The Lean, Mean World Economy, Brought to You by Wal-MartWal-Mart’s success has arguably been the most powerful driving force behind at least nine of the most significant trends shaping the 21st century:? Benign deflation, which is often called “disinflation.”? Globalization.? Off-shoring.? Domestic outsourcing.? The shift from a U.S. economy built on manufacturing to one based on services.? Supply chain optimization.? The decline of labor unions.? Rapid consolidation of the retail sector.? Accelerated creative destruction.
Wal-Mart’s business model is deceptively simple: It sells a wide variety of products at the lowest price in any market it enters. It can sell at the lowest price because it relentlessly drives down its costs via scale-related economies.As a result, its prices are about 20 percent lower than its competitors’ prices. This gives consumers more spending power, and raises their standard of living. According to a study by the market research firm, Global Insight,1 Wal-Mart saves the average American household $2,300 a year.And its impact goes beyond the 176 million people who shop at its 3,900 stores each week. The Wal-Mart phenomenon ripples throughout the entire economy, creating both positive and negative consequences for Wal-Mart’s 61,000 suppliers, its competitors, and for consumers.
For consumers, the most positive implication is the rise of disinflation. For example, when Wal-Mart sells a pair of Levi’s jeans for $19.68, or an 18-ounce box of generic breakfast cereal for $1.33, it changes the perception of what Levi’s jeans and corn flakes should cost, even among the people who never shop at Wal-Mart. Consumers come to expect low prices when they buy goods at other retailers, and those competitors either have to lower their own prices, go out of business, or find another business strategy.
Wal-Mart also has much to do with the unemployment statistics and the decline of labor unions. It is the largest private-sector employer in the U.S. and in the world, with 1.3 million employees in the U.S. and another 500,000 employees around the world.
Wal-Mart’s workforce in the U.S. is non-unionized. The company discourages its associates from joining labor unions. Since it already provides health insurance and has a policy of open communications, most employees conclude outsiders aren’t needed. As Wal-Mart spokeswoman Beth Keck told the BBC News,2 “Our employees can choose whether they want to be union members or not, and overwhelmingly they have not.”
Whether that’s by choice, or because they’re afraid, is hard to discern. But Wal-Mart’s employees must be aware of what happened when the employees of a Wal-Mart store in Quebec voted to unionize in 2004. Less than a year later, the company closed the store, laying-off all 190 employees.
According to Charles Fishman, author of The Wal-Mart Effect,3 it was the first time Wal-Mart shuttered a store in its 11 years of doing business in Canada, where it is the country’s largest retailer. Wal-Mart explained that the union was demanding that it add 30 jobs, which would increase its payroll at the store by 15 percent. Considering that its profit margin is 3 percent, Wal-Mart decided it was better to move to another town. What’s left unstated is the implied threat: Workers can choose between having a non-union job, or no job at all.
By discouraging its employees from joining unions, Wal-Mart, as the nation’s largest employer, is playing an active role in the decline of American labor unions. Along with the forces of globalization and outsourcing, for which Wal-Mart is also largely responsible, this practice has caused private sector union membership to go into a freefall.
Between 1983 and 2005, the percentage of American wage and salary workers who belonged to unions plunged from 20.1 percent to 12.5 percent, according to the Bureau of Labor Statistics.4 That’s a decline of nearly 40 percent in just one generation.
This labor union strategy is integral to Wal-Mart’s low labor costs, which contribute to its low prices, which in turn drive its sales volume. And that volume allows it to achieve scale efficiencies and purchasing clout that lead to even lower prices in a self-reinforcing cycle.
Wal-Mart’s revenues of $315 billion in 2005 placed it in second place on the 2006 Fortune 500,5 second only to Exxon Mobil. By comparison, the revenues of all the other companies in the General Merchandising category of the Fortune 500 ? including Target, Sears Holdings, Federated, JC Penney, Kohl’s, Dollar General, Nordstrom, Dillard’s, Saks, and Family Dollar ? add up to just 60 percent of Wal-Mart’s sales.
This is what we mean when we say that Wal-Mart is leading the retail consolidation trend. As it grows relentlessly, it gains a higher and higher share of total consumer spending. In response, smaller competitors either close their stores, or merge them as Sears and Kmart have done.
