CASE 4.3 One Nation under Walmart

THE HUgE CORpORATIONS THAT produce our cars, appliances, computers, and other productsmany of them household names like Nike, Coca-Cola, and Johnson & Johnsonare a familiar feature of contemporary capitalism.

But Walmart represents something new in the economic landscape. Now the worlds largest company, Walmart has achieved its corporate preeminence not in production but in retail. No other retailer, at any time or in any place, has ever come close to being as large and influential as Walmart has become. After years of nonstop growth, there are now more than 8,400 Walmart stores worldwide, and 140 million shoppers visit its U.S. stores each week. And the company is opening more stores all the time as it moves beyond its stronghold in the rural South and Midwest and into urban America. In fact, 82 percent of American households purchase at least one item from Walmart every year. As a result, the companys marketplace clout is enormous: It controls about 30 percent of the market in household staples; it sells 15 percent of all magazines and 1520 percent of all CDs, videos, and DVDs; and it is expected to control soon over 35 percent of U.S. food sales. For most companies selling consumer products, sales from Walmart represent a big chunk of their total business: 28 percent for Dial, 24 percent for Del Monte, and 23 percent for Revlon. Walmart is also responsible for 10 percent of all goods imported to the United States from China.

The good news for consumers is that Walmart has risen to retail supremacy through the bargain prices it offers them. The retail giant can afford its low prices because of the cost efficiencies it has achieved and the pressure it puts on suppliers to lower their prices. And the larger the store gets, the more market clout it has and the further it can push down prices for its customers.

Everyone, of course, loves low prices, but not everyone, it seems, loves Walmart. Why not? Here are some of the charges that critics level against the retail behemoth:

Walmarts buying power and cost-saving efficiencies force local rivals out of business, thus costing jobs, disrupt- ing local communities, and injuring established business districts. One Walmart worker replaces approximately 1.4 other local retail workers, and typically within five years after a Walmart Supercenter opens, two other supermarkets close. Further, Walmart often insists on tax breaks when it moves into a community, so its presence does little or nothing to increase local tax revenues.

Walmart is staunchly anti-union and pays low wages. Its labor costs are 20 percent lower than those of unionized supermarkets; its average sales clerk earns only $8.23 an hour, and most of its employees must survive without company health insurance. Small wonder that employee turnover is 44 percent per year. Moreover, because of its size, Walmart exerts a downward pressure on retail wages and benefits throughout the country. Critics also charge that Walmarts hard line on costs has forced many factories to move overseas, which sacrifices American jobs and holds wages down.

Government welfare programs subsidize Walmarts poverty-level wages. According to one congressional report, a 200-employee store costs the government $42,000 a year in housing assistance, $108,000 in childrens health care, and $125,000 in tax credits and deductions for low-income families. And internal Walmart documents, leaked to the press, confirmed that 46 percent of the children of Walmarts 1.33 million workers are uninsured or on Medicaid. The document also discusses strategies for holding down spending on health care and other benefitsfor example, by hiring more part-time workers and discouraging unhealthy people from working at the store by requiring all jobs to include some physical labor.

As Walmart grows and grows, and as its competitors fall by the wayside, consumer choices narrow, and the retail giant exerts ever greater power as a cultural censor. Walmart, for example, wont carry music or computer games with mature ratings. As a result, the big music companies now supply the chain with sanitized versions of the explicit CDs that they provide to radio stations and that are sold elsewhere. The retailer has removed racy magazines such as Maxim and FHM from its racks, and it obscures the covers of Glamour, Redbook, and Cosmopolitan with bind- ers. Although many locations offer inexpensive firearms, Walmart wont sell Preven, a morning-after pillthe only one of the top ten drug chains to decline to do so.

For these reasons, Walmarts expansion is frequently meeting determined local resistance, as concerned residents trying to preserve their communities and their local stores and downtown shopping areas from disruption by Walmart through petitions, political pressure, and zoning restrictions. As one economist remarks, for Walmart the biggest barrier to growth is not competition from rivals such as Target or Winn-Dixie stores but opposition at the local level. As a result, Walmart has begun responding to the criticism that it is a poor corporate citizen and a miserly employer by improving employee health insurance coverage and adopting greener business practices. And even its usual critics applauded when the company responded rapidly to Hurricane Katrina, sending truckloads of water and food, much of it reaching residents before federal supplies did.

When it comes to Walmart, Professor John E. Hoopes of Babson College encourages people to take a long-term view: The history of the last 150 years in retailing would say that if you dont like Walmart, be patient. There will be new models eventually that will do Walmart in, and Walmart wont see it coming. And, indeed, in recent years the companys sales growth