If you’re a big-box retail hater, then you’ve probably said to yourself many times that life would be better without Wal-Mart (Stock Quote: WMT). People would buy locally, and communities would flourish. Perhaps, but there’s probably a bit more to it than that. Wal-Mart is huge. They employ 2,100,000 people and have annual revenues in excess of $405 billion, so how might the country be different without them? With that question in mind, MainStreet has decided to play a game.
What if the retail heavyweight simply did not exist as it does today? In fact, what if we all entered the retail Twilight Zone and big-box retailers such as Wal-Mart, Target (Stock Quote: TGT) and Costco (Stock Quote: COST) were not the dominant players?
We asked some leading experts this question, and they were gracious enough to take our thought experiment at face value and give us some surprising insights.
We started with Charles Fishman, New York Times best-selling author of The Wal-Mart Effect. We asked him what life would be like in small towns across America if folks had simply been buying local all along—if they had never welcomed large outside chains into their lives.
“If the people in these towns had bought almost exclusively locally,” Fishman explained, “and Wal-Mart had not arrived, and we’d moved forward through time 40 years — I don't think most of them would today be the lovely halcyon places of our imagination, or in some cases of the reality of the 1950s and 1960s. Individually owned stores have all kinds of advantages — of service, of connection to the community, of keeping the money that is spent in the town (although I'm always suspicious of this one — because all they keep is the small profit; the cost of the goods goes back where those goods came from).”
It’s the prices
Overall, locally owned hometown stores would not be able to provide us with everything we desire at fiercely competitive prices, as Wal-Mart does. Since our economic system of choice is capitalism (sorry, Michael Moore!), competition and value are pretty important. As Fishman put it, “Individually owned stores do not typically have the resources, connections, incentives, data, muscle or insight to really do the kind of innovative changes to retail that big scale retailers do. They can buy imaginatively; they can offer great service. But they can't change the way goods are distributed and manufactured.”
What innovative changes? Fishman points to three major practices pioneered by Wal-Mart:
1. No more stocking fees. Wal-Mart “refused to accept ‘stocking’ fees — fees paid to put products on shelves, fees paid to get a certain quantity of shelf or display space. Wal-Mart said, such fees simply add to the cost of the products; we'll decide what products we stock, we'll decide how much space they get — based on what sells, based on what people want to buy. No fees involved. You can't pay us, and we won't be bought.”
2. Moving products off shelves faster. Fishman told us that “Wal-Mart has introduced seemingly small but significant changes in the way stores stock merchandise. Wal-Mart was a huge promoter of barcodes, which help turn stores into product-moving machines. They ‘invented’ the idea of putting pallets of merchandise straight on the floor, without having to put them on shelves, selling them straight off the shipping platform. Wal-Mart is always asking suppliers to package products in such a way that stocking employees can simple cut open a box, and plop it on the shelf, without touching the product.”
3. Saving money with a streamlined supply chain. As Fishman explained, “Wal-Mart was literally the first big retailer to imagine this innovation: Let's put the loading dock doors in our warehouses — incoming and outgoing — across from each other, so the merchandise moves in a straight line. Seems like a forehead-slappingly simple innovation, but it saves incredible amount of labor and cost over time ... Wal-Mart has single-handedly made the continuous improvement of the consumer-products ‘supply chain’ a whole world of expertise unto itself. In the process, they've saved everyone a lot of money that was, in fact, pure waste.”
Fishman explained that when Wal-Mart opened its doors in 1962—incidentally the same year the first Target and K-mart stores opened—American consumers were already able to buy things: “No one in the country was unable to buy a tube of toothpaste or a bottle of shampoo or a lawn sprinkler because there wasn’t a store. America had fine stores, and an adequate supply.”
Without the innovations pioneered by Wal-Mart, you would walk into stores and almost certainly find higher prices. Manufacturers would need to get their bribes, uh I mean stocking fees, from somewhere. You might find that stores would be out of items more frequently—there could be greater lag time between organic demand for an item and restocking of that item. And many of the items receiving prime real estate on the shelves would be there not necessarily because many other customers like them, but because money exchanged hands behind closed doors.