Consider what has happened to the supermarket industry since Wal-Mart entered the business. In 1989, Wal-Mart had zero supercenters, the name it gives to Wal-Mart stores that also sell groceries at discount prices. In 1990, it entered the market with nine supercenters. Today, Wal-Mart has expanded to 1,906 supercenters, and it continues to open an average of 16 new supercenters a month. It is now the world’s leading grocery retailer.
On its corporate Web site, Wal-Mart claims that it has created more than 240,000 new jobs over the past three years in the U.S. That’s the undisputed positive side of Wal-Mart’s impact on the economy. On the negative side, its role as a driving force behind retail consolidation has also destroyed jobs. For example, Winn-Dixie went bankrupt in 2005 and laid off 22,000 workers because Wal-Mart took its customers away.
If only one supermarket chain went bust, other factors might be the cause. But, according to a study by Carnegie Mellon University assistant professor of marketing Vishal P. Singh and his colleagues, within the past 10 years, 30 supermarket chains have gone bankrupt.6 Moreover, 26 of those businesses cited their inability to compete with Wal-Mart as the reason why they failed.
What this means is that nearly all of the growth in the retail sector of the economy is a direct result of one company’s expansion. Of the 670,000 retail jobs created in the U.S. between 1997 and 2004, more than 70 percent of them were jobs at Wal-Mart. That leaves just 27,000 net new jobs per year, for all of Wal-Mart’s competitors combined. So while Wal-Mart’s workforce was growing by 67 percent, the rest of the American retail industry grew by a miniscule 1.3 percent.
At the same time that Wal-Mart was driving an unprecedented consolidation in retailing, its success has been pivotal in shifting the U.S. economy from manufacturing to services. During the seven years from 1997 to 2004, when Wal-Mart was adding half a million workers, U.S. manufacturing industry lost 3.1 million jobs. As Fishman observes, there are now more Americans working in the retail sector than in the manufacturing sector, which is unprecedented in the modern era.
To understand why, you have to look at why Wal-Mart is able to sell as many as 120,000 products per store at “everyday low prices.” A key to its competitive advantage is the power it can wield over its 61,000 suppliers. Because of retail consolidation, very few large product manufacturers can stay in business without Wal-Mart as a customer.
That leverage gives Wal-Mart the clout to demand that its suppliers cut their prices not just to the bone, but to the marrow. Wal-Mart can simply tell a supplier whose product sells for 99 cents that the retail price will now be 77 cents.
Wal-Mart can dictate what price it will pay a supplier because its business is so essential to anyone who sells products at Wal-Mart.7 For example, at one point, Wal-Mart’s executives decided to sell a gallon jar of Vlasic pickles for $2.97. At that price, Vlasic was making only a few pennies per jar. Worse, selling the gallon of pickles at Wal-Mart was destroying sales of its smaller jars at other retailers.
But Vlasic had no choice: Wal-Mart refused to sell Vlasic’s other products unless it supplied the gallon jar for $2.97, and it reminded Vlasic managers that if they couldn’t provide it at Wal-Mart’s price, another vendor would.
According to executives of suppliers interviewed by Fishman, once Wal-Mart has set an initial price for a product, it’s common for the company to tell the supplier to cut its prices by 5 percent each year, so Wal-Mart can “roll back” its price on a product. Faced with cutting costs year after year, some suppliers slash their R&D budgets, use cheaper materials, include fewer features, or use less packaging.
Levi Strauss lowered its quality standards so it can make jeans that sell for less than $20 instead of $30. Others, like Philips Electronics and the L.R. Nelson sprinkler company, close their U.S. factories, lay off their workforces, and outsource production of their products overseas. Still others, like the makers of Huffy Bicycles and Vlasic Pickles, can’t survive on constantly shrinking margins and go bankrupt.
In its drive to lower prices, Wal-Mart gives its suppliers an ultimatum: Cut your costs so we can cut prices, or we’ll find someone else to do it. This approach is behind the trends toward domestic outsourcing and global off-shoring of manufacturing work.
