stores are very often cheaper, to the point where I avoid Walmart unless I have to purchase a non-food item.
Also, the “new” SuperCenter completely moved downtown. Yeah, all the little stores on the square went out of business, but a bunch more started up near Walmart, including clothing stores, restaurants, book stores, phone shops, computer repair, a salon, tanning booths, and again, probably something I’m not thinking of.
The old Walmart had three stores connected to it. And before Walmart, we just couldn’t buy most of the stuff they sell.
The only thing I see as evil about Walmart is the same evil in the entire market: the owners wind up with more money than they’ll ever need, while there are people who have less money than they need. You know, “love of money” stuff.
I predict WalMart’s ruthlessness is going to come back around and hurt it. It’s going to force its suppliers into adopting its business strategy.
WalMart is a huge buyer. So it’s big enough that it can set the terms to its suppliers. It can set the prices it wants to pay. If a supplier says it can’t stay in business at those prices, WalMart just threatens to go to another supplier.
In the short run it works. In some cases, businesses are able to cut their costs and deliver at WalMart’s prices. Maybe they become more efficient. Maybe they raise prices to other less powerful customers (which obviously works to WalMart’s benefit). Maybe they can’t stay in business at WalMart’s prices and close in a few years. But what a lot of them are doing is consolidating. Economics of scale is one of the most common ways for businesses to lower costs. The stronger companies buy up the weaker or drive them under. But where is that heading?
A large part of WalMart’s strength is based on its share of the buyer’s market - it’s been able to go into business negotiations knowing that the suppliers have to make a deal with WalMart but it doesn’t have to make a deal with them. It can call ten suppliers into the room and tell them all that the three cheapest suppliers will get its business and the other seven will not. You don’t have to have to be a brilliant negotiator in circumstances like that.
But as I said, WalMart’s ruthlessness is forcing its suppliers to evolve or die. Every year there are fewer suppliers out there. And at some point, WalMart buyers are going to find themselves in a room where there aren’t ten suppliers or five or even three. They’re going to be negotiating for a deal with the only supplier who’s still in business - and that sole supplier will be in just as good a position as WalMart is. Neither side will have the upper hand. WalMart will be like the bully that finds out the kid whose lunch money it was taking just had a six inch growth spurt.
Not that we’ll be better off for it. WalMart will not longer be able to screw its suppliers. But the suppliers will only be looking out for themselves as well. To use my bully analogy, the kid who used to get picked on is now as big as the bully - and that means the bully and him have something in common. If they fight each other they’ll both get bloody noses for no gain. Or they can work together and start extorting the smaller kids. And is this situation, the littlest kid in the room is the consumer.
To sum it up, WalMart pressures its suppliers to keep the prices it pays low. But this pressure is making the suppliers stronger. Eventually the suppliers will become strong enough to withstand WalMart’s pressure. The prices WalMart pays will go up. And to maintain its profits, WalMart will pass those higher prices on to its customers.
Not in my considerable retail experience they won’t. Customers are generally only interested in paying as little as possible for an item and typically go to the store with the knowledgeable staff for the info, then go to the “Big” store for the better price on the same product.
And yet I can think of lots of businesses that, in fact, succeed at selling better service in return for slightly higher prices. Around here Henry’s, a small chain of camera stores, is reknowned for its service and technical expertise. Their prices are higher than Best Buy and the like, but they still do a booming trade because people will pay for that,** if it legitimately delivers value.** Just being the kindly old shopkeeper isn’t enough.
Another example is The Running Room. You could buy cheaper sneakers at WalMart, but The Running Room offers a lot of real added service; they consult with their customers on the proper shoes to buy, offer free running classes, and the like. Their prices are high, but people buy their shoes because the service is sensational.
Or hey, there’s Big Al’s aquarium supplies. Most items you can buy there can be found at WalMart for less money, but Big Al’s customers keep coming back. They’re loyal to the store because the store really delivers on service.
There’s room in the market for almost any value proposition, if you run your business well. Customers will, quite logically, usually choose to pay less money for the same item. **It’s up to the smaller business to actually provide a tangible reason to buy the item there. ** The well run ones can do it. Some can’t. C’est la vie.
