The wal mart effect


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The wal mart effect

  2. 2. THE WALL-MART EFFECT Book reviewBrief HistoryWal-Mart was launched by Sam Walton in 1962. Walton sought to provide customers withlow prices by passing on savings from wholesalers rather than pocketing the money like otherretailers. This ended up being a cornerstone of the business strategy in the Wal-Mart Empire.Sam Walton established many business practices that allowed him to keep prices low forconsumers. Although he dreaded unions and really didn’t like paying his workers anymorethan he should, Walton understood that he must keep his workers happy and introducedprofit-sharing plans and sold them the notion that working at Wal-Mart meant limitlessopportunity. And for the most part Wal-Mart had a great reputation due to Sam Walton untilhis death in 1992.Sam Walton Current FactsWal-Mart is the largest corporation in the world. Their revenues equal 2% of US GDP. Wal-mart operates over 5000 stores worldwide and employs 1.6 million people, 1.3 million peoplein the U.S. Only the US government employs more people than that in the U.S. Serves morethan 138 million people weekly worldwide. Wal-Mart plans to open up 225 supercenters thisyear alone. Four of the five Walton heirs are the top 10 richest people in America, whose networth in one year alone increased from $94 billion to $102 billion.Wal-Mart LocationsSupercenters on average take up 186,077 Square feet while discount stores average 98,079square feet. The average wage of the Wal Mart worker is approximately $10/hour.Wal-Mart Distribution Center (Supercenter)The Story behind Wal-Mart’s success Wal-Mart can attribute their success to two veryimportant factors Supply chain efficiency Control of Payroll.Supply Chain EfficiencyEver since the 1970s Wal-Mart used computers to keep track of inventory and sales databetween their stores and warehouses. Wal-Mart was so efficient that it was believed that theyhad a three day turnaround, not from the store to the warehouse but from the store to themanufacturer. This allowed them to keep low inventories and not lose money to fad items,which go in and out of style quickly.Along with efficient control of their supply chain, Wal-Mart also finds its savings by getting85% of their products from foreign manufacturers, mainly from China. Due to thisoutsourcing Wal-Mart has been accused of supporting sweatshops in order to keep its lowprices. Wal-Mart’s “Made In the U.S.A” Campaign in 1985, which guaranteed that Wal-Martwould choose the U.S. supplier over the foreign supplier if they were within 5% of the price,
  3. 3. was ineffective due to the overwhelmingly cheap prices that they could obtain products fromother countries with lax policies on labor.Control of PayrollWal-Mart always kept wages down by fighting off unions and limiting health benefits,overtime and bonuses. Studies have shown that where Wal-Mart’s average wage was below$10/hr, other large retail-employees have average wages of around $11/hr. Full Timeemployees have health benefits but the package is so expensive (35% almost double thenational average) that less than half opt to buy it.Wal-Marts statement on unionsAt Wal-Mart, we respect the individual rights of our associates and encourage them toexpress their ideas, comments and concerns. Because we believe in maintaining anenvironment of open communications, we do not believe there is a need for third-partyrepresentation.The Wal-Mart effect: LocalEconomy: Direct Effects Regardless of these facts people continue to work for Wal-Mart dueto the number of jobs it creates when it enters a local economy. An estimated 500 jobs arecreated from a Wal-Mart supercenter. These earnings translate to a positive effect on theeconomy Because Wal-Mart provides almost all needs for a low price, lower incomefamilies’ benefit from the cheap prices. But local businesses do suffer due to competition.The overall effects directly appear to be positiveEconomy: Indirect EffectsPositives: Due to increase in retail consumption, there are spillover effects to other localbusinesses such as restaurants. And increased local retail activity from Wal-Mart employeeearnings.Negatives: Lost local retail activity with competing businesses, loss of local white collarfirms that provide business to local businesses. Overall appears to be a negative impact.Economy: FiscalPositives: Increased sales tax and property tax revenues.Negatives: Increased demand of local services such as waste management, police and fireservices.Overall positive effectLegal IssuesWal-Mart, due to its labor policies and business practices has faced many legal issuesconcerning its conduct. Wal-Mart faces class action lawsuits due to work off the clock issues.Managers give out unreasonable tasks to complete in a certain time and ask that workers
