Putting Wal-Mart in Perspective

We regularly shop at Wal-Mart. As we and a hundred million or so other Americans have figured out, when it comes to household goods, Wal-Mart offers an unbeatable combination of low prices and selection.

Wal-Mart can offer low prices because it relentlessly seeks to reduce its costs of doing business. A few weeks ago the Los Angeles Times, in a three-part series, outlined the extraordinary lengths Wal-Mart goes to drive down the prices of the goods it sells. See "An Empire Built on Bargains Remakes the Working World," "Scouring the Globe to Give Shoppers an $8.63 Polo Shirt" and "Grocery Unions Battle to Stop Invasion of the Giant Stores."

Although the LA Times articles presented a number of views, to me the overall tone of the articles suggested that there's something sinister with Wal-Mart's constant cost cutting -- low wages and lost American factory jobs are too high a price to pay for everyday low prices.

According to Wal-Mart's annual report, in each of the last three years Wal-Mart earned about three cents on each dollar spent at its stores.

A consistent three cent margin means two things. One, Wal-Mart has been sharing its lower costs with its customers; otherwise we'd expect its margin to increase as it lowered its costs. Two, any increases in wages or cost of goods will require Wal-Mart to increase its prices; there's not much of a cushion in a three cent margin.

So, if you want Wal-Mart to pay more to its workers, or if you want Wal-Mart to pay more for American-made goods, you're simply offering to transfer money from your pocket into the pockets of Wal-Mart's workers and its suppliers.

A few other thoughts on the Wal-Mart saga:

1. Of course Wal-Mart pays low wages to its workers. Retail work is usually unskilled or low-skilled, and it's usually pretty easy to find enough people to do the work. For this reason, apart from the few unionized retailers (grocery stores), no retailers pay high wages to their employees. Wal-Mart is not leading the way in low wages; it's just continuing a long retail tradition.
2. The Wal-Mart phenomenon is the latest development in a retail revolution that dates back to the late nineteenth century, when chain stores like Woolworth's began replacing local general stores. The one constant in this revolution has been the consumer's insatiable demand for ever lower prices and ever greater selection. Those who've attempted to quell this retail revolution, by striking for higher wages, higher costs and the resulting higher prices, have consistently lost to the consuming hoards.
3. If Wal-Mart is forced to increase its wages or purchase higher cost goods, others will steal its business by selling goods at lower prices by paying lower wages and buying cheaper goods. One of its new low-price competitors might even be the next Wal-Mart. In 10 years, we may read of the sad plight of Wal-Mart workers being displaced by the next big discounter.
4. The retail revolution has created a lot of temporary winners -- each retailer leading the new wave has eventually lost out to new retailers leading the next wave. The battlefield is littered with dead and wounded retailers who led the revolution at various times -- Woolworth's, Sears, Montgomery Wards, K-Mart. If Wal-Mart survives and thrives, history suggests that it would be the exception.
5. If every retailer was as efficient as Wal-Mart, we wouldn't need higher wages. An economy of Wal-Marts would be deflationary. As the goods we bought got cheaper each year, we could maintain our purchasing power with lower incomes. In other words, we'd be just as well off while earning less. If that sounds crazy to you, it's just because Wal-Mart's hyper-efficiency is so exceptional that we don't expect it from other parts of our economy.

It's ironic that Wal-Mart -- whose low prices make it easier to live on low wages -- is the prime target of those who purport to champion the cause of low wage workers.

Comments

[Chitownguy]

As a consumer I pay $30 per year to shop at Sam's Club.

In 2003, with my tax rebate, I also spent $700 on a piano there and in 2002 I purchased two computers and a printer.

Practically, 95% of my grocery dollars spent are at Sam's Club as well as the pricing of any large ticket item, because my perception is that it will offer me the best overall value. They are conveniently located, with one on the way home from work and another 7 minutes from home.

In order to make certain that more of my dollars go into the kitty to send my 3 girls to college so they don't end up working at Sam's, I competitively compare Sam's Club with others offering big ticket items.

Over the course of a year groceries qualify as a big ticket item and with them I put my blinders on, buying 95% at Sam's Club. Note that I recently chose not to get my 4 tires at Sam's Club because Firestone offered a better value on a particular day.

I believe I save money because of Sam's Club and hope they continue to offer me the opportunity to shop there.

No one forces me give them $30 per year to shop there.

As well..no one forces anyone to work at Sam's Club or WalMart.

No one forces a business to sell to WalMart/Sam's Club. If they've done their homework they should understand the risk and rewards. If they didn't, their doom was only a matter of time. WalMart isn't a brand new entity.

As well, no one forces a city to have a WalMart, but just like the political egos that spew the need for the building of new sports complexes for their potentional economic impact, I believe your point that the same case is made incorrectly for the "need" of WalMart being in every mayor's town.

Also, let's not be naive, if not WalMart, another "large company" would pop up and woo a politician with the same promises of becoming the next WalMart with all of the perceived benefits to their town and his ego.

Long live our democratic and capitalistic system.

Long live the ability of all of our citizens to vote for their next mayor and educate themselves so they don't have to work at Sam's Club.

Long live the ability to start a business that does not need to sell to Sam's Club in order to be profitable.

And long live my choice of shopping wherever I perceive the best value.

Now if only our government would get out of our public school system and continue to lower my taxes!

[Bryon]

What is "sinister" about Wal-Mart is not its wages or pricing practices per se, but merely how it acts as an indication of the economic situation we find ourselves in today. Progressively more flamboyant and extravagent measures necessitate an aggressive and brutally efficient lower end, one that is relatively gigantic in comparison to the heights it is the base for. The acumulation of wealth by an elite is what gives rise to Wal-Marts, and the fact that this trend seems well set reproduce itself even is what is so chilling.

I found it vastly amusing when Wal-mart began initiating a plan to shrink the size of its stores, given that people had begun to find them far too unweidly. Their ability to look at their stores from an economic perspective is quite good, but they are a lot slower on the human side! Greeters standing in front of a commercial warehouse like a welcome mat in front of a sardine can. Arguments for Wal-Mart using that economic perspective, as the above ones do, will of course find no fault; but when brutal efficiency is presupposed as a valuable telos from the get-go, it is difficult to see the other issues that do not affect that aim.