John Wayne is the Duke. Elvis is the King.

John Wayne's Holster: Wal-Mart Is Destroying America
John Wayne's Holster
Visit my main blog at Monkey Wrench Revival. Visit my birdwatching blog at The Birding Nerd.

Thursday, February 02, 2006

Wal-Mart Is Destroying America

If you could buy a pair of jeans for $30 at the mall, or buy the same pair for less than $20 at Wal-Mart, where would you shop? Most people would shop at Wal-Mart. You get the same pair of pants and still have more than $10 left for something else.

Wal-Mart’s strategy is to provide the consumer with quality products at rock-bottom prices. It is a volume based strategy. They make less per item sold, but increase their overall profits by selling a larger number of items. Pretty simple.

Using this strategy, Wal-Mart has revolutionized the retail merchandise industry. Currently they operate over 4,400 stores and employ 1.2 million people in the United States alone. For the past few years, Wal-Mart has averaged over $240 billion in annual sales. It is perhaps the largest retail corporation the US has ever seen. They are bigger than all their competitors combined!

Wal-Mart has worked pretty hard to achieve their current position. They have perfected bar code-based inventory and purchasing systems. These and other innovations have given Wal-Mart a 48% productivity advantage over its competitors, forcing them to adapt and increase their productivity to compete. In fact, 10% of the economy’s productivity over the past several years can be traced to Wal-Mart. Some economists point out that the increased productivity and low prices offered by Wal-Mart have had a major impact on holding down inflation.

This is great for America, right? After all, everyone loves a bargain. And the low prices help raise our standard of living – don’t they? Well, as the old saying goes, “There is no such thing as a free lunch!” As a recent documentary points out, Wal-Mart’s low prices have come at a very high cost! Not at a cost to Wal-Mart. Rather, it is a cost to YOU! A cost the American worker. A cost to the taxpayer. A cost to the foreign laborer. And a cost to our economy.

Have you ever wondered how Wal-Mart is able to sell their products for such a low price? It is not all about the economy of scale. As any business student will tell you - the way to cut the sale price of an item is to cut the cost of its production and cut your overhead. And that is exactly what Wal-Mart has done. But their cost cutting measures have gone far beyond what any human would consider decent.

To be fair, Wal-Mart is not alone. Other companies employ similar practices. It seems to be the way things are done nowadays. But Wal-Mart is the king of the hill! They have taken this practice to its limit - and then some. They have set the bar, forcing others to follow or perish. As such, they bear the king's share of the blame.

Wal-Mart typically signs a contract with a supplier to furnish certain items. Wal-Mart is by far the largest retail store in the country. Because of the large volume products Wal-Mart moves, the suppliers are essentially dependent on Wal-Mart for their survival. And Wal-Mart knows this. They use this knowledge to bully the suppliers into providing its products at the price that they (Wal-Mart) set. The supplier has two choices, provide the products on Wal-Mart’s terms or go under. To live up to Wal-Mart’s terms, the suppliers typically have to cut their work force, decrease the wages they pay their employees, cut benefits, or look overseas for cheaper labor. Of course, they always have to option to close up shop.

If the supplier can not meet Wal-Mart’s demands, then Wal-Mart will go overseas for another supplier. Whatever happens to the jilted company is not Wal-Mart's concern. Going abroad seems to be the rule for Wal-Mart. Currently, Wal-Mart works with about 21,000 suppliers. Approx. 17,000 of these suppliers are from overseas – primarily in China. Last year, Wal-Mart imported over $20 billion in manufactured goods from China. Let us not forget that the US is on the short-end of a $120 billion trade-deficit with China. Wal-Mart accounts for roughly 10% of that deficit. It has come to the point where Wal-Mart has really become a conduit for foreign access to our markets. So much for all the flag-waving in the Wal-Mart commercials.

Not only does Wal-Mart have most of its suppliers overseas, but it exploits the overseas workers in a manner that would make Nike blush. Workers in Wal-Mart’s overseas factories make between $0.15 and $0.20 per hour. In some cases, workers are forced to work 14 hours a day, 7 days a week. Of course there are no health or retirement benefits.

Not to be unfair to the foreign workers, Wal-Mart exploits its US employees as well. Wal-Mart's policy is to keep their costs down by undercutting their employee’s ability to earn a decent wage and good benefits. For starters, Wal-Mart pays its employees about $3 per hour less than Union supermarket workers. They also limit the amount of hours their employees work so that they can not afford the benefit packages offered to them. The company will tell you that 80% of their employees are full-time. But what they don’t tell you is that full-time is considered anything over 28 hour a week. All told, the average wage earned by a Wal-Mart employee is $13.9 thousand per year. That is $3,800 below the poverty line.

As you can imagine, many employees find it difficult to earn a living wage. It goes without saying that they can not afford to purchase the benefit packages that the company offers. How do the employees make ends meet? Wal-Mart encourages them to seek public assistance. That’s right! The largest retail chain in the US makes its employees go on public assistance to get by. Half of Wal-Mart’s employees are eligible for food stamps. Many rely on welfare, housing subsidies and public hospitals to make ends meet.

Who picks up the tab for all these subsidies? The taxpayer of course. In 2004, that amounted to $1.6 billion. That is money that Wal-Mart should be paying. Instead, they passed the buck to you and me. But that is not all you paid. Wal-Mart also gets additional subsidies from the tax payer to cover the cost of bringing their business to town. After all, someone has to pay to construct roads, pave parking lots, put up traffic lights, etc.

