The Wal-Mart Effect

(FYI... this is quite a long article, much longer than I intended it to be... but its a good read, at least the parts that are excerpted and written by someone else...)

Walking into Wal-Mart is sometimes such a daunting task.  Its not a store you "shop" in, its a store you "task" in.  That is to say, you usually don't wander the aisles of Wal-Mart's grocery just looking at what you want, like you would say, in a Publix (where shopping is a pleasure) or Target.  Wal-Mart is the kind of place you take a list to, you get in, you get what you need, and you get out of there as soon as possible.

Its a huge box, with the rafters exposed high above you.  The white(ish) tile shines brightly, aisle after aisle filled with everything from Nesquik Chocolate powder to Hanes ankle socks.  At least 40 registers line up in a long, long row. Random electronics, appliances or whatever are many times piled high on a pallet, sitting in the middle of a wide aisle.

You walk straight to what you need, if you know where it is.  Ah... yes, Woolite Dark detergent.  On sale, for $6.83 for a 60 ounce bottle, that odd random price.  Only, that's what the tag says.  Its not actually on the shelf.  Looking around, you see where its supposed to be, but that part of the shelf is empty.  Turning around, you see a 96 ounce container of regular Woolite sitting amongst a dozen or more bottles of Snuggle Fabric Softner..  This will have to do, you figure, but there's no price.  You look around for a tag, and see none.  Sighing, you take the bottle, and walk out to the main aisle, and scan the store for either someone who works there or one of those "Can't Find The Price?  Scan It Here!" yellow signs.  The worker is nowhere to be found, but that big yellow sign is just ahead, with a big black arrow pointing straight down.  And its right in the middle of Women's intimates. 

Walking over there, amongst the bras and unmentionables, you reach the little grey box and start to scan the Woolite... and realize the scanner isn't on.  Not only is it not on, the screen is completely missing.   Well, whatever.  It can't be much more than what you were going to buy to begin with, maybe its even less, right?  Emerging from the racks of tiny underwear and Faded Glory bras, you reach the main front aisle, looking for which register to go to.  There are 40 registers.  You count four lights on.  One of the lights is blinking, as the cashier looks apathetic, the person checking out is looking embarrassed and everyone else in line is looking annoyed.

Each of the other lines are at least 10 people deep.  Only one of the "self-checkout" lines is open, and the line is also very long.  You walk slowly to the "Speedy Checkout-20 Items or Less", noticing that even though most people just have a few things in their hands, there are a couple of people pushing that 20-item limit to the brink.  You join the line.  And wait.  And wait.  And wait.

Getting to the cashier, she says nothing to you.  Sholandra takes the bottle, scans it, then says in a voice that probably couldn't care any less about whether you live or die, "8.83."  You open your mouth, start to say something about the price, but stop.  You're ready to get out of there.  You run your debit card, apparently too soon, as it freezes up.  Sighing, Sholandra punches some buttons with her fingernails that are about 2 inches long each, and snaps, "Do it again."  You run your card again, push the right buttons, Sholandra spins that baggy thing to put the Woolite in front of you, and before you can blink, she's already scanning the items of the person next to you.  You take your bag and leave, starting the long trek through the massive parking lot to your car.

Sound familiar?

Thus is about half the experiences anyone and everyone has at Wal-Mart.  I'm guessing that many of you, while reading, were nodding your head, maybe even adding in your own "Yeah, and then this happens" or "You forgot about when..."

I picked up the most fascinating book two weeks ago, solidifying the theory that I will read anything if it grabs my attention in the first chapter.  "The Wal-Mart Effect" by Charles Fishman is a book all about... well, not just Wal-Mart, but the effect it has on those who buy from there, those vendors who Wal-Mart buys from, those communities in which Wal-Mart chooses to plant themselves... and also those people who don't buy from Wal-Mart, those vendors who Wal-Mart doesn't buy from (or doesn't anymore), and those communities from which Wal-Mart chooses to not be a part of--or be a part of anymore. 

