Friday, May 18, 2012

The Wal-Mart Effect

The Wal-Mart Effect: How the World's Most Powerful Company Really Works, and How It's Transforming the American Economy
© 2006 Charles Fishman
352 pages

In only a little over fifty years, Wal-Mart has grown from a small five-and-dime store in rural Arkansas to an outright goliath, dominating the American, and increasingly, the global economy to an unprecedented degree. In The Wal-Mart Effect, Charles Fishman examines the secret of the corporation’s success, and explores how that success has altered the global marketplace.

Fishman does to Wal-Mart specifically what Eric Schlosser did for the fast food companies in general: probe into the details of their business, as far as the corporate obsession with secrecy will allow, and air out the laundry. But if Sclosser is a journalist looking for the ‘dark side’ of his subject, Fishman takes more of a neutral stance; however, a sense of awe pervades the text. He’s no less critical of Wal-Mart, but more honestly curious. It is the same attitude one might find in a history of Napoleon’s Grand Armee or the German Wehrmacht. The difference is that those legendary armies of old are now long gone: Wal-Mart is still very much alive: the changes it brings about are seen in the newspapers, not the history books.

            The secret to Wal-Mart’s success lays in its near-maniacal obsession with finding the cheapest products and offering them as cheaply as possible.  This seems an obvious proposition: doesn’t every business use that as its model?  Wal-Mart’s distinction is a matter of degree: cutting expenses is an obsession in this corporation, at all levels. Fishman’s investigations find workaholic executives who meet in boardrooms filled with discarded lawn furniture, because Wal-Mart sees no reason in buying furnishing that hopeful clients provide for free. He finds managers who lock their employees in overnight and encourage people to work off the clock – and employees who exist in a perpetual limbo between partial and full employment,  working too few hours to qualify for the meager benefits, but too many to look for a second job. But one expects a chain store like Wal-Mart to prosper by keeping wages low;  the war it wages on its suppliers is more novel.

            Wal-Mart is a supermarket: it sells vast quantities of goods, and its original successes allowed it to expand to the point that 90% of Americans live within a fifteen-mile radius of one of its stores. A company that does business with Wal-Mart can expect to sell more volume than they ever anticipated producing through the stores, but Wal-Mart is no passive player in the marketplace. That obsession with finding the lowest prices means obtaining the lowest price from their suppliers – and Wal-Mart conducts its commanding volume into power, in effect dictating prices to its suppliers. This doesn’t happen at the outset; instead, prospective clients are lured into business, then hit with demands that they lower their price 5% every year. Companies which can’t afford this go out of business, and those who linger can only make the cut by producing ever-more shoddy merchandise, or finding a cheaper source of production…like China. Wal-Mart not only prospers from outsourcing; it engineers it.

            That Wal-Mart can dictate prices like this indicates that it has outgrown the restrictions normally present in the free market: indeed, Wal-mart is now so large that when it enters a market, that market becomes its own. It not only sets the prices in its own stores: other companies have to resort to the same tactics just to keep even. When Wal-Mart moves into a town, small businesses competing with it go out of business (creating a net job loss, for those ‘growth’-minded politicians who think the answer to a stagnant economy is big box stores). Those who try to compete with the giant of Bentonville face angry customers, because the Wal-Mart price has become the expected price – and it is, in fact, the lowest price that can possibly be offered. Wal-Mart's enormous income derives from volume sales, not a generous profit margin: Fishman elaborates that if Wal-Mart attempted to raise its standard wage from $10 to $12, the company would be operating at a net loss.

        Although its effect on local economies and wages is deleterious, Fishman's chief concern with Wal-Mart is that its size makes it unmanageable: it's too big to be reined in by the market, because it is the market. His account doesn't address how exactly what concerned people should do with Wal-Mart, although after finishing it I think people who can might give it a miss and shop elsewhere, even if the prices aren't rock bottom. Fishman believes people are starting to tire of the store, missing quality goods and service. Wal-Mart's obsession with providing cheap goods has made shopping there an experience bereft of value.

Definitely a book to consider for Americans.

Related:
WalMart Watch
Fast Food Nation, Eric Schlosser

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