Unemployment in the United States is above 10% right now, the highest it has been since 1982. Sure, the Wal-Mart “nation” employs more than 2 million people, but it is entirely possible that unemployment would be lower today if regional or local stores were the norm.
We asked another expert for his views on an alternate universe where Wal-Mart doesn’t exist in America, and about the issue of employment specifically. Pat Choate, author of Saving Capitalism: Keeping America Strong, told us that the chain “is a major force in the offshoring of the manufacture of consumer goods from the United States. Its demand for absolute rock bottom prices, coupled with the free market absolutism of the past three decades, has pitted American workers with living wages against foreign penny wage labor in Asia, the Caribbean and elsewhere. Wal-Mart purchasing policies are a major factor in that.”
Sometimes efficiency comes at a steep price. Choate explained that as manufacturing shifted to China, India and other nations, the research & development money soon followed—these nations have “vast amounts of engineering talent” and exporting R&D to them only fueled their success even further (and took away good jobs for educated folks here in the U.S.).
“Wal-Mart has made its investors very wealthy, even as it has stripped jobs from middle and low-middle class workers by the hundreds of thousands,” Choate explained.
But hey, the toothpaste is cheaper, right? And those Miley Cyrus CDs are seriously priced to sell.
What about the e-commerce impact of Wal-Mart and other mega retailers? Because Wal-Mart has such powerful distribution tools at its disposal, along with tons of cash, it was well positioned to expand into the world of e-commerce. The same can certainly not be said for a typical Mom and Pop retailer. They serve a local consumer base, which has little need for an e-commerce option if they can easily hop in the car or on a bike and pick up their sundries. Beyond that, it would be difficult for the local hardware store, for example, to launch a global e-commerce initiative because they simply don’t have the resources to pour into it. It’s hard enough to get the locals in the door, much less figure out a way to draw customers from around the world. So if there are no big-box retailers like Wal-Mart (or Amazon.com, it’s virtual counterpart), it’s unlikely that there’d be tons of smaller e-commerce retailers to fill the void.
On the other hand, according to Joanne Stoner, CEO of fashion retailer edressme.com, the big-box stores force smaller online retailers to compete in areas other than price—areas like service and quality.
Mega retailers make “the value proposition extremely important … Offering unique products and customer service is how we maintain our value proposition in the midst of all of this so that we can compete successfully with the bigger stores.”
So for those of you who own independent stores or small businesses, take note: you may have to beat Wal-Mart with a smile and a niche product they don’t carry. Because, even though it is certainly fascinating to think about a “world without Wal-Mart,” at the moment the chain is virtually unavoidable.
As I've said, big box retailers have tremendous marketing resources at their disposal—Wal-Mart can advertise its online presence in a big way, which raises awareness for online shopping in general, even the small guys. A rising tide lifts all boats.
Massive chains like Wal-Mart just sped up a process that was bound to happen, Fishman believes, telling us that Wal-Mart has been a “big force accelerating retail consolidation, and they may have had more independent impact in that arena in terms of pushing or magnifying an existing trend than in any other (cheapening, off-shoring, etc).”
Furthermore, “the U.S. as a national economy was headed for the ‘chaining’ of retailing. McDonald's wasn't an accident, nor was Starbucks, nor was Sears.”
Big-box retailers like Wal-Mart have flourished because we wanted them. We don’t just want toothpaste and shampoo. We demand insanely cheap toothpaste and shampoo. And with the money left over we buy other stuff, like Snuggies for dogs, probably from Wal-Mart too. We destroyed “small town” enterprise with our wallets. Wal-Mart didn’t pull the trigger; we did. It’s like the saying favored by gun rights advocates: Guns don’t kill people, people kill people. Chains don’t destroy towns, the people in those towns do.
Long live Wal-Mart? Or to hell with the big chains? Let us know your thoughts in the comments or on our Facebook page.
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