The book isn't about the history of Wal-Mart, though it does devote a page or two to its beginnings and its founders.  Mostly, its about the good... and bad... of the largest private company in the history of the world.   Fishman does his best to make sure he covers both sides of the equation... like, all the good Wal-Mart has done...

• Opening up thousands of stores has given communities not only much needed tax revenue, but has opening up tens of thousands of new jobs.
• Consistently offering low prices has helps low-income families shop for their needs in food and household products, and even helped them when it comes to children's needs and wants, like Christmas or birthdays
• Allowing small manufacturers to get their products in Wal-Mart stores is like a coup de gras, sometimes making or breaking the life of those companies.

For example, it tells the story of Makin' Bacon.  A guy named John (can't remember his name, but I'll call him John) and his 5th grade daughter Abbey designed a new way to cook bacon, by keeping it raised while cooking so the fat will drip off of it.  They spent a few thousand dollars getting a prototype, patents, production going and a mail order business going.  It was a pretty big deal for a while, but Wal-Mart, Target and other stores wouldn't talk to them.  Finally, Armour Bacon worked out a deal with them where they'd put Armour coupons in their package, if Armour would put a mail-order advertisement on their bacon packs.  The deal was a success, so much so that Wal-Mart came calling again.

They offered John an order, and initially he refused, saying that Armour gave him his start, and he wanted to stay loyal to them for another year or so.  The time went by, he met with Wal-Mart again, and they appreciated his sense of loyalty in the face of instant success.  They ordered 100,000 units right off the top.  John was overwhelmed, because he was doing a few thousand a month... he and his father took out a huge loan of a 100K at the bank, got the Makin' Bacons produced, and got them to Wal-Mart.  They paid off the loan in six months.

And this explains the Wal-Mart effect.  You can buy Makin' Bascon at Wal-Mart for about $6.  You can buy it on the website for $10, including shipping.  Target has it for about $7, some drug stores carry it for about $8, and the high-end cookery story Le Gourmet Chef has it for about $12.  People who shop at Le Gourmet Chef likely don't shop at Wal-Mart.  Many people who shop at Target also aren't Wal-Mart shoppers... but because Wal-Mart buys so many Makin' Bacons from John's company, and pays a fair, if not low, price, John is able to sell it to other stores for the low price as well.  If Wal-Mart wasn't buying, chances are that same product would be a good $10 or $12 at other stores, maybe even upwards of $15 or more at Le Gourmet Chef.   Thus, the Wal-Mart Effect rippling out to people who would never even look at the store, much less go into it.  And this happens all over the world.

And it talks about all the bad that Wal-Mart has done...

• Those tens of thousands of jobs are many times not new jobs, but transferals of jobs from surrounding businesses to Wal-Mart itself... and not everyone gets a new job.
• Those same low prices come at a cost both nationally and internationally
• When Wal-Mart decides they don't want to carry a product anymore, or a company decides not to sell to Wal-Mart anymore, many times its such a devastation loss that it puts the company in bankruptcy, or out of business altogether.

As an example, the book tells the story of Snapper lawnmowers... here's an excerpt from the book:

In 2002, Jim Wier's company, Simplicity, was buying Snapper, a complementary company with a 50-year heritage of making high-quality residential and commercial lawn equipment. Wier had studied his new acquisition enough to conclude that continuing to sell Snapper mowers through Wal-Mart stores was, as he put it, "incompatible with our strategy. And I felt I owed them a visit to tell them why we weren't going to continue to sell to them."

Selling Snapper lawn mowers at Wal-Mart wasn't just incompatible with Snapper's future--Wier thought it was hazardous to Snapper's health. Snapper is known in the outdoor-equipment business not for huge volume but for quality, reliability, durability. A well-maintained Snapper lawn mower will last decades; many customers buy the mowers as adults because their fathers used them when they were kids. But Snapper lawn mowers are not cheap, any more than a Viking range is cheap. The value isn't in the price, it's in the performance and the longevity.

