The Wal-Mart You Don't Know

I'm proud to say I've only been in a Wal-Mart store a couple of times in years.

Something I would have liked to seen addressed is that things don't last as long as thet used to. So a low price may actually end up costing more.


I hate to post this, because a good friend's husband works at K-Mart. But I know from my own experience that one can't always choose the best place to work. Especially during a recession.

http://www.fastcompany.com/magazine/77/walmart.html?page=0%2C0

By: Charles Fishman December 1, 2003
Charles Fishman (cnfish@mindspring.com) is a senior writer at Fast Company. Andrew Moesel provided research assistance for this story.

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.

Wal-Mart is not just the world's largest retailer. It's the world's largest company--bigger than ExxonMobil, General Motors, and General Electric. The scale can be hard to absorb. Wal-Mart sold $244.5 billion worth of goods last year. It sells in three months what

number-two retailer Home Depot sells in a year. And in its own category of general merchandise and groceries, Wal-Mart no longer has any real rivals. It does more business than Target, Sears, Kmart, J.C. Penney, Safeway, and Kroger combined. "Clearly," says Edward Fox, head of Southern Methodist University's J.C. Penney Center for Retailing Excellence, "Wal-Mart is more powerful than any retailer has ever been." It is, in fact, so big and so furtively powerful as to have become an entirely different order of corporate being.

Wal-Mart wields its power for just one purpose: to bring the lowest possible prices to its customers. At Wal-Mart, that goal is never reached. The retailer has a clear policy for suppliers: On basic products that don't change, the price Wal-Mart will pay, and will charge shoppers, must drop year after year. But what almost no one outside the world of Wal-Mart and its 21,000 suppliers knows is the high cost of those low prices. Wal-Mart has the power to squeeze profit-killing concessions from vendors. To survive in the face of its pricing demands, makers of everything from bras to bicycles to blue jeans have had to lay off employees and close U.S. plants in favor of outsourcing products from overseas.

Of course, U.S. companies have been moving jobs offshore for decades, long before Wal-Mart was a retailing power. But there is no question that the chain is helping accelerate the loss of American jobs to low-wage countries such as China. Wal-Mart, which in the late 1980s and early 1990s trumpeted its claim to "Buy American," has doubled its imports from China in the past five years alone, buying some $12 billion in merchandise in 2002. That's nearly 10% of all Chinese exports to the United States.

One way to think of Wal-Mart is as a vast pipeline that gives non-U.S. companies direct access to the American market. "One of the things that limits or slows the growth of imports is the cost of establishing connections and networks," says Paul Krugman, the Princeton University economist. "Wal-Mart is so big and so centralized that it can all at once hook Chinese and other suppliers into its digital system. So--wham!--you have a large switch to overseas sourcing in a period quicker than under the old rules of retailing."

Steve Dobbins has been bearing the brunt of that switch. He's president and CEO of Carolina Mills, a 75-year-old North Carolina company that supplies thread, yarn, and textile finishing to apparel makers--half of which supply Wal-Mart. Carolina Mills grew steadily until 2000. But in the past three years, as its customers have gone either overseas or out of business, it has shrunk from 17 factories to 7, and from 2,600 employees to 1,200. Dobbins's customers have begun to face imported clothing sold so cheaply to Wal-Mart that they could not compete even if they paid their workers nothing.

"People ask, 'How can it be bad for things to come into the U.S. cheaply? How can it be bad to have a bargain at Wal-Mart?' Sure, it's held inflation down, and it's great to have bargains," says Dobbins. "But you can't buy anything if you're not employed. We are shopping ourselves out of jobs."

[...]

No one wants to end up in what is known among Wal-Mart vendors as the "penalty box"--punished, or even excluded from the store shelves, for saying something that makes Wal-Mart unhappy. (The penalty box is normally reserved for vendors who don't meet performance benchmarks, not for those who talk to the press.)

"You won't hear anything negative from most people," says Paul Kelly, founder of Silvermine Consulting Group, a company that helps businesses work more effectively with retailers. "It would be committing suicide. If Wal-Mart takes something the wrong way, it's like Saddam Hussein. You just don't want to piss them off."

As a result, this story was reported in an unusual way: by speaking with dozens of people who have spent years selling to Wal-Mart, or consulting to companies that sell to Wal-Mart, but who no longer work for companies that do business with Wal-Mart. Unless otherwise noted, the companies involved in the events they described refused even to confirm or deny the basics of the events.

To a person, all those interviewed credit Wal-Mart with a fundamental integrity in its dealings that's unusual in the world of consumer goods, retailing, and groceries. Wal-Mart does not cheat suppliers, it keeps its word, it pays its bills briskly. "They are tough people but very honest; they treat you honestly," says Peter Campanella, who ran the business that sold Corning kitchenware products, both at Corning and then at World Kitchen. "It was a joke to do business with most of their competitors. A fiasco."

But Wal-Mart also clearly does not hesitate to use its power, magnifying the Darwinian forces already at work in modern global capitalism.

[...]

In the end, of course, it is we as shoppers who have the power, and who have given that power to Wal-Mart. Part of Wal-Mart's dominance, part of its insight, and part of its arrogance, is that it presumes to speak for American shoppers.

[...]

Wal-Mart has also lulled shoppers into ignoring the difference between the price of something and the cost. Its unending focus on price underscores something that Americans are only starting to realize about globalization: Ever-cheaper prices have consequences. Says Steve Dobbins, president of thread maker Carolina Mills: "We want clean air, clear water, good living conditions, the best health care in the world--yet we aren't willing to pay for anything manufactured under those restrictions."

[...]

And the Milwaukee employees of Master Lock who shopped at Wal-Mart to save money helped that hand shove their own jobs right to Nogales. Not consciously, not directly, but inevitably. "Do we as consumers appreciate what we're doing?" Larrimore asks. "I don't think so. But even if we do, I think we say, Here's a Master Lock for $9, here's another lock for $6--let the other guy pay $9."

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