May 30, 2006
Wal-Mart is the world’s biggest company by sales. Its sales for fiscal year 2005 were over $312.4 billion. Wal-Mart now has over 3,800 stores nationwide. In America there are more Wal-Mart employees (1.3 million) than high school teachers.
The company’s competitive advantage is its sheer efficiency – it is a superbly run organization that sells products for less than anybody else can.
Why is such a successful company, an employer of millions, so controversial?
Several communities have voted to keep Wal-Mart stores out on the grounds that the stores destroy local shopkeepers. Others claim that Wal-Mart pays parsimonious wages. The State of Maryland has passed legislation, aimed at specifically at Wal-Mart, that requires large, non-unionized retailers to spend a minimum amount on health-care benefits. Banks are fighting Wal-Mart’s request to offer its own, inexpensive personal credit card.
The rhetoric gets heated. In the language of the street, Wal-Mart is a “modern day plantation” paying “slave wages.”
The “Wal-Mart effect” is the subject of three new books and a documentary film. Two of the books and the film are harshly critical. The title of the book by Anthony Bianco, The Bully of Bentonville: How the High Cost of Wal-Mart’s Everyday Low Prices is Hurting American, sets the tone of the criticism. There is a high social cost to Wal-Mart’s low prices.
Behind the charges, data is scarce. Here is what we know to date. A typical Wal-Mart store employs 150 to 350 people; the bigger “superstores”, which also sell groceries, employ 400 to 500. The arrival of a store in a typical county destroys 180 to 270 retail jobs over what it employs. A Wal-Mart associate does the job of 1.5 to 1.75 people at any rival.
Yet a Wal-Mart attracts new retailers that take advantage of the increased customer traffic and the new retailers create new jobs. The retailers set up across the street and put out “workers needed” signs. Estimates of the average new job creation around a single new Wal-Mart store exceed the number of jobs destroyed by the store by close to 100. In other words, there is a net gain in jobs, not a net loss.
Do Wal-Mart’s pay “slave wages”? A new study by David Neusmark and co-authors (Public Policy Institute of California) estimates that a Wal-Mart store reduces per worker retail wages by only about 1 percent.
On the positive side, what Wal-Mart saves in efficiency, lower payrolls, it passes on to consumers in prices. A Wal-Mart store in the area slashes one’s shopping bills, even if a shopper never shops there.
Emek Basker, an economist, estimates that the price of goods such as toothpaste, shampoo, aspirin and laundry detergent fall by 7 to 13 percent in the five years after Wal-Mart’s arrival in a city. The Economist, the world’s best news magazine, reports that superstores return 25 cents back for every dollar spent on groceries, a average savings of $450 a year for a family. The numbers on other merchandise, clothing, are larger still.
The numbers will not silence the critics. They know consumers save at Wal-Mart and the total employment and wage numbers will not satisfy.
Wal-Mart is a lightning rod for a diverse body of social critics. Some are suspicious of the deeply religious, white Protestant culture of the company’s leadership. Others dislike capitalism, the profit motive, and the regimen of financial efficiency. Yet others fear size or the “not from around here” nature of the business. There is an odd “do they really care about us” uneasiness about a business designed to give costumers’ exactly what they want at the lowest price.
Wal-Mart’s success has inevitably attracted social critics of American culture and economic system. Wal-Mart is best, the most successful, at prospering in this system and therefore the most obvious target. Wal-Mart will find no relief from such critics – until a better retailer comes along.
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