You can buy a lawn mower at Wal-Mart for $99.96, and depending on the size and location of the store, there are slightly better models for every additional $20 bill you're willing to put down--priced at $122, $138, $154, $163, and $188. That's six models of lawn mowers below $200. Mind you, in some Wal-Marts you literally cannot see what you are buying; there are no display models, just lawn mowers in huge cardboard boxes.

The story goes on to discuss how Weir essentially decided that Wal-Mart would continually demand Snapper mowers become cheaper and cheaper as the years went by--much like they've demanded other prices to drop year after year.  Snapper knew that they relied heavily on their reputation of quality, and that to do a cheaper mower meant lower quality, and that just wasn't going to happen for them.  So... they said no to Wal-Mart.  (You can read this entire chapter here)

And then there is Vlasic pickles.  Another excerpt:

A gallon-sized jar of whole pickles is something to behold. The jar is the size of a small aquarium. The fat green pickles, floating in swampy juice, look reptilian, their shapes exaggerated by the glass. It weighs 12 pounds, too big to carry with one hand. The gallon jar of pickles is a display of abundance and excess; it is entrancing, and also vaguely unsettling. This is the product that Wal-Mart fell in love with: Vlasic's gallon jar of pickles.

Wal-Mart priced it at $2.97--a year's supply of pickles for less than $3! "They were using it as a 'statement' item," says Pat Hunn, who calls himself the "mad scientist" of Vlasic's gallon jar. "Wal-Mart was putting it before consumers, saying, This represents what Wal-Mart's about. You can buy a stinkin' gallon of pickles for $2.97. And it's the nation's number-one brand."

Therein lies the basic conundrum of doing business with the world's largest retailer. By selling a gallon of kosher dills for less than most grocers sell a quart, Wal-Mart may have provided a service for its customers. But what did it do for Vlasic? The pickle maker had spent decades convincing customers that they should pay a premium for its brand. Now Wal-Mart was practically giving them away. And the fevered buying spree that resulted distorted every aspect of Vlasic's operations, from farm field to factory to financial statement.  (taken from another chapter in the book)

Vlasic began to plead with Wal-Mart to ease up on the demands of the gallon jar... eventually Wal-Mart relented, accepting the half-gallon size instead... and not too long after that, Vlasic filed for bankruptcy.

The book ends with an excerpt from an interview with current and former employees of Nelson sprinklers, originally made in Peoria, Illinois.  Several of them reminisce of how proud they were to be employees of Nelson, and how proud they were of the strong, high quality sprinkler products they had manufactured... and they began to tell stories of how Wal-Mart's high demand for sprinklers forced Nelson to outsource production to China.  The employees tell of how they were laid off, as parts they were making were suddenly being made in China, and coming in sometimes broken, many times cheaply made.  Little by little, almost all manufacturing was sent overseas, with only a few employees remaining at the factory, only kept open in case Wal-Mart needs sprinklers quicker than they can get them from overseas.

Overall, the book is a good read, though I won't say a "quick" read.  You have to be interested in the subject itself, and while the stories are really great--both good and bad--somewhere around the halfway point of the book, it gets mired down in numbers and statistics.  It reviews case studies done by professors and researchers on Wal-Marts impact in certain areas, and goes into detail about numbers.  Get through that, and the interview is also pretty great.

Fishman does a good job at staying down the middle when it comes to opinion, though I get the sense that he's not a fan of Wal-Mart as a whole.  However, he doesn't rail against the company--nonetheless, Wal-Mart comes out looking pretty terrible. 

Its rather a conflicting feeling, being a fan of capitalism.  The free market is a great, great thing... but what do you do when one sector of the free market becomes practically unstoppable due to that very same capitalism that made it big? 

Well, to finish, here are some samplings from the book, a few facts to chew on...

**At the end of 2000, Wal-Mart had 888 supercenters (up from 9 in 1990), and was the number-one food retailer in the United States. So, the company went from a "standing start" to first place in roughly 10 years.
Every seven days more than one hundred million Americans shop at Wal-Mart - one third of the country. Each year 93 percent of American households shop at least once at Wal-Mart. Wal-Mart's sales in the United States are equal to $2,060.36 spent there by every U.S. household in the last year.