  4. 4. don’t log in the extra hours in order to stay under payroll standards, or else they’ll receive apenalty from headquarters.In 2000, Wal-Mart paid $50 million to settle an off-the-clock issue with 69,000employees inColorado. In 2002, a federal jury in Oregon ordered back wages to be paid to 83 workers.Last December, a California jury awarded $172 million to thousands of Wal-Mart employeeswho had been illegally denied lunch breaks. Approximately 40 of these class action lawsuitsare still pending.Sexual DiscriminationWal-Mart has had issues concerning the lack of women in higher positions throughout Wal-Mart stores On average women managers get paid $90,000 while men on average are paidover $100,000 Now Wal-Mart faces a class action lawsuit with up to 2 million current andformer Wal-Mart employees concerning sexual discriminationWal-Mart vs. UnionsWhile most companies don’t make it easy to form unions, Wal-Mart has gone above andbeyond to prevent unions from forming. Sam Walton prevented unions by caring and givingpersonal attention to employees (calling them “associates”), now they use the strong armapproach. In 2000, when workers in a Jacksonville, Texas, meat-cutting departmentsuccessfully voted to unionize, Wal-Mart announced two weeks later that it would be closingits meat cutting departments nationwide and switching to pre-cut meat. Four of the employeeswho voted in favor of the union were fired. A year ago, employees at a Wal-Mart tire and lube shop thought they had enough votes tounionize, but the company fired one of the likely yes-voters and transferred in six likely no-voters. Again, an administrative judge ruled that Wal- Marts conduct had been illegal, but thegoal of blocking the union had been achieved. And in February 2005, the companyannounced that it would be closing a Wal-Mart in Quebec, one of only two unionized Wal-Marts in North America (the other is also in Quebec). Wal-Mart claimed the store was losingmoney, but it refused to release numbers.Wal-Mart vs. CostcoWhy all the bad publicity when Costco and Target appear to be the same type of store?First of all size - In terms of annual revenue, Wal-Mart is nearly four times the size of TheHome Depot, the countrys second largest retailer, and almost twice the size of Target,Costco, and Sears (which includes Kmart) combined. Costco pays on average $17/hr to theirworkers, resulting in fewer turnovers, and have unionized workers.Costco’s business and labor practices are overall considered to be the “high-road” approach,paying their workers more to be happier with less turnover and thus spending less on areassuch as job training, while at the same time providing customers with cheaper goods. Thecounter argument- The mean income of a Costco shopper is $74,000, which is substantiallyhigher and appears to support the idea that Costco supports the rich. A possible explanationcould be the number of small business owners that shop there.
  5. 5. Final ConclusionWal-Mart and its economic effects are debatable, but the presence and effect of Wal-Mart asan economic actor can definitely be felt. Anti-Trust practices? As Wal-Mart continues tooutgrow its competitors when do we draw the line on how much market power Wal-Mart isallowed to take?The Wal-Mart Effect seeks to convey the enormous impact of this mega company’soperations on suppliers, customers, employees, communities, and the nation. Unlike mostbooks on the subject, however, this one presents both the positive and negative effects in abalanced manner.Wal-Mart’s social and economic impact first provides some shocking data on its growth,dominance in sales of certain types of merchandise, number of shoppers who frequent itsstores, and so forth. For example, Wal-Mart is the world’s largest private employer, and itsells more groceries than any other company in the world. These data help us get our armsaround the enormity of Wal-Mart’s influence on all aspects of our society.Wal-Mart’s mission is clearly written on every bag that leaves a store--always low prices,always.If nothing else, Wal-Mart is true to its mission. When Sam Walton opened his first store in1962 in Arkansas, he knew that if he sold products that people need daily at a lower pricethan anyone else, customers would flock to his store. Sam Walton was right; as consumers,we love low prices and good deals.Now, consider how low prices at Wal-Mart impact suppliers. On one hand, suppliers knowthat a contract with Wal-Mart will increase their sales and growth, at least in the short-run.But when Wal-Mart becomes your biggest customer, you may find that it can dictate bothyour operating procedures and prices. If Wal-Mart is to continually lower its prices, suppliersmust continually lower theirs. Product design, quality, efficiency, and other manufacturingoperations will be impacted. Former CEO of Snapper, Inc., Jim Wier said, “Once you gethooked on the Wal-Mart volume, it’s like getting hooked on cocaine. You’ve created amonster for yourself.” Numerous suppliers have discovered that a cancelled contract withWal-Mart can have devastating consequences.On the positive side, who else can sell fresh salmon year-round for less than five dollars perpound, or offer fresh flowers in mid-winter? And, more importantly, isn’t Wal-Mart partlyresponsible for keeping inflation in check, given its sales volume and pricing policy?Throughout the book, the author presents accounts of suppliers and employees who havebenefitted and suffered from their relationship with Wal-Mart. Also, he includes synopses ofresearch studies conducted by professors who have addressed Wal-Mart’s effect onemployment, communities, and competition. These accounts are both informative andinteresting.This book is based on careful research, discussions with former and current employees andsuppliers, and analyses of available data on Wal-Mart’s operations. Readers from all walks oflife will find it remarkably revealing. This is the opinion of Jerry Kinard, head of the GlobalManagement and Strategy Department at Western Carolina University.
  6. 6. Last WordsThe company has prospered by elevating one goal above all others: cutting pricesrelentlessly. U.S. economists say its tightfistedness has not only boosted its own bottom line,but also helped hold down the inflation rate for the entire country. Consumers reap thebenefits every time they push a cart through Wal-Marts checkout lines.Yet Wal-Marts astonishing success exacts a heavy price.