November 17, 2004

WalMart's Deal With the Devil

Frontline tonight had a story about WalMart and what has led to their becoming the largest retail company in the US today. According to Frontline, the success of WalMart comes from a three basic tactics:

  • they have been exceptionally focused on making their internal processes as efficient as possible by taking advantage of the innovations from software engineering advances to manage their business processes
  • they use their power and market reach to drive the lowest possible prices for their low price point items
  • they are increasingly using their global reach to force changes in the marketplace

As Frontline showed, when WalMart first expanded through America as the low cost big-box store, it was a good partner with its (American) suppliers. In 1994, RubberMaid had a great relationship with WalMart because RubberMaid provided excellent quality, high valued items for a reasonable price and much of its product was sold through WalMart. Back then, RubberMaid was rated the #1 company in the US because it was able to compete on efficient, yet high quality products for the American marketplace - and WalMart helped as the largest retail outlet for RubberMaid products. Yet, when RubberMaid was forced to increase their prices due to the costs of their basic supplies, WalMart refused to accept the new prices and dropped many of the RubberMaid products from their stores. In a fairly short time the loss of WalMart as an outlet led to the demise of RubberMaid.

When WalMart hit a slowdown on its own part, they decided that the way to deal with the competitive marketplace was to aggressively use lowcost foreign suppliers to lower their prices more. And then they started to force their suppliers who considered WalMart with its purchase power, their most important customer, to also lower their prices significantly.

WalMart's focus in low prices has caused them to force their suppliers to move manufacturing to China. Suppliers have been forced to cut their prices if they wish to supply WalMart and this has forced the closing of numerous American factories and opening factories in China, all so the supplier can meet WalMart's price requirements.

Frontline shows that the hardball tactics that WalMart uses doesn't stop at our nation's border. They are now bullying their Chinese suppliers in exactly the same way. WalMart's focus on using costs to drive company behavior is having the predictable result: the race to the bottom is now afflicting China as well because WalMart's only value is low prices. WalMart is the a perfect example of the Darwinian corporation - "nothing matters except what *I* want" and "what's good for WalMart is good for America" even when we know that WalMart only cares that it achieves the highest level of profit with lowest cost.

According to Larry Mishel of the Economic Policy Institute about WalMart's China policy, "A very conservative estimate could say that we have lost over a million jobs to China."

WalMart is using its size and power to drive the political direction of the country as well. As TV manufacturers were facing severe competitive pressures from Chinese manufacturers, one company accused the Chinese manufacturers of dumping their product on the US market and took their case to the WTO. They were surprised to see that WalMart, a company that claims what's good for WalMart is good for America, weighed in on the side of China in this dumping suit. Nevertheless, the WTO agreed with the US manufacturers and ruled against China in this case, but not until most of the American TV manufacturers were put out of business.

So what is WalMart's impact on America? Is it really true that WalMart is good for America? They've lowered the prices for lots of consumers, yet they've also created an environment has moved numerous jobs to China and they've also lowered the standard of living for countless American workers who no longer can expect benefits for healthcare or living wages because these benefits don't fit into WalMart's pricing requirements.

Do remember that WalMart as a corporation could have decided that community and social impact were as important to its future as profit. In that case, they might have decided that the investment in automation could have been returned to employees as higher benefits rather than profits for the shareholders. Instead, they decided that short term profits (maximal individual gain) was worth undermining the long term health and wealth of America and Americans. WalMart is the American capitalist's dream which today manifests itself as the America worker's low wage and unemployment nightmare.

Posted by Mary at November 17, 2004 12:51 AM | Economy | Technorati links |
Comments

I saw frontline last night as well (man, I wish there were more programs as good as Frontline and NOW). Anyhow, caught my attention was how American manufacturing in the program really were old (most looked like they were 40+), overweight, and relatively slow. The Chinese were young, energetic, and motivated (even though they only have the prospect of making around $0.50 an hour). Also, what really struck me is that China seems to have the same energetic, entrepreneur spirit that we had as a nation at the turn of the 1900's.

Fair trade or die. We are on a serious decline, and with the ever widening gap between the richest 1% and the rest of us, our country may soon be a historical example of a superpower like Britain, the Spanish empire, and the Romans rather then the only present, major superpower. China is a sleeping giant, and if that country ever gets a more fanatical, pre-emptive leadership, they may challenge us this century to a dire end. We are already in a serious trade deficit with many Asian countries. We are in trouble.

As for Wal-Mart, did you see the Stranger last week? The editor stated something to the effect of: if red America wants to send their jobs overseas for low price point items, to hell with them. They asserted that democratic, urban areas are not as dramatically affected. Too bad the American way is slash and burn economic instead of a sustainable economic model, Earthian capitalism: modeled after organic stores like Trader Joes and Half-priced books. I bet there are much better macro examples, but I cannot think of any off the top of my head.

Posted by: TABS at November 17, 2004 10:43 AM

'My bad' as far as the bad grammar: it's hard to sneak in blog reading and entry while at work ;)

Posted by: TABS at November 17, 2004 10:47 AM

I just don't shop at Wal-Mart anymore. I wrote about Wal-Mart in relation to Costco a few time on my blog (http://casdra.com/blog/index.php?p=178) and I asked a question that these businesses never seem to ask - how much profit is enough. Did they really have to make $9 billion in profit in 2003? What if they had "only" made $5 billion but had all of their employees have health care. Does any of their management wonder?

Posted by: Mike Houser at November 17, 2004 02:38 PM

I think that what has to change is consumer attitudes. People need to understand that if they want to pay 89 cents for an item that elsewhere sells for $1.50, the people who produce those items are being paid correspondingly less. You cannot complain about low wages and simultaneously demand "everyday low prices," at least not those on the order of Wal-Mart's.

Posted by: Brian at November 17, 2004 02:44 PM

interesting thread...Walmart pushes things beyond where they should go...1. price versus personal value: why should we expect to pay so little ($250) for durable consumer items (e.g 30 inch color TVs) that we get years of enjoyment from? 2. what ever happened to the moral value of spreading the gains to at least ensure a dignified standard of living and have health care; markets are not moral. 3. there is no such thing as a free market--it is ultimately a construction that can be minipulated by powerful entities as they call the tunes to the political and social economy we all must life under.

Posted by: brent at November 23, 2004 02:14 PM