**ExxonMobile, number-one on the Fortune 500 list, employs about 90,000 people worldwide; Wal-Mart employs 1.6 million. ExxonMobile is growing by raising prices; Wal-Mart is growing despite lowering prices.

**Wal-Mart sells more by Saint Patrick's Day, March 17, than Target (its closest competitor) sells all year.

**How does Wal-Mart do it? Not by focusing on profits, but rather on cost containment. Relentlessly driving pennies out of the dollar: driving jobs overseas (without much concern for how those jobs are fulfilled, so long as the result is a lower cost), driving costs of its own employees (locking them in its stores overnight, forcing them to work overtime without pay, skimping on their wages and health insurance, etc.), and driving its suppliers out of business.

**Wal-Mart cascades data about its sales out to its vendors...but it gives those vendors the responsibility of analyzing those waves of data and reporting the insights back to Wal-Mart."

**Does Wal-Mart create or kill jobs? Fishman reports: "While the entire country (from 1997 to 2004) was adding 670,000 new retail jobs, Wal-Mart was adding 480,000 jobs in the United States. More than 70 percent of all new retailing jobs in the United States in the last seven years came just from the growth of Wal-Mart. The remaining new retail jobs - 190,000 in the entire nation spread over seven years - amount to just 540 new retail jobs in each state, each year...."

**Compare this with manufacturing, and those lame Wal-Mart jobs look even worse. During that same period of time, "U.S. manufacturing jobs...fell by 3.1 million jobs, a loss of 37,000 factory jobs a month, on average, for eighty-four straight months."  (Interesting fact from Fishman: the US now has more people working retail than in manufacturing, a shift that happened in 2003. We're a consumer nation)

 **As Fishman says, "We find the abandonment of U.S. factories from Georgia to Michigan unnerving; we find cheaper stuff on store shelves addictive. And we don't connect the two."

**In the first year after a Wal-Mart opens, it adds 100 new jobs to the typical U.S. county. Keep in mind that each Wal-Mart typically employs 150-350 workers. Do the math: even as Wal-Mart opens, it puts others out of business. That 100 new jobs? All Wal-Mart jobs. No one else benefits. Then, in the years after Wal-Mart arrives, retail employment falls gradually, so that five years after Wal-Mart's arrival in a county, there are only a total of 50 new retail jobs. Add to this the fact that unlike smaller competitors, Wal-Mart does its own distribution, resulting in a net loss to a county of 20 wholesale jobs. Five years after Wal-Mart moves in, a county has gained only 30 new jobs. Wal-Mart is hardly a growth engine for any economy.

**Wal-Mart and poverty. Economists found that "once you control for everything else, U.S. counties that had a Wal-Mart just before 1989, or that added one during the decade, had higher poverty rates than counties that were Wal-Mart free. In a county with at least one Wal-Mart, poverty fell not to 10.7 percent but to 11 percent. The difference - three tenths of a percentage point - looks trivial....But it is not. In counties with a Wal-Mart, the rate of poverty fell 10 percent more slowly than it would have without a Wal-Mart during that decade."

**Wal-Mart and groceries. "Part of the reason Wal-Mart can sell a salmon fillet for $4.84 (It used to cost $5.00 or more for a quarter of a pound of salmon) is that...'they don't internalize all the costs.' Pollution ultimately costs money - to clean up, to prevent, to recover from. But right now those costs aren't in the price of a pound of Chilean salmon. Salmon-processing facilities that are run with as much respect for the people as the hygeine of the fish also cost money - for reasonable wages, for proper equipment, for enough workers to permit breaks and days off. Right now those costs aren't in the price of a pound of Chilean salmon, either."

