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Tuesday, March 08, 2005

Wal-Mart: The Great Satan?

Expat Teacher gets a gold star for prompting yet another post from me. While we often disagree, I very much appreciate Expat Teacher regular visiting my blog and engaging me in conversation. Iron sharpening iron.

Expat Teacher made the following comments today about my post on minimum wage:
"The predatory practices of Wal-Mart are well established. People work for them because they are they only game in town. Wal-Mart opens their mega-stores and uses income from other stores to subsidize the new store who sell items at below cost. Since smaller chains cannot compete with this subsidy they go out of business. Then when local competition is successfully driven out of business, Wal-Mart raises prices (often to levels above pre-Wal-Mart mega-store) to help support newer mega-stores. The locals work because they need a job, but with no other employers Wal-Mart can get away with paying people an unliveable wage"

"... if you check out this article in Inc.com you'll see some examples of their predatory business practices."
Why is it that Wal-Mart has become so demonized? I won't guess at Expat Teacher's reasons, but I believe that Wal-Mart has simply become a proxy for capitalism. So let's take a look at the accusations and see if we can get at the truth.

Preface
Let me first preface this article by giving a bit of my background and my own personal views of Wal-Mart. I have spent over five years of my career advising some of the largest retailers and restaurants in the world on their real estate and marketing strategy. Some of my clients included Starbucks, The Gap, Levis, Saks Fifth Avenue, McDonalds, and CVS. All that to say that I am intimately familiar with how retailers operate.

Personally, I detest Wal-Mart. I find their customer service to be quite poor and while their prices are low, the quality of many of their products are similarly low. Quite frankly, I am not Wal-Mart's target customer. I'm more of a Target guy. So while I tend to avoid Wal-Mart like the plague, I can put aside my own biases to take an objective look at the criticisms of Wal-Mart.

After reading the article in Inc.com, I'm not sure what damning evidence it contained. This article is quite old (circa 1993) which is light years considering the rate of change in our country over the past 12 years. Nevertheless, this article documented Wal-Mart's entry into Maine and highlighted the "plight" of three retailers in Bath that were concerned about being driven out of business. Interestingly enough, I did a bit of research and discovered that each of these business are still open 12 years later. Pretty impressive. The article does point out some missteps that Wal-Mart made in their entry into Maine. That sounds like bad business decisions to me, not corporate malfeasance.

I was particlarly taken by Expat Teacher's claim of Wal-Mart's "predatory practices". I have seen this claim echoed on many websites (yes, I have done my research). The two largest complaints about Wal-Mart center around wages and the impact upon local communities.

Dreadfully low wages
I find the complaint that Wal-Mart has dreadfully low wages to be not only inaccurate but ignorant of the basics of economics. According to the US House of Representatives Committee on Education and the Workforce, Wal-Mart paid its employees an average of $8.23 per hour. The AFL-CIO claims that Wal-Mart pays its full-time employees an average of $9.64 per hour.

So how does this compare to the federal minimum wage and industry averages? The federal minimum wage is $5.15. The Bureau of Labor Statistics documents that the median income for cashiers at department stores is $7.78.

Left out of the horror stories of low wages at Wal-Mart is the fact that no one is forced to work for Wal-Mart. Expat Teachers says that people work for them because they are the only game in town. Well, it sounds like if Wal-Mart were to go out of business in those town, there would be quite a few unemployed people. Is that more desirable?

If Wal-Mart is such an evil sweatshop, why do people line up to apply for work there? Would the unemployed in local communities have been better off had Wal-Mart not entered the market and employed them? I really don't understand people who say, "Why does this evil company not pay enough?" yet then decide to work for them.

Additionally, critics point to the fact that only 41% to 46% of Wal-Mart employees receive health benefits. How many of you have ever worked retail? Do you recall getting health benefits as part of the job? Yeah, I don't either. It is the rare retailer or restaurant that provides health benefits to bottom-of-the-rung employees.

Impact upon local economies
Yet another criticism of Wal-Mart is that they drive Mom-and-Pop companies out of business. I suppose that car manufacturers drove buggy manufacturers out of business, but I've always thought that was because the buggy manufacturers were living in the past.

I often hear about local communities up in arms about Wal-Mart coming to town. It is obvious that this criticism comes from a small vocal minority; otherwise the Wal-Mart wouldn't stay in business, would it?

Local communities very much have the power to shut down Wal-Mart: don't shop there. However, it is pretty obvious that Wal-Mart is providing a service that the majority wants.

I have heard similar complaints from "community activists" regarding Starbucks. The fear is that they will drive the local Mom-and-Pop coffee shops out of business. However, the facts show this not be the case. When Starbucks enters a new market, the generally increase the overall consumption and awareness of coffee to the point that both Starbucks and the established local stores do well.

If Wal-Mart is so evil, why are they still in business? No one is forced to shop there. Let me offer some advice to those who hate Wal-Mart: DON'T SHOP AT WAL-MART. If you can convice enough people to do the same, they will go out of business. It's a pretty simple plan

I'm sure that Wal-Mart is not blameless as a company. In those area where it violates the law, it should pay the full consequences and penalties.

On the whole, I am very unimpressed by criticisms of Wal-Mart wages and impact upon local communities. It is entirely within the power of the people of this country to bring Wal-Mart to its knees. Yet, Wal-Mart continues to grow and prosper. What does that tell us about the choices that America is making?

Update: There was a good article by Daniel Akst in Sunday's New York Times about Wal-Mart.

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