And strangely enough, WalMart wins a lot of business from me because they have better service than comparable stores. I could buy equally cheap stuff of the same quality at Zellers, for instance. But Zellers is… well, gross and dire. The place is always dirty and disorganized and if you want to return something it’s like trying to get a mortgage. WalMarts, around here at least, are clean, organized, and they’re very good about taking returns. For a lot of items WalMart is actually a bit pricier than Zellers, but I’d rather shop at WalMart.
I guess what I’m trying to say is that Wal-Mart likely didn’t put that many mom & pop stores out of business, or that it was the reason for the struggles of so many small town Main Streets. The mom & pops and Main Street USA have been under siege since the 1960s, about 25 to 30 years before Wal-Mart transformed from a regional to a national chain.
As well as down!
I was just in a Walmart store-and noticed that the OP polo shirts were $7.00 two weeks ago-they are now $9.00- almost a 30% hike!
I also noticed that the auto section NEVER has oil and air filters to fit my car, and they charge more for oil than Autozone.
All products are not equal. I’ve read that less than five percent of the products in a store account for over half of the sales. Stores need the sales from these staples to stay in business. Stores can’t afford to say “well WalMart may take away our customers for things like bread and milk and diapers and beer but we’ve still got the better prices on things like ketchup and rice and grapefruit and aluminum foil.” A store sells two hundred loaves of bread each day and two bottles of ketchup - if they lose the bread sales they can’t make it up by selling ketchup.
Stores generally can’t co-exist with WalMart by filling the niches WalMart hasn’t filled. For the most part, the reason WalMart has left those niches empty is because they are low profit. Look at groveries - ten years ago most WalMarts didn’t sell groceries and there were often supermarkets next door to WalMarts. Then WalMart realized this was a profitable market and opened its own grocery departments. The same logic applies to other satellite stores - if WalMart sees that other businesses are making a profit by selling flowers or haircuts or pets or insurance, it’s only a matter of time before they open a department that sells those things.
This practice is known as “Running a retail store”. Especially commodity stores like supermarkets. They ALL do this. They change their prices constantly. Some stores use sales and promotions to do this, and others just change their ‘everyday’ prices a lot. Any clerk in a grocery store can tell you how much of their effort goes into changing prices around.
Retail economics is actually a pretty interesting field. Grocery stores work hard to figure out what prices to change, and when. It’s almost a game-theory thing. If they didn’t do it, then customers would eventually figure out where the cheapest goods of every type are, and they’d only buy a store’s cheapest goods and their profit margins would fall. Grocery stores count on the fact that most people have lists of things they need to buy. So by advertising a sale on an in-demand item, they can attract people with lists, and then they make sure that other goods on the list are full price so they can make a profit.
That’s also how such stores can complete against Wal-Mart. Their average prices might be higher, but if they can undercut Wal-Mart on a critical item or two, they can attract enough shoppers, and once those shoppers are there they’ll tend to buy everything they need, even if the price is slightly higher.
This leads to some actual advice: If you go grocery shopping, don’t make a list and then buy everything on the list. Instead, walk the aisles looking for things on sale you know you’re going to need reasonably soon, and buy the sale goods. You can cut 10-30% from your grocery bill by only buying the cheapest goods and doing without if the stuff you want isn’t on sale. If you have to, go to a second store, because their mix of sale items will be different.
There is definitely a market for better service and better quality that includes higher prices. Not all consumers are in that market and not all products are sold that way. So, if you want to keep your store open, don’t think you can do that with commodity items, and make sure you are targeting the right consumers.
I didn’t read the whole thread, but Sam Stone, do you have any detailed models showing the difference in net dollars available to the community in the WalMart vs no WalMart situations. Your argument is not incorrect regarding the flow of money, but that doesn’t necessarily mean there is a net gain to the community with WalMart, it’s possible there is a net loss despite the avilability of cheaper goods.
That’s the thing, though- it depends what you’re selling.
Now, if you’re selling Bang & Olufsen speaker gear, then obviously you can charge insane amounts of money for it and back it up with staff that know everything about it and will come to your house and install it as part of the purchase price, and people will pay for it and your knowledgable, helpful staff- because they can’t get it anywhere else.
