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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.

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  • Alan Rimm-Kaufman
    Alan Rimm-Kaufman founded the Rimm-Kaufman Group...
  • Comments
    One Response to “What We’re Reading: The WalMart Effect, by Charles Fishman”
    1. Emily says:

      I’m reading “The Wal-Mart Effect” now for a management course and as a student, I wish it was mandatory reading. Not only does it deal intimately with the retail aspect of business (as you had mentioned), but it also goes into the strategic decisions managers must make.

      HIGHLY recommended! Great choice of excerpts :-)