What We’re Reading: The WalMart Effect, by Charles Fishman
Charles Fishman’s The WalMart Effect is highly recommended to anyone working in retail. Fishman’s no Wal-Mart fan, but neither is he a polemicist. His book is thoughtful and fair.
Some of the book’s facts are staggering in their scale. In scope, Wal-Mart is the Grand Canyon of retail:
* WalMarts US sales came to $2060 per every US Household in 2005 — and on that $2060,they earned $75.
* Each week, 100 million Americans shop at WalMart.
* From 1997 to 2004, the US added 670,000 new retail jobs. 480,000 of those — 70% — were at Wal-Mart. The remaining new net retail jobs — 190,000 across the nation for seven years — comes to 540 new retail jobs per state per year. While the rest of US retail grew at a 1.3% rate, Wal-Mart jobs grew at 67%.
Some stories about Wal-Mart’s legendary frugality:
* WalMart won’t pay to speak with vendors: vendors are required to provide Wal-Mart with a tollfree number, or accept collect calls. And Wal-Mart charges vendors for the overnight fees when sending over purchase orders.
* While traveling, Wal-Mart staff are only reimbursed up to 10% for tips.
* Wal-Mart staffers bring in office supplies from home to avoid requisitioning them.
Wal-Mart’s effects on the economy:
* Of the largest 10 suppliers to Wal-Mart in 1994, five subsequently went bankrupt or failed.
* Wal-Mart isn’t just Proctor and Gamble’s largest customer — they’re as big as P&G’s next nine customers combined.
* Bain’s Gib Carey estimated a clear correlation between doing business with Wal-Mart and profit margin: as companies increased the share of their business with Wal-Mart, their operating margins declined accordingly.
The chapter on the the $2.97 price for a gallon bottle of Vlasic pickles (a price point Wal-Mart held for two years) illustrates the effects of Wal-Mart’s monosopy, and how Wal-Mart distorts pricing signals:
That’s the scary part of the Vlasic story: the market didn’t create the $2.97 gallon of pickles, nor did waning consumer demand or a wild abundance of cucumbers. Wal-Mart created the $2.97 gallon jar of pickles. The price — a number that is a critical piece of information to buyers, sellers, and competitors about the state of the pickle market — the price was a lie. It was unrelated to either the supply of cucumbers or the demand for pickles. The price was a fiction imposed on the pickle market in Bentonville. Consumers saw a bargain; Vlasic saw no way out. Both were responding not to real market forces, but to a pickle price gimmick imposed by Wal-Mart as a way of making a statement. (p82)
I found Fishman’s conclusions about Wal-Marts’ motivations particularly insightful:
It is remarkable that almost of all of Wal-Mart’s behavior — even the bad behavior or the seemingly diabolical behavior — can be explained by taking Wal-Mart at their word. It really is all about “always low prices.” That’s a testament to the shaping power of that one idea, which Wal-Mart has turned into an obsession, almost a corporate fetish. (p.228)
The WalMart Effect: highly recommended.