But if you’re dealing with something like Logitech 5.1 PC speakers which are available from pretty much anywhere that sells things which plug into walls, then having sales staff who know the product inside out and back to front isn’t going to help when people know they can go to Wal-Mart for the same product at 15% less, having got the information they wanted from the knowledgable sales staff at your Slightly More Expensive Store.
I would like to point out that the issue isn’t just price, it’s also the convenience of having everything in one store. Yesterday I had a list of things I needed to buy:
a laundry basket
vegetable seeds
boy’s underwear
a bicycle helmet
dog food
milk
a girl’s swim suit
nail polish remover
the new Ok Go CD
a bath mat
Now I got all of the things on this list actually at Target, but I could have gotten it at Wal Mart. Without these large types of stores I would have run around town to a clothing store, plant nursery, grocery store, drug store, music store, bike store, pet store, and toy store. And I’m still not sure I could have found the laundry basket.
And that’s not a small thing. If you’re a single mom with kids and no car, it would be just about impossible to run around to a dozen small shops to buy what you need. Wal-Mart is a huge convenience to such people.
Sam Stone, not sure if you saw my earlier post, but you argued that WalMart is a net gain to the community, do have any detailed analysis to back it up? There is certainly some gain, but as I informally walk through the pros and cons in my mind (purely financial, where are the dollars going), I could easily see the net being plus or minus from the community perspective. It’s not obvious it’s a net gain.
I’m not sure how you’d measure that. My guess is that there are so many ways to slice the data that a partisan on either side could spin the results the way he wanted.
The same is true of any other corporation. Did the Best Buy that just moved in help or hurt the neighborhood?
The default assumption is that these corporations are good things. If a local Wal-Mart grosses 50 million dollars, doesn’t that indicate that they provided 50 million dollars in value to the people in the neighborhood? They have customers, after all. Those people are there because they want to be, and it’s arrogant to imply that they are making a mistake or acting against their own interests. There is a competitive market in retail goods, and Wal-Mart does not enjoy monopoly advantage. That means Wal-Mart is creating real value. If you want to suggest there are blowback effects and complex mechanisms that result in Wal-Mart being a net drag on a community, it’s up to you to prove it.
Not really, no. The Butcher earned 100,000. He doesn’t actually take that home, though. When you consider how much he pays his suppliers, he’s may well be less efficient. Moreover, this is an example of crossing up value with money. Wal-Mart can add a lot more value to the community, even if it takes away more money. This will actually increase demand for money in other ways, but it does work out. But mostly, that’s not a real issue because communities like these haven’t been “local” in the last century. Everyone and everywhere is connected to the global marketplace whether they realize it or not. The butcher’s meat probably comes from Chicago or Texas or both.
Well the local butcher’s meat is more likely to be local (see, important words, more likely) just as the butcher, being local, is more likely to spend a larger amount of his money in the community.
I buy from my local butcher because he locally sources. It’s becoming more common. Even some supermarkets are doing it to an extent, though I haven’t seen Wal-Mart doing it. He also reinvests his money in local businesses, such as the bar where he had to buy me a couple of pints when England beat the Aussies.
You’re envisioning some hypothetical that has no basis in reality. In your imagination, how did Walmart get $100mm in cash? (in reality, $8bn cash) In reality they got it by setting up extremely efficient cheap supply chains, driving their suppliers’ margins to almost nothing, and paying their employees very low wages. They’re in a much much better competitive position than the local butcher is in spite of you assuming it’s not the case. That’s how they got all the cash and weight they throw around now. It just doesn`t make sense to assume they would let themselves lose that competitive advantage simply because they can now afford to drive local butchers out of business and pay high higher prices for meat. They’d be giving up hard earned margin to the slaughter houses if they did that.
I don’t really care what partisans on either side of the issue might want to do. Really just looking for a reasonable attempt at estimating. But, if you don’t have that analysis that’s ok, I will attempt to do it on my own.
Look, I don’t care what the answer is, but it’s an interesting question and answer regardless. You clearly have a position and I assumed it was based on data and that you would be willing to discuss it. I can see that you either don’t have the data or you don’t want to discuss it or you want to make assumptions about why I might be asking, like it’s a trap or something. If at any time you do find data or feel like presenting whatever you have please do I would be interested, as it is, I will go perform the calculations myself.