Case Study #3
TO WAL-MART OR NOT TO WAL-MART?
Wal-Mart is a $250-billion-a-year retailer. Eighty two percent of U.S. households made a
Wal-Mart purchase in 2002. It is the largest company in the world with a global
workforce of 1.4 million. Where Wal-Mart competes the average grocery prices are 14%
lower. In the past it was General Motors, IBM and other companies that were considered
to be the leaders in industry and the ones to watch. Now it is Wal-Mart that is being
studied in universities around the world.
At Wal-Mart, cost is king. Costs are kept low and this translates into goods being sold
for less. The entire organization is focused on reducing costs and passing those savings
on to the consumer. This allows poor people to buy food and other necessities that they
otherwise might not be able to afford. In the U.S. it dominates sales in a number of
categories : 32% of disposable diapers, 30% of hair products, 26% of toothpaste, 20% of
pet food and 13% of textiles.
Wal-Mart simply has developed the most efficient methods for operating their business.
Their inventory management, through a network of scanners, computers, and at-the-ready
suppliers, makes it the leader in successful turnover of inventory. How can we blame
Wal-Mart for being the efficient cost conscious giant that it is?
The Wal-Mart phenomenon has occurred at the same time that high-paying skilled jobs
are being lost in the manufacturing sector. When these jobs are lost, the alternative often
means being employed at Wal-Mart at a much lower pay scale with reduced benefits
such as medical insurance. Its labor costs are twenty percent less than those at
unionized supermarkets, and sales clerks make less, on average, than the federal poverty
level ($8.50 an hour).
Barbara Ehrenreich* has described the problems faced by the under class, such
as waitresses and Wal-Mart employees. They barely survive on a day-to-day basis, living
from hand to mouth, with no reserves, no safety net, no medical insurance and almost no
prospect of improving their positions in life.
The loss of manufacturing jobs has affected the lifestyles of many people. What they see
is the reality of reduced opportunity with a permanent reduction in wages and standards
of living. They are trapped in a new marketplace, with diminishing expectations and few
alternatives to shopping at Wal-Mart. This is a change in our American culture--the
dreams have now been down-sized.
Is Wal-Mart the hero or the culprit? After all, low prices, competition, and growth have
all been mantras that Americans have been chanting all of our lives. We were
told that if you built a better mouse trap, everyone would come to you. Well, Wal-Mart
has built a better mouse trap. Is there any logic in our looking at Wal-Mart as a
contributor to the loss of some our middle class or is it just jealousy and sour grapes?
For one thing, its hard line on costs has forced many factories to move overseas.
Wal-Mart imported most of the items it sells. Environmental standards
are lower in these countries where these goods are manufactured than they are in the
U.S. This probably results in increased health issues and costs. In addition, shipment of
goods many thousands of miles to their ultimate destinations, involve utilizing the
worldĆ¢ĀĀs limited oil resources. When you add up all this, the cost of the goods may be
greater than if they were produced in this country.
Another issue is that Wal-Mart is a non-union employer paying wages that are below the
poverty level, with minimal health insurance coverage. As many employees cannot
afford the co-payment required for doctors office visits, when a medical crisis occurs they
are forced to use the emergency room facilities of local hospitals. The result is that the
community bears the direct cost of their medical treatment and the indirect, as well as
ancillary costs such as diminished work capacity, child care, etc.
There are other economic ramifications to the Wal-Mart explosion. When Wal-Mart
arrives in a town, Ć¢ĀĀmain streetĆ¢ĀĀ erodes. Neighborhood stores that used to provide goods,
services and paid their workers well, are eliminated, uprooting families and ways of life
in the process. The Wal-Mart decision to saturate Oklahoma City, resulted in the closure
of 30 supermarkets.
If Americans shop with price being the only factor that determines where they
purchase their goods, doesnĆ¢ĀĀt this mean the permanent down-sizing of our standard of
living? How can the local retail establishment survive when they canĆ¢ĀĀt compete with a
Wal-Mart? Look at what has happened to the local supermarket, bookstore, hardware
and clothing store. The demise of these small business constitutes the loss of a middle
class of society in a community. We need to think: As consumers are we better off
paying a little more to enable the local merchants and their families to survive in order to
preserve the character of our communities and society or should we concern ourselves
with price only?
HERE IS YOUR DILEMMA:
You are the mayor of a small city in the West. You canĆ¢ĀĀt worry about the 4,700 workers
at IBM and the other workers at technology companies who lost their jobs. Your problem
is a more local one.
A Wal-Mart representative has approached you about the possibility of building a super-
store within your city limits. The store would serve communities within a twenty-five mile
radius. The land that they intend to build upon would require new zoning. Wal-Mart
would expect a certain amount of property tax and other relief. If your city does not
want a super-store, you are certain that one of the other towns close-by would be happy
to accommodate their needs.
What studies would you require before deciding which way to vote? What ramifications
do you foresee with this new super-store? What would you ask of Wal-Mart before
agreeing to their request? How much input would you seek from the residents of your
city
