jueves, 7 de junio de 2007

The Wal-Mart effect

I finished reading The Wal-Mart Effect by Charles Fishman and here is my conclusion.
Wal-Mart, the largest company in history, is constantly being questioned about its practices. The way it treats its employees, the way it treats its suppliers, the way it treats its communities, and its motivation are under constant scrutiny from the public. Yet millions of people vote with their debit cards everyday to keep Wal-Mart around. Whether you shop at Wal-Mart or not, it has an effect on you as a consumer. There are always two sides to every criticism which I will show through this report. The objections to criticisms of Wal-Mart, and their positive sides, make me personally a fan of Wal-Mart.
The statistics of Wal-Mart, the world’s most powerful company, are staggering. Ninety percent of Americans live with in 15 miles of a Wal-Mart and 93 percent of American households shop at least once at Wal-Mart in a year. Wal-mart’s sales in the U.S. are equal to 2,060 dollars spent there by every household in the last year. This year 7.2 billion people will shop at a Wal-mart store. Wal-mart is also the largest retailer in both Mexico and Canada. Wal-Mart has 1.6 million employees. Wal-Mart is not only the largest company in the world it is also is unchallenged by its so-called rivals being as big as Home Depot, Kroger, Target, Costco, Sears, and Kmart combined.
The core of Wal-Mart’s success and everyday low prices stems from founder Sam Walton himself. Hard work, accountability, frugality, and constant improvement are some of Walton’s values that still last to this day. The typical worker at Wal-Mart headquarters in Bentonville Arkansas puts in 58 hours a week. They work 15 percent more hours than their competitors.
The level of frugality of Wal-Mart is unprecedented as they pass every last penny of savings on to the customer. Suppliers are required to give Wal-Mart toll free numbers to call them, offices at Wal-Mart headquarters are furnished with mismatched office furniture given to them from suppliers, and staffers who travel only have their tipping reimbursed up to 10 percent for a meal. Accountability is emphasized to the point of the dollar performance of Wal-Mart’s sales in every category. For example, Wal-Mart keeps track of the number of items per hour each of its checkout clerks scans at every cash register, at every store, for every shift as a means of measuring their productivity. These obsessive data gathering habits drive home the importance of accountability to the point where there is no hiding.
This culture, instilled by founder Sam Walton, to this day remains unchanged but the scale of Wal-Mart has. Walton died when there were 370,000 employees and sales of 44 billion. Now there are 1.2 million more employees and 240 billion more dollars in sales. These practices of get to work early, check your numbers constantly, and don’t spend money you don’t have to spend, got Wal-Mart to where it is today, but now these practices have transformed Wal-Mart into what seems to be borderline exploitive if not illegal because of its change in size.
Much of criticism towards Wal-Mart has to do with low wages, unrelenting pressure on suppliers, products cheap in quality as well as price, and offshoring of jobs.
First, on the topic of low wages; Wal-Mart declares proudly that the hourly wage of store employees is almost twice the federal minimum wage. However, for a single mom that means that she is taking home only 290 a week, hardly enough to support a family. Wal-Mart says that their retail jobs are meant as supplemental income; not to support a family. The problem with that is for two thirds of Americans Wal-Mart is the single largest employer where they live.
Wal-Mart wields its dominating power to transmit its relentless dissatisfaction with price towards its suppliers to keep those everyday low prices. Wal-Mart has the ability to reach deep inside the day-to-day operations of its suppliers and shape their operations, choices, and product mix to their liking. They form “partnerships” with their suppliers to take down the barrier between vendor and retailer to take costs out of the system. But too often this translates to businesses being chewed up and spit out by Wal-Mart’s bullying system. Wal-Mart takes control away from suppliers of everything from redesigning packages to computer systems if the supplier wants to sell at Wal-Mart. Wal- Mart tells its suppliers straightforwardly what it will pay for their goods. Wal-Mart’s suppliers cant consider themselves serious players unless they are doing business with Wal-Mart, then once they are doing business with them they are doing it on Wal-Marts terms and they no longer run their own business.
Because of Wal-Mart’s constant pressure for everyday low prices, some manufacturers have to make their products cheaper by changing the quality of the products themselves to be able to sell them at Wal-Mart’s low price. The core value of Levis blue jeans for example, is quality and durability. But to sell at Wal-Mart, a cheaper kind of denim is used and simpler designs. This creates a serviceable but utterly undistinguished pair of jeans that are both inexpensive and cheap, which turns inside out what Levis jeans have stood for for 150 years.
