[Article] The Wal-Mart You Don't Know

dahamsta

Insightful piece about Wal-Mart that tackles the issue of offshoring/outsourcing indirectly.

The Wal-Mart You Don't Know

A gallon-sized jar of whole pickles is something to behold. The jar is the size of a small aquarium. The fat green pickles, floating in swampy juice, look reptilian, their shapes exaggerated by the glass. It weighs 12 pounds, too big to carry with one hand. The gallon jar of pickles is a display of abundance and excess; it is entrancing, and also vaguely unsettling. This is the product that Wal-Mart fell in love with: Vlasic's gallon jar of pickles.
Wal-Mart priced it at $2.97--a year's supply of pickles for less than $3! "They were using it as a 'statement' item," says Pat Hunn, who calls himself the "mad scientist" of Vlasic's gallon jar. "Wal-Mart was putting it before consumers, saying, This represents what Wal-Mart's about. You can buy a stinkin' gallon of pickles for $2.97. And it's the nation's number-one brand."

Therein lies the basic conundrum of doing business with the world's largest retailer. By selling a gallon of kosher dills for less than most grocers sell a quart, Wal-Mart may have provided a ser-vice for its customers. But what did it do for Vlasic? The pickle maker had spent decades convincing customers that they should pay a premium for its brand. Now Wal-Mart was practically giving them away. And the fevered buying spree that resulted distorted every aspect of Vlasic's operations, from farm field to factory to financial statement.

Indeed, as Vlasic discovered, the real story of Wal-Mart, the story that never gets told, is the story of the pressure the biggest retailer relentlessly applies to its suppliers in the name of bringing us "every day low prices." It's the story of what that pressure does to the companies Wal-Mart does business with, to U.S. manufacturing, and to the economy as a whole. That story can be found floating in a gallon jar of pickles at Wal-Mart.

[...]

Gandhi

dahamsta wrote:

Insightful piece about Wal-Mart that tackles the issue of offshoring/outsourcing indirectly.

Wal-Mart have to be the most evil empire on the planet. But it is tough not to shop there. They have absolutely everything under one roof, and the prices are unbelieveable.

I've gone there for camera cases that even camera shops don't stock, storage bins that even furniture stores don't stock, and gotten both at less than half the price the other stores would have charged if they had them.

Like they mentioned in the article section about the padlocks, people go shopping at Wal-Mart hoping that everyone else will pay the extra money to keep the domestic brands and main street retailers alive. But, "everybody else" becomes "nobody else" and Wal-Mart marches on.

mike65

Indeed, as Vlasic discovered, the real story of Wal-Mart, the story that never gets told, is the story of the pressure the biggest retailer relentlessly applies to its suppliers in the name of bringing us "every day low prices." It's the story of what that pressure does to the companies Wal-Mart does business with, to U.S. manufacturing, and to the economy as a whole. That story can be found floating in a gallon jar of pickles at Wal-Mart.

You dont have to use Wal-Mart an an example SuperValu et al are no different except in global impact. Thier attitude to suppliers is no different and I can tell you that from experience.

Mike.

dahamsta

Presumably I don't need to make the point about it being unsustainable. What scares me is that nothing is being done to stop it. The only solution to my mind is heavier regulation of M&A activity with a longer-term outlook by non-partisan economists, but what are the odds of that happening? If it doesn't though, we're in a vicious circle that won't stop until there is a very, very large bang, and it won't just hurt America, it'll hurt every country that models itself on America. It'll hurt us big time, even if we dilute our reliance on America, and I can't see it taking much longer than 5-15 years.

I'm not saying that capitalism is bad btw, far from it, but that it needs reining in, and quickly, and it frightens me that I can't see that happening in those 5-15 years, because it's going to make the dot-com recession look like a minor bump in the road when it happens. There'd need to be a sea-change in policy over there, and even Kerry wouldn't have affected that change.

adam

Gandhi

The only thing that will stop Wal-Mart is people voting with their dollars. They are trying to bring back the concept of "Main Street" shopping, as opposed to Mega-Malls and Big-Box stores over here, but it's a big struggle.

