It would be virtually impossible to overstate the size, scope, and power of Wal-Mart. It’s the largest retailer in the world, the largest public company of any sort in the world (by revenue), and since opening its Superstores it has also become the largest grocer in the world. Everyone is likely familiar with the most common case made against Wal-Mart: it’s a big, soulless corporation which comes into small towns, drops its brick-and-steel monolith in the middle of a freshly-paved asphalt desert, and proceeds to drive the town’s smaller retailers out of business. Add the various and sundry complaints made against it w.r.t. workers rights, salaries, and shady business practices, and then contrast that against the millions of people who rely on Wal-Mart in order to make ends meet, or those for whom the retailer really is a benevolent, paternal corporation, offering steady employment and decent wages. These conflicting portraits are just a slice of the issues at the heart of Wal-Mart, but it’s the likeliest vector for Charles Fishman to enter the fray in his startlingly well-executed The Wal-Mart Effect.
To understand Wal-Mart and why it does what it does, Fishman argues, you first have to understand what motivates the company. When Wal-Mart’s motto says “Always low prices. Always“, it’s not kidding around. In fact, Wal-Mart’s dedication to offering goods just a little bit cheaper than everybody else was not only the original business intent of Sam Walton in 1962, but it’s also ostensibly the reason for the company’s monumental success. Dispensing with many of the tried-and-true business techniques used by other retails, such as cyclical pricing, Wal-Mart keep pushes to keep relatively consistent low prices that the customer can always count on. Believe it or not, such a tactic isn’t merely a sales technique, or at least doesn’t appear to be: Wal-Mart genuinely wants the lowest possible prices for its customers, and its customers return this effort with a tremendous economic loyalty. Everybody wins, right?
Not so, says Fishman, and this is the side of the Wal-Mart effect rarely portrayed in magazines or news. The arrival of a Wal-Mart in a new area causes the closure of four existing businesses and a net gain of thirty jobs over five years, so the much-touted ruination of the mom-and-pop business culture, while true, is hardly apocalyptic. Of significantly more concern, and the idea to which Fishman spends most of his time, is the effect of Wal-Mart on its own suppliers. He begins on a positive note, detailing and history and business relationship of the owner/manufacturer of the Makin’ Bacon microwave bacon cooker to Wal-Mart. The latter has essentially made the former’s business, which is really quite small and specialized, selling for just under $6 per item. The relationship has been mutually beneficial to both parties—though it doesn’t stop Wal-Mart for selling cheaper, competing bacon cookers for a third of the price. What makes Wal-Mart and the Makin’ Bacon different? In part because the company has brought little to no price pressure to bear; that is, they’ve never told Jon Fleck to sell the Makin Bacon at, say, $5.49 instead of $5.97. That seems like a minor difference, but Wal-Mart is a company that has made its name with the difference of a few pennies, and what may seem like a minor difference in price for one item to one consumer is in fact enough to make or break the business of the manufacturer.
To be clear, Wal-Mart actually operates at very thin profit margins, but when you see a price at Wal-Mart drop even lower (ostensibly cut, bumped, or lassoed by an anthropomorphic smiley face), it is not Wal-Mart absorbing the difference in price; it’s the manufacturer, whom Wal-Mart cajoled or more likely threatened to lower the wholesale price of the item. Wal-Mart does this same dance for every product it sells, and with every manufacturer it deals with. The company’s obsessive attention to detail, to cost and price margins, and to a scientific/statistical study of its own performance has the effect of creating lean and mean businesses…. or eventually gaunt and weak ones. The enormous pressure to lower price either means that a business must stop dealing with Wal-Mart (which often constitutes more than 20% of its businesses), cut the quality of the product, or move its operations to China or Bangladesh in order to lower manufacturing costs—often with a significant deficit of quality.
The sum of Wal-Mart’s pressure on its suppliers and on its own staff and management to lower costs1 creates a boon for its customers, a slight economic depression for small businesses, and a generally cultural malaise; worse than all of those, however, is the amount of power that Wal-Mart can and does wield over manufacturers drives quality down at the same time as price. In other words, Wal-Mart’s endless drive to be cheap means that it sells cheap crap—and because the cheapness starts with the manufacturer, Wal-Mart makes other retailers of the same product sell cheap crap, too. That, too me, seems like a much greater problem than whether a small-town grocery store can’t stay afloat when Wal-Mart undercuts them on bananas and bulk cheese.
To Fishman’s credit, he’s not an anti-Walmart zealot, as is so popular these days despite being such a boring, platitudinous stance. Instead, Fishman’s book embodies what market research says is the most prevalent attitude toward Wal-Mart: we like it with our guts and bowels and viscera, even as we distrust and even loathe it with our front lobes. Good or bad, Wal-Mart is important, and we must be aware of just how impactful its presence is.
- Wal-Mart’s own corporate headquarters in Bentonville, AK, is famously austere: the vice presidents’ offices are supposedly decorated with a mishmash of discarded lawn furniture so the company doesn’t have to spend money on chairs.[↩]