Eventually there are no more efficiencies to be wrung out of the supply chain; eventually the only way to lower costs is to manufacture outside of the U.S. There is no question that Wal-Mart is accelerating the loss of American jobs to low wage countries like China. Some people say that we are buying ourselves out of jobs by supporting Wal-Mart but Wal-Mart says that they created 100,000 new jobs in the U.S. in the year of 2004. But the truth is that actually when a new Wal-Mart opens up people don’t buy more products, they just shift where they buy those products. Much of Wal-Marts business comes at the expense of other retailers. So when Wal-Mart “increases” jobs, all it is really doing is taking the jobs away from other retailers that already existed in the community that have gone out of business because Wal-Mart came into town.
Even with all these negative viewpoints of Wal-Mart, I feel that Wal-Mart is the up most example of what is possible within the realm of a democratic free market. Wal-Mart is a testament to what American capitalism is all about. Wal-Mart does affect everyone, even if you don’t shop at Wal-Mart, but I don’t think it is capable of ever taking over completely.
When it comes to low wages; it’s true that Wal-Mart makes 10.3 billion in sales, but if you distribute that across the 1.6 million employees that’s only 6,400 dollars per employee. Wal-Mart makes 3 dollars an hour in total profit spread out over the year, so they wouldn’t be able to afford to pay 12 dollars an hour, even if they wanted to. There isn’t enough money-at least not without raising prices.
Most companies will beg for the opportunity to have Wal-Mart sell their product because Wal-Mart has such a large market share, but that doesn’t mean that a company needs to go through Wal-Mart to be successful. Some companies make it a conscious business strategy to not sell in Wal-Mart because the perception is that things sold in Wal-Mart are not quality products. No one really likes shopping at Wal-Mart; most people just go to buy things. Trekking through a Wal-Mart to find what you need feels more often like a chore than shopping. There will always be opportunity for other businesses to survive if they make their emphasis customer service and quality instead of price. Just yesterday (6/6/07) in the Wall Street Journal, there was an article entitled, “Not copying Wal-Mart Pays Off for Grocers”. It said, “The supermarkets are winning back shoppers by sharpening their differences with Wal-Mart's price-obsessed supercenters, stressing less-hectic stores with exotic or difficult-to-match products and greater convenience. Last year, sales at supermarkets open at least a year rose 4%, the biggest increase in five years, according to retail consultants.”
We have all seen U.S. factories being shut down to go overseas but at the same time, finding cheaper stuff is still too addictive for American consumers to give up and no one connects the two. Consumers will never be able to say no to a lower price even if it means we are buying ourselves out of jobs. What Americans need to realize is that continuing education is the only solution to offshoring. If we are constantly adding value to our work by increasing our ability to compete with the work of the world, and educating ourselves, then less jobs will be lost weather Wal-Mart encourages offshoring or not. Offshoring is not Wal-Mart’s fault.
Wal-Mart’s relentless goal of always low prices may persuade some suppliers to produce under sweat shop conditions or side step environmental rules, but where does Wal-Marts responsibility start and stop? Shouldn’t it be the government’s responsibility to enforce laws? According to Wal-Mart, their responsibility is to obey the law and deliver low prices. Even though they could potentially use their power to solve some of the environmental and labor problems that the industries that it relies on create, where is the line? And once you open the door to considerations other than what’s required by law, to considerations other than what’s required to improve efficiency and decrease cost; where will the demands end? What won’t people ask of Wal-Mart?
I salute Wal-Mart and its efforts to be the best retailer in history. If I start a business I want to be able to know that there is no limit to my company’s potential. I enjoy everyday low prices and I also know that Wal-Mart just ads to innovation, better quality, and better customer service everywhere else.

7 comentarios:

Marc Jorgensen dijo...

Ok, I finally read the whole article. I really like how you aggregate lots of interesting facts and data- sticking to the most interesting stuff. And your conclusion seems fair- in that you looked at both sides of the coin. However it seems you had a preconceived notion that the whole democratic capitalistic idea of Wal-Mart is inherently good- which I also do agree with on many accounts so I cannott find it within myself to point blame at this.

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