Most of the downtown areas in smaller towns are "toy downtowns" with restaurants, novelty stores, art galleries etc., like what you'd see at a holiday resort. People go there to get something to eat, and stroll around and spend a few bucks on some novelty crap. Then they get in their car and drive to some big box store out in the middle of nowhere to spend $200 on groceries, clothes etc.

One of my wife's friends, who hates Wal-Mart with a passion, even admitted over the weekend that she will go there sometimes, for stuff that she can't find anywhere else.

The trouble is, they are so good at what they do. They have everything you need, in a clean, well lit store, at less than half the price of anyone else, 24 hours a day.

And they stock absolutely everything.
Box of cornflakes? Next to the Britney Spears posters, past the lobster tank.
New tires on the car? Around back, we'll put them on for you.
Contact lenses? We can even give you the eye test here by the mountain bikes.
Curtains? Right there, between the engagement rings and the DVD players.
Lingerie? Turn left at the assault rifles and left again at the cucumbers.
Need a key cut? Photos developed? Portrait photos taken of the kids, and then framed? Not a problem.

Some communities have successfully blocked them from coming in, but the problem is they just go to the next town over, and people are willing to drive 20 or 30 miles to get there.

The only hope is that eventually they put so many of their suppliers out of business, that they paint themselves into a corner and find themselves at the wrong end of a monopoly, but that is hardly a good situation either.

dahamsta

Gandhi wrote:

The only thing that will stop Wal-Mart is people voting with their dollars.

...and I hate to dilute the rest of your very well put post, but unfortunately we find ourselves in the same position: What are the odds of that happening? If anything, the odds are even less than government intervention, because at least (some) governments understand medium to long term economics. Joe or Jane Public don't want to understand it, even if you spend a week explaining it to them. Just like global warming.

adam

mike65

Its damned hard to say to someone "spend more to save the local ecomony" if you don't have much to start with. Adli and Lidl have acraved out a niche very quickly and you only have to check out various threads here to see there is great interest in laptops etc that cost 30% less (or whatever) than Compustore (locally owned)

Mike.

fintan

Wal-mart is just another stage in retailing. Im sure people were complaining when stores went self-service, the first super market etc

dahamsta

fintan wrote:

Wal-mart is just another stage in retailing. Im sure people were complaining when stores went self-service, the first super market etc

That's a very Cork-like sound-byte fintan. Yes, Wal-Mart is just another stage in retailing and yes, people complained when other changes took place in the retail space, but neither comment goes any way towards addressing the economic issues I'm trying to highlight here: i.e. Continued offshoring/outsourcing may result in economic collapse.

Here's a couple of related articles that showed up on Dave Farber's list today:

Economic `Armageddon' predicted
By Brett Arends/ On State Street
Tuesday, November 23, 2004

Stephen Roach, the chief economist at investment banking giant Morgan Stanley, has a public reputation for being bearish.

But you should hear what he's saying in private.

Roach met select groups of fund managers downtown last week, including a group at Fidelity.

His prediction: America has no better than a 10 percent chance of avoiding economic ``armageddon.''

Press were not allowed into the meetings. But the Herald has obtained a copy of Roach's presentation. A stunned source who was at one meeting said, ``it struck me how extreme he was - much more, it seemed to me, than in public.''

Roach sees a 30 percent chance of a slump soon and a 60 percent chance that ``we'll muddle through for a while and delay the eventual armageddon.''

The chance we'll get through OK: one in 10. Maybe.

[...]

Krugman: Economic Crisis a Question of When, Not If
Mon Nov 22, 2004 02:22 PM ET
By Pedro Nicolaci da Costa

NEW YORK (Reuters) - The economic policies of President Bush have set the country on a dangerous course that will likely end in crisis, Princeton economics professor Paul Krugman told Reuters in an interview.