Increasingly, Wal-Mart has turned to Chinese suppliers for its store-brand products. The Chinese suppliers’ lower labor costs give them an advantage over American companies. And, more significantly, when it continues to use American and Japanese suppliers of branded products, many of those companies can only meet Wal-Mart’s price targets by off-shoring the manufacturing of their products to China, Bangladesh, and other countries where very low wages are paid to factory workers.
This off-shoring is a major reason why Wal-Mart sold $18 billion worth of products made in China in 2004. That accounted for nearly 10 percent of all the goods imported from China to the U.S.
As a side effect, the off-shoring has opened Wal-Mart up to charges that it is responsible for the “sweatshop” conditions in some of the factories that produce the products it sells. As in most cases, Wal-Mart’s business model has become both a blessing and a curse: People in the worst of these Third World factories have the jobs they need, but in some cases the working conditions and pay are so poor that the jobs aren’t worth having. Wal-Mart’s response is that it enforces a code of conduct for all of its suppliers, and it even sends teams to inspect the working conditions where products are made.
One reason this state of affairs exists is that Wal-Mart is dramatically accelerating a pervasive transformation of the global economy. As in every revolution, there are winners and losers. It’s the responsibility of consumers and their representatives to ensure that we reap as many benefits of the revolution as we can without totally compromising our core values.
Wal-Mart delivers what its customers want: everyday low prices. But those customers have to recognize that any company that supplies or competes against Wal-Mart has to be able to either meet the company’s standards or offer something so different that it can compete on a basis other than price.
In recent years, there have been a lot of complaints about what this means for some workers and suppliers, even as the great mass of people have directly or indirectly reaped the benefits. The reality is that while Wal-Mart’s tough stance on negotiating prices has been a nightmare for many suppliers and their employees, it has been a tremendous boost for the economy. Because of the benefits of scale and technology, Wal-Mart almost single-handedly has kept the U.S. in a prolonged period of disinflation.
In fact, the company not only drives down costs for its own customers, but also for the customers of other retailers, who never shop at Wal-Mart.
Fishman illustrates this point with the example of a plastic dish for cooking bacon in the microwave oven. This simple product, called Makin Bacon, was designed by an eight-year-old girl in 1992. Her father, Jon Fleck, runs the company that makes it from the basement of the family’s home, outsourcing the manufacturing to a large-scale contract manufacturer in Wisconsin.
Because Wal-Mart sells millions of the dishes, Fleck’s cost per unit is 50 percent lower than it would be if he were still selling them individually through the mail. Also, Wal-Mart’s insistence on selling the dish for $6.97 has required Fleck to keep its manufacturing costs at a minimum.
This is important to all of us. Because suppliers who sell to Wal-Mart are forced to keep their costs low, they can also sell their products at lower costs through other retailers. For example, Makin Bacon sells for $6.99 at Target, $7.99 at Walgreens, and $11.99 at Le Gourmet Chef. Without Wal-Mart’s influence, the prices at all of those stores would be several dollars higher.
That’s Wal-Mart’s impact on just one product. Now consider that a typical Wal-Mart store stocks 60,000 different products, and a Wal-Mart supercenter, which includes grocery items, stocks 120,000 items. From toothpaste to tires, from paper towels to plasma TVs, the prices of all 120,000 of those products are significantly lower than they would be if Wal-Mart did not exist ? and all of those prices are lower, not just at Wal-Mart, but at Wal-Mart’s competitors as well. Taken together, the impact of all of those lower prices has helped keep inflation to a minimum.
In fact, a study by two economists, Jerry Hausman of MIT and Ephraim Leibtag of the U.S. Department of Agriculture, reveals the surprising power of Wal-Mart in reducing inflation.8 They found that grocery prices at supercenters of all kinds are 27 percent lower than at traditional supermarkets.9
However, the Consumer Price Index ignores that difference. The CPI compares the price of a product, such as a box of cereal, at one supermarket to the price of the same box of cereal at the same type of supermarket the following year. If the price goes up by 10 percent, inflation in that product category is said to have risen by 10 percent. But the CPI also factors in the different places where people buy products.