What benefit do you get from your input of tax dollars? You can get a job. Chances are you probably had a job before Wal-Mart came to town. But of course, that company couldn’t compete and went under. But now Wal-Mart will hire you. It’s the least they can do. Of course the salary and benefits won’t be what you were used to. Sometimes the local municipality collects revenue from sales taxes, but that typically won’t happen for a few years due to the tax abatement Wal-Mart probably got as part of the deal for moving in. When the waiver period expires, then the municipality can start collecting taxes, assuming that Wal-Mart doesn’t pack up and move a few miles up the road to the next municipality. But at least the old town gets to keep the empty lot with the humungous box-shaped store that no other business is likely to fill.

Let me pose the same question to you again - If you could buy a pair of jeans for $30 at the mall, or buy the same pair for less than $20 at Wal-Mart, where would you shop? Sounds like you could save some money at Wal-Mart. But in reality, the prices at Wal-Mart are much higher than you think.


At 11:47 AM, Anonymous Roy said...

Wow! You sure have posted on some surprising topics lately! On this one I would have to completely disagree with you. Certainly many things you say are true but some not so true.

For starters this is the one I always here.

"Chances are you probably had a job before Wal-Mart came to town."
The story goes that Wal-Mart comes to town and everyone closes. I believed that until I moved out of California and to Nevada. In Nevada the Wal-Marts have grocery stores in them as well. Thats right Wal-Marts. Reno, has 4 super Wal-Marts and many mom&pop stores, chain stores, stores are opening everywhere. If one drives everyone out of business then 4 should shut down the town but not so here.

As far as the documentary is concerned,there are so many documentaries poppping up since Moore made them popular but most are light on the facts. Perhaps you have seen outfoxed(about FoxNews) pure lies. Admittedly I have not seen the Wal-Mart film, (I will check it out) but I have read about it and the one that counters it. Wal-Mart does open stores in depressed areas South Central, places that have not had businesses since the Rodney King riots. They encourage other businesses to move next to them because of all the traffic and it does bring in tax dollars for a community much more than they take.

Likewise I read an interesting article that I will dig out after I get out of class, that talks about Wal-Mart keeping inflation down.

As for China, free trade is bigger than Wal-Mart and it cannot be stopped nor do I think it should. Other people need jobs to. .20 might not sound good but I dont think the workers would be happier if they left and they went back to living on less than a dollar a day.

Anyways great topics lately, I am impressed!

At 9:16 PM, Anonymous Joe Verica said...

Hey Roy, I think you make valid points. I would agree that not all Wal-Marts are bad for all communities. My post was a generalization of the effects that Wal-Mart has on a typical community.

Here in State College, we have TWO Super Wal-Marts - one at each end of town. We also have a Target, a mall with a bunch of retail shops, and four or five supermarkets.

When the Wal_Marts came to town, they revitalized the shopping districts at the two ends of town, but some of the small shops downtown went under. Both the Hills and Ames Retail Stores also closed shop. I suspect that at least one of the supermarket chains and some of the mall stores will belly-up in the next few years too - as business is down.

I have no problem wih that. Having some stores go under in not necessarily a bad thing. After all, competition is what drives capitalism. I am all for it. To that extent, Wal-Mart is great for consumers, at least in the short-term.

My problem with Wal-Mart is that they do not play on a level field, and they exploit their employees, distributors, and the taxpayers. Moreover, there is no excuse for a company like Wal-Mart not to have affordable benefits for its employees. Even worse, they encourage them to go on welfare, forcing the taxpayer to foot the bill. These tactics may be good for the bottom line, but they are not good for people. To make matters worse, Wal-Mart’s success has forced their competitors to either follow suit or close shop.

As for the overseas factories - I am all for globalization. I am in no way promoting isolationism. The people in China or Bangladesh or wherever need jobs just as bad as anyone. The problem I have with the whole thing is the exploitation. I am not saying that we need to raise salaries from $0.15/hr to $8.75/hr. But 14 hrs a day, 7 days a week for $120 a month is not right. The working environment is another issue I did not really get into.

I think your point about someone else filling the niche is valid as well. If Wal-Mart didn't do it, someone else would. That is undoubtedly true. So in that sense, I suppose my grievance is not so much against Wal-Mart specifically, as it is with the way business is being done in general. I know everyone does it, but that does not make it acceptable in my view. Things need to change - for humanitarian reasons if nothing else.

In the end, I am a free market guy, but I think there has to be some protections for the consumers and employees. Otherwise we will end up with laizze-faire capitalism and working conditions reminiscent of the Industrial Revolution. I may be going out on a limb here, but I think (or at least hope) that most American’s would be willing to pay a few extra bucks for retail items if it meant better working conditions for both US and overseas workers.

As for the documentary, I found it quite informative, but definitely biased in some instances. Nevertheless, it is still worth watching. There is a PBS Frontline episode on the same topic, but that is pretty slanted in my view. There is also tons of stuff on the web - both pro and con - that it worth spending a little time on.

At 11:03 AM, Anonymous Roy said...

Well said. I think that I get defensive about Wal-Mart for the reason you stated it is not so much about Wal-Mart as it is about business practices. So many people when they complain about China are complaining that they have our jobs not because they are not making enough. I agree 200%. They need some workers rights. However I believe that it will sort itself out much like it did in this country. I don't know how we could begin demanding China change its rules. I know that you are aware of the changes going on over there and I am optimistic that it will be sooner rather than later. For the record I never buy jeans or any clothes for that matter at Wal-Mart. And yes I would rather pay a few more bucks for a burger if the field workers can make an extra dollar or two.


Post a Comment

<< Home