Krugman, who may be best known for his opinion column in The New York Times, said he was concerned that Bush's electoral victory over Sen. John Kerry earlier this month would only reinforce the administration's unwillingness to listen to dissenting opinions.

That, in turn, could spell serious trouble for the U.S. economy, which under Bush's first term was plagued by soaring deficits, waning investor confidence and anemic job creation.

"This is a group of people who don't believe that any of the rules really apply," said Krugman. "They are utterly irresponsible."

[...]

Gandhi

mike65 wrote:

Its damned hard to say to someone "spend more to save the local ecomony" if you don't have much to start with. Adli and Lidl have acraved out a niche very quickly and you only have to check out various threads here to see there is great interest in laptops etc that cost 30% less (or whatever) than Compustore (locally owned)

Mike.

People could afford to support local businesses if they wanted. People's sense of entitlement means they consider luxuries to be necessities, and priveleges to be rights - and I am as guilty of this as anyone I know.

If people's budgets were that tight they would not be worrying about laptops in the first place, there would be threads about the prices of bread and spuds. Most people are struggling to save money because they consider brand new cars, four-bedroomed houses in the 'burbs, 3.2 GHz laptops, and two-week holidays in Tenerife to be "necessities".

However, I concede that it is tough to resist paying half the money at the discout store, especially seeing as everyone else is doing it which is going to put the local corner shop out of business anyway. Nobody wants to be the oul' eejit who paid twice as much for the same thing as his neighbour.

One thing not covered in the article, is that Wal-Mart is hated by many people in the States because it exemplifies the economy's base shifting from manufacturing to retail. In Pennsylvania, where I live, the largest employer for donkey's years was Bethlehem Steel. They had 300,000 people working between all their plants. Most of my wife's relatives worked there. The work itself was hard and dangerous, but it provide stable, well-paid jobs to the poor, the uneducated, and many new immigrants with little or no English. They gave great pensions and medical benefits for life. The company looked after the cities where its plants were located, and built many parks, museums etc.

Today, Bethlehem steel is practically non-existent, and the biggest employer in Pennsylvania is Wal-Mart. More than half of the employees are on food stamps (government assistance to buy food), most are part-time or temporary, so they do not get any medical or dental benefits. Wal-Marts make no attempt to support their local communities. Most of the stores couldn't even if they wanted to - they are built on recently re-zoned farmland in the middle of nowhere - where there is no community. When a new Wal-Mart opens up, one of the first things that happens is that the local transit agency starts running buses from the poorest neigbourhoods in the nearest cities out to where the Wal-Mart is, because that is where their employees will be coming from.

fintan: Wal-mart is just another stage in retailing. Im sure people were complaining when stores went self-service, the first super market etc

The problem is their stranglehold on the economy. A single company accounting for 10% of trade between the US and China is not a good thing. Unless you're Wal-Mart.

Okay, no more ridiculously long posts, I promise.

Shooting out early today for Thanksgiving tomorrow. And if my mother-in-law bought the turkey at Wal-Mart, I will rip her a new one...

fintan

Dahamsta, for every article you give me showing how off-shore / out sourcing is going to destroy the economy I'm confident I can give you one that shows how the US is generating more skilled jobs (and both of our articles would be biased).

Off-shore / out-sourcing is the commodisation of software development / making use of cheap international telephone calls etc. Whats happening is the same idea as the industrial revolution and the death of the home looms.

Also just like to point out I have no affliation with cork

Gandhi, I will try and find the report, but Im pretty sure wal-mart is a big reason why US inflation is not as high as people would have predicted, maybe how wal-mart conducts itself may not be ideal, but their business methods (supply chain management as an example) is something every business could learn from.

Anyway these are all just my opinions and i'm only posting to play devils advocate

Gandhi

Fintan: Gandhi, I will try and find the report, but Im pretty sure wal-mart is a big reason why US inflation is not as high as people would have predicted, maybe how wal-mart conducts itself may not be ideal, but their business methods (supply chain management as an example) is something every business could learn from.