**Workplace conditions. A recent lawsuit against Wal-Mart alleges that Wal-Mart's low price guarantee and relentless insistence on squeezing costs "makes it impossible for suppliers to comply with even the most basic laws where they operate, including wage and hour laws." Yes, Wal-Mart does a limited number of inspections of its suppliers for safety/workplace conditions. 12,500 of them in 2004. "But only 8 percent of them were surprise inspections. That means 1,000 inspections were unannounced, and 11,500 were scheduled in advanced. Still, Wal-Mart reports, 9,900 of the inspections resulted in violations serious enough to either suspend a factory or put it on notice. Even if you presume that the 9,900 number includes every single surprise inspection - that is, if you presume that every surprise inspection resulted in uncovering serious violations - that leads to a remarkable conclusion: 8,900 inspections of factories in 2004 revealed serious violations in factories that knew in advance that Wal-Mart inspectors were coming. if the code of conduct has to be signed by the factory management, if it is posted on the factory wall, if the inspections are scheduled with advance notice, and still thousands of Wal-Mart supplier factories get a "yellow" or "red" rating...how seriously are the factories really taking Wal-Mart's code of conduct?" And if those are the conditions in the factories on a day when managers know Wal-Mart is coming, what is life like on a typical day?

**"Wal-Mart sells $178,125 worth of stuff per employee.  Target sells $156,506 worth of stuff per employee.  Whole Foods sells $121,875 worth of stuff per employee."

**As those numbers go down, the pleasurability of the shopping experience goes up, and that's no accident....Wal-Mart is relentless at measuring its own costs; it isn't so interested in measuring its customers' costs (i.e., of waiting in line, finding shelves stocked and organized, etc.)."

**The punchline. "[Wal-Mart's] dominance at both ends of the spectrum - dominance across a huge range of merchandise and dominance of geographic consumer markets - means that market capitalism is being strangled with the kind of slow inexorability of a boa constrictor. It's not free-market capitalism - Wal-Mart is running the market. Choice is an illusion. Wal-Mart's suppliers can't consider themselves serious players...unless they are doing business with Wal-Mart. Once they are doing business with Wal-Mart, though, they are doing business on Wal-Mart's terms because Wal-Mart already dominates whatever business they're in....

**[By way of example, t]he new P&G [formed by the merger of Procter & Gamble and Gillette] will be number seventeen, or thereabouts, on the Fortune 500 list in 2006. But remember: Wal-Mart isn't just P&G's number-one customer; Wal-Mart is as big as P&G's next nine customers combined. Cheerful discussions of partnerships notwithstanding, Wal-Mart owns P&G's business."

**Bigness beyond Wal-Mart. "The five biggest public companies in the United States - with sales of $1.1 trillion - account for 9 percent of the economy. The top twenty companies account for 20 percent of the economy. Those numbers are arresting, and they are moving in the direction of increased concentration [as 10 and 20 years ago the top 30 companies accounted for 20 percent of the U.S. economy]....We don't often talk about the concentration of corporate power, but it is almost unfathomable that the men and women who run just twenty companies make decisions every day that steer one fifth of the U.S. economy."

**Wal-Mart isn't just a store, or a huge company, or a phenomenon anymore. Wal-Mart shapes where we shop, the products we buy, and the prices we pay - even for those of us who never shop there. It reaches deep inside the operations of the companines that supply it and changes not only what they sell, but also changes how those products are packaged and presented, what the lives of the factory workers who make the products are like - it even sometimes changes the countries where those factories are located. Wal-Mart reaches around the globe, shaping the work and the lives of people who make toys in China, or raise salmon in Chile, or sew shirts in Bangladesh, even though they may never visit a Wal-Mart store in their lives.

**Wal-mart has even changed the way we think about ourselves - as shoppers, as consumers. Wal-mMart has changed our sense of quality, it has changed our sense of what a good deal is. Wal-Mart's low prices routinely reset our expectations about what all kinds of things should cost....

**The Wal-Mart effect touches the lives of literally every American every day. Wal-Mart reshapes the economic life of the towns and cities where it opens stores; it also reshapes the economic life of the United States - a single company that steadily, silently, purposefully moves the largest economy in history...

So... anyone want to go see a bouncy smiley face?