As Wal-Mart continues to open more stores each year and competing stores close, more and more Wal-Marts are being added to the group of stores where researchers collect pricing data for the CPI. This makes sense because sales are climbing at Wal-Mart each year as it enters more markets and dropping at the traditional stores as they go bankrupt or lose customers to Wal-Mart.
However, the CPI considers a Wal-Mart shopping experience to be a lower-quality experience than shopping at a traditional grocery store. As a result, when the CPI’s researchers replace a traditional grocery store with a Wal-Mart, it doesn’t count the huge drop in prices between the box of cereal at the first store and the same box of cereal at Wal-Mart.
According to Hausman and Leibtag, by ignoring the impact of Wal-Mart’s lower prices in the years of their study, from 1998 to 2001, the CPI overstated inflation for those years. Instead of the 2.5 percent annual inflation in grocery prices, the actual figure should have been 2.125 percent per year, a difference of 15 percent.
Assuming that the 108 million households in the U.S. in 2001 each spent $100 a week on groceries, Fishman calculates that the CPI’s oversight adds $6.6 billion in higher grocery costs that were never really spent.
And that’s just for one category of the CPI, which uses the same flawed approach to calculate inflation for all of the other products that Wal-Mart sells.
While Wal-Mart’s impact on the economy as a whole is mostly positive, it is typically negative for Wal-Mart’s competitors. A study by economics professor Kenneth Stone of Iowa State University looked at the impact of the opening of a Wal-Mart store on other businesses in Iowa towns.10
Stone’s research revealed that three years after of the opening of a Wal-Mart store, sales at other grocery stores had fallen by 5 percent and sales at specialty stores, such as toy stores, drug stores, and apparel shops, had dropped by 12 percent. The most surprising finding is that service businesses also lost customers; their sales had plunged by 13 percent.
Why would service businesses suffer? Stone’s conclusion is that consumers who shop at Wal-Mart become so enchanted by the low prices of new merchandise that they decide it’s cheaper to buy a new appliance or clothing item than it is to fix an old one.
Consider another way that Wal-Mart influences the economy. In the early 1990s, the company’s executives decided that the paperboard box in which every brand of deodorant was sold was a waste of packaging cost and shelf space. It asked the companies that make the deodorants to eliminate the box ? and when Wal-Mart wants something, the company gets it. Today, none of the deodorants displayed on the shelves of any retailer is boxed.
As Fishman reports, Wal-Mart allowed its suppliers to keep half the savings, at 2 cents per box, while passing on the other half of the savings to consumers. With hundreds of millions of adults in the U.S. buying deodorant five or six times a year, the savings for consumers add up to $25 million to $30 million each year for the past decade. While this helps the economy, it is also good for the environment: Forests have not been cut down to make the paper for the boxes, and landfills have not been packed with a billion discarded packages each year.
It seems like a perfect win-win: Wal-Mart saves shelf space so it can increase the volume of products in its stores; consumers save money; and suppliers lower their costs. It’s perfect for everyone ? except the companies that made the paperboard packages for deodorants each year. Their sales in that product category went from 1 billion units each year to zero ? almost overnight.
That’s just one small example of the impact that Wal-Mart makes on consumers, businesses, and the economy. Time after time, Wal-Mart has used “creative destruction” to ruthlessly drive its business. In the process, it has made it virtually impossible for nearly every other company in the world to sit on the sidelines.
For a company that is best known for its “everyday low prices” strategy, it is often overlooked for its innovations.
One of Wal-Mart’s most important innovations was replacing “sale pricing” with “everyday low prices.” Other retailers price a product such as a case of Coca-Cola at $6.99 and then offer it at a sale price such as $4.99 every few weeks.
Consumers learn to wait for the sale price and buy a few cases at a time. Retailers spend money on advertising; they devote labor costs to setting up displays of Coke at the end of an aisle; and sales of Coke go up during the discount period. After a few days, the price goes up, the remaining cases are moved back to their usual shelf location, and sales drop.
Wal-Mart tells its suppliers to average out the regular and discount prices for the entire year so it can charge the same low price every day of the year. As a result, Wal-Mart shoppers know they are getting the best price on each product. There’s no need to wait for a bargain.
The impact of Wal-Mart comes primarily from the fact that it is forcing economic change to continuously accelerate. Even without a company like Wal-Mart, globalization and information technology would make these changes inevitable. However, having one dominant firm relentlessly driving optimization of the value chain from end-to-end compresses the change into a very short period of time and forces everyone else to play the game or fail.
Part of the magic of the Wal-Mart system is that it optimizes the supply chain. For example, all of the financing costs of inventory is borne by suppliers. Wal-Mart pays for merchandise after it’s rung up at the cash register. In effect, Wal-Mart runs its business on the suppliers’ credit.
Wal-Mart was the first mega-retailer to turn over responsibility for inventory management to its major suppliers. Procter & Gamble pioneered this arrangement when it established a team of 250 people to focus only on ensuring the success of its products in Wal-Mart stores. Other suppliers now use the “Wal-Mart team” concept. And, to do this, more than 700 companies have established offices near Wal-Mart’s headquarters in Bentonville, Arkansas.
But Wal-Mart’s supply chain revolution is not confined just to these 700 companies. Every one of its 61,000 suppliers can access Wal-Mart’s Retail Link sales database to track how well their products are selling, down to the level of the individual transaction. In other words, if Coca-Cola managers want to know how many cases of Diet Coke a particular Wal-Mart store is selling during a heat wave, they can get the information instantly and decide whether to send an extra truckload.
For Jon Fleck, the entrepreneur who sells Makin Bacon plastic microwave dishes through Wal-Mart, Retail Link is a window into the checkout line at every Wal-Mart store. He can see exactly how many of his dishes are being sold in each hour in each store. He can also see that the dish sells better in supercenters, where customers can buy the bacon they will cook in the dish, and that it sells better during gift-giving seasons, when people are more likely to buy two or more dishes at a time.
Giving suppliers access to its data benefits Wal-Mart because it shifts the responsibility for analyzing the data onto each vendor. Every company that sells products at Wal-Mart is charged with figuring out how to maximize sales of its products on Wal-Mart’s shelves, or risk losing that shelf space to another supplier. Suppliers pay for promotions, for distributing the products to Wal-Mart stores in the quantities per case that Wal-Mart specifies, and for stocking the shelves with the right amount of inventory to meet the demand.
Wal-Mart is also a leader in using RFID technology to track products from the supplier’s warehouse to the store shelf. Already, 300 of its suppliers track more than 3 millionpallets and cases weekly with RFID tags. According to InformationWeek,11 the technology helped Wal-Mart cut its out-of-stock products by 30 percent last year compared to the previous year.
As practiced at Wal-Mart, supply chain optimization often includes the integration of both off-shored and domestically outsourced production into one seamless, integrated whole that includes the branded supplier, the “contract producers” wherever they may be, and Wal-Mart.
As we’ve discussed, many suppliers have moved their manufacturing off-shore to get the lower wages required to meet Wal-Mart’s demands. The companies that have not off-shored have typically outsourced domestically to specialized firms that do highly automated “contract manufacturing” on a large-scale basis.
That’s what Fleck has done. He outsources the production of his microwave dishes to a factory in Wisconsin, which uses a molding machine to create and package 144 dishes an hour. When it isn’t cranking out microwave dishes, the factory makes medical devices for other customers 24 hours a day.
The combined trends toward off-shoring and outsourcing to capital-intensive specialists have led to a shrinkage of employment in the manufacturing sector. Those people who used to work in manufacturing doing low-skilled jobs are being forced into the service sector, with many of them driving trucks, unloading pallets, or stocking shelves with the same products that they once made in U.S. factories.
Wal-Mart relentlessly focuses on lowering its costs. It calls suppliers on their toll-free phone numbers or calls them collect. The offices of its executives are furnished with chairs that the company received as samples from suppliers. And when it remodels a store, it replaces shelves and flooring one aisle at a time so the store does not have to close.
While this has lowered costs for consumers, it has also raised resentment among those no longer employed in high paying manufacturing jobs. This is coupled with resentment from unions, suppliers, and competitors who all feel bullied by Wal-Mart’s power. Consequently, as Wal-Mart’s power has grown, so has the movement against Wal-Mart.
Until recently, a new store was welcomed enthusiastically by communities, but now some cities and towns are resisting the company’s efforts to locate there. According to the Chicago Tribune,12 San Francisco, Chicago, Santa Fe, Albuquerque, Washington, DC, and Madison, Wisconsin have passed so-called “living wage ordinances” that increase the minimum wage for companies that have a certain number of employees, square footage in their stores, or annual sales.
A case in point is the ordinance, passed by Chicago’s city council in July 2006, which affects only stores with at least 90,000 square feet and at least $1 billion in annual sales. Employees of those “big box” stores will be required to pay their employees at least $9.25 per hour in wages and $1.50 in fringe benefits. By 2010, employees must be paid $10 per hour in wages and $3 in fringe benefits.
Currently, the federal minimum wage is $5.15 per hour and Illinois’ state minimum wage is $6.50 an hour. Wal-Mart had planned to build between 10 and 20 stores in Chicago, which would have created thousands of jobs for its residents, but those plans are now in doubt.
On the basis of this assessment of the trends Wal-Mart is driving, we offer the following seven forecasts:
First, Wal-Mart will avoid the American cities where it has to pay higher wages, and instead focus on expansion in smaller U.S. communities and to countries overseas. The battle to force Wal-Mart to raise its employees’ hourly wages substantially higher is one that Wal-Mart can’t afford to lose. Some simple arithmetic explains why. Wal-Mart’s net income of $11.2 billion in 2006, divided by its 1.8 million employees, equals $6,222 per employee. For a full-time hourly employee who works a typical work-year of 2,000 hours, that translates to $3.11 per hour. Therefore, Wal-Mart can’t raise its hourly labor costs by $3 or more ? as the living wage ordinances in Chicago and other cities would require ? without surrendering all of its profits. Instead, it will build more stores in the suburbs outside of cities, and continue to pursue its strategy of global expansion.
Second, the backlash against Wal-Mart will create significant opportunities for those businesses that can be perceived as the “anti-Wal-Marts.” Consider Costco, the highly successful competitor to Wal-Mart’s Sam’s Club. Despite paying higher wages and benefits and locating on more expensive real estate, Costco is actually more profitable. One reason is that it appeals to people who see it as a positive alternative to Wal-Mart.
Third, Wal-Mart’s next target for improving productivity and cutting costs will be the morale of its own workforce. In the early days, Wal-Mart relied on stock options to attract and keep highly motivated people, but those days are long gone. Wal-Mart’s annual turnover rate is now 50 percent. That means 650,000 Wal-Mart employees turn in their blue vests every year. Every week, the company must hire 12,500 new employees to replace the workers who quit, before it can hire the workers it needs for its rapid growth. Fishman estimates that the company could save tens of millions of dollars in hiring costs each year if it could reduce its current turnover rate by 50 percent.
Fourth, in a world dominated by Wal-Mart, competitors will succeed by relying on business strategies that avoid head-to-head price competition. For example, Dollar General has carved out a low-end niche by offering everyday products at discount prices in stores that are much smaller than Wal-Mart’s, and thus more convenient to shop. A high-end business strategy, used by Nordstrom, is to deliver products of such superior quality that discerning customers are willing to pay a premium price. A third strategy is to offer expertise and personal service, which can attract customers who go to Wal-Mart to save money on low-risk purchases like paper towels, but are willing to pay a higher price for riskier purchases. For example, many customers will happily pay more than Wal-Mart’s price for a lawn mower if they can get advice on choosing the right machine plus assembly service, and free delivery.
Fifth, Wal-Mart will fight back against its negative image by promoting itself as a “green” company. Wal-Mart’s executives can’t ignore the fact that consumers’ perceptions of the company are beginning to batter its profits. Fortune13 magazine recently reported that a survey by McKinsey & Company found that 8 percent of shoppers had stopped going to Wal-Mart because of its poor reputation. The corporation has recently started focusing on improving that reputation. For example, it is now the leading seller of organic milk. It is also committed to using between 8 million and 10 million metric tons of organic cotton in its products, which can help the environment by eliminating the need to use tons of chemical pesticides. It is purchasing all of its seafood that is caught in the wild from fisheries that are certified as sustainable by an independent watchdog group. Wal-Mart CEO Lee Scott recently announced a campaign to reduce the energy used in its stores by 30 percent and to double the efficiency of its vehicle fleet within 10 years. Ironically, this sudden concern for the environment may contribute directly to Wal-Mart’s overriding cost-cutting mission. For example, a recent initiative to recycle and sell plastic that used to be discarded in the stores is now adding $28 million to Wal-Mart’s profits.
Sixth, Wal-Mart and its competitors will significantly improve monitoring of off-shore suppliers to minimize embarrassing revelations about “sweat shop” abuses of foreign workers. Currently, Wal-Mart conducts 12,500 inspections of the thousands of factories in the 60 countries where its products are made. In 2004, it blacklisted more than 100 factories around the world because they did not live up to its “code of standards.” This effort will only increase as third-party scrutiny becomes more demanding.
Seventh, Wal-Mart will continue to grow rapidly in the coming decade, but that growth will slow as it encounters cultural and political barriers. In China, Wal-Mart gave in to the government of the country where many of its products are made and allowed its 20,000 workers there to join a Chinese labor union. In Germany, Wal-Mart bailed out of the market, selling its 85 stores to a competing firm, Metro, at a loss of $1 billion. According to analysts quoted by BusinessWeek,14 Wal-Mart failed because it tried to impose its practices in a culture that found them offensive. For example, it insisted on bagging customers’ groceries, despite the fact that German shoppers don’t want someone else handling their food. As it continues to expand globally, Wal-Mart will have to face the reality that, for some customers at least, low prices are not the only thing that matters.
References List : 1. To access Global Insight’s study on the economic impact of Wal-Mart, visit their website at: www.globalinsight.com 2. To access the BBC’s news story on Wal-Mart vs. unions, visit their website at: news.bbc.co.uk 3. The Wal-Mart Effect: How the World’s Most Powerful Company Really Works ? and How It’s Transforming the American Economy by Charles Fishman is published by the Penguin Group (USA), Inc. ⓒ Copyright 2006 by Charles Fishman. All rights reserved. 4. To access the U.S. Department of Labor’s data on unions, visit the Bureau of Labor Statistics website at: www.bls.gov5. Fortune, April 17, 2006, “Fortune 500 Index.” ⓒ Copyright 2006 by Time Warner, Inc. All rights reserved. 6. Marketing Science, Forthcoming, “Market Entry and Consumer Behavior: An Investigation of a Wal-Mart Supercenter,” by Vishal Singh, Karsten Hansen, and Robert Blattberg. ⓒ Copyright 2006 by the Institute for Operations Research and the Management Sciences (INFORMS). All rights reserved. 7. The Bully of Bentonville: How the High Cost of Wal-Mart’s Everyday Low Prices Is Hurting America by Anthony Bianco is published by Currency Business Books, a division of Random House, Inc. ⓒ Copyright 2006 by Anthony Bianco. All rights reserved. 8. To access Hausman and Leibtag’s study “CPI Bias from Supercenters: Does the BLS Know That Wal-Mart Exists?” visit the Massachusetts Institute of Technology website at: econ-www.mit.edu 9. To access Hausman and Leibtag’s study “Consumer Benefits from Increased Competition in Shopping Outlets: Measuring the Effect of Wal-Mart,” visit the Massachusetts Institute of Technology website at: econ-www.mit.edu 10. To access Kenneth Stone’s study of Wal-Mart’s impact on its competitors, visit his website at: www.econ.iastate.edu 11. InformationWeek, June 19, 2006, “Nonretail Businesses Take Lead with Item-Level RFID,” by Elena Malykhina. ⓒ Copyright 2006 by CMP Media, LLC. All rights reserved. 12. Chicago Tribune, July 21, 2006 “Wal-Mart’s Woes Tell Tale of City Politics,” by John Kass. ⓒ Copyright 2006 by the Chicago Tribune Company. All rights reserved. 13. Fortune, July 26, 2006, “The Green Machine,” by Marc Gunther. ⓒ Copyright 2006 by Time Warner, Inc. All rights reserved. 14. BusinessWeek Online, July 28, 2006, “Wal-Mart’s German Retreat,” by Katie Norton. ⓒ Copyright 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