While inflation in the US might be officially low, the dollar has gone from about E1.25 to about E0.80 in the last few years, which is quite a large drop for a currency with supposedly "low inflation". Also, the way inflation is calculated (here at least) is more according to business-to-business expenses. The prices paid by Joe Sixpack at the supermarket etc. are measured by the "Consumer Price Index". The prices of housing, healthcare, and food have risen at a far higher rate than inflation.

People who lost their manufacturing jobs and are now working at McDonalds or Wal-Mart are making significantly less money. They are probably not comforted by the low inflation to which their low wages are probably contributing.

I don't dispute they have some downright geniuses running the outfit - they didn't get this big through sheer luck. For years, I have heard that their Just-In-Time inventory system was like watching a forklift truck ballet.

I don't actually blame them for their bullying suppliers, shafting employees etc. I blame the system that allows such a destructive force to exist. And I blame human nature leading factory employees to put themselves out of a job by rushing in for the cheap imported bargains at Wal-Mart.

They are good at what they do. $2.97 for a gallon of pickles is fantastic. Of course, I have no idea who would want a f***in' gallon of pickles, but for $2.97 who cares?

Okay, I am definitely going home now. No more posts, I swear.

Blackjack

They certainly have nailed the "All you need under one roof" thing. I recently needed a bag to bring back all the stuff I had bought in the states. Ideally I was looking for something that could hold plenty of stuff, but could be packed away quite small.
Tried several stores, eventually succumbed to checking the Wal-Mart. They had exactly what I was looking for, for less than $10.

While I would have rathered spent the money in a smaller Mom and Pop Shop, it was the only place that had exactly what I was looking for. Very near the Weapons section if I recall correctly.

A hateful company, but they give people what they want. How they came about is a very interesting story - started by a chap (whose name I think was Walter) in his Walt-Market store which was a reasonably small shop in some mid sized town, some time in the 50's I think. Saw a documentary on it, rivetting stuff. (Honest!!!).

Capt'n Midnight

mike65 wrote:

Its damned hard to say to someone "spend more to save the local ecomony" if you don't have much to start with. Adli and Lidl have acraved out a niche very quickly and you only have to check out various threads here to see there is great interest in laptops etc that cost 30% less (or whatever) than Compustore (locally owned)

Mike.

Lets look at Dunnes and the Bread Wars where they put lots of bakeries to the wall ...
Look at how Dunnes make a profit. It's not from selling stuff. They get cash from the customer. They pay the suppliers late. Short term high interest loans are what they make thier money on - think overdrafts. So if you did it right and pared margins you could sell stuff below cost and still make a profit.
No mom & pop could hope to compete.

As for Aldi & Lidl - next time you are in SuperQuinn etc. have a look at washing powder, all the different brands, now look at the labels - how many can you find that aren't either Proctor & Gamble or Lever Brothers ??
Point being at the other extreme the suppiers could have a cartel.

And then there is bleach, most of these are Sodium Hypochlorite in Water with optional Magnesium Sulphate as an inert thickener. By definition you can't add colouring to bleach, or flavours or smells - so why pay for a different brand ????

As the internet has shown if you are buying pre-packaged goods that are unlikley to be returned (books, CD's etc. etc.) then it does not matter where you get them.

As for the Vlasic company they were in a right pickle, do they refuse to sell to one of thier biggest customers or risk having thier brand used as loss leader.

dahamsta

fintan wrote:

Dahamsta, for every article you give me showing how off-shore / out sourcing is going to destroy the economy I'm confident I can give you one that shows how the US is generating more skilled jobs (and both of our articles would be biased).

Written by economists or pundits? If they're written by economists I'd genuinely be interested in reading them. Meantime the questions has to be asked: Where did these jobs come from? Do the number of jobs being created match up with the jobs being lost? Can you point to evidence please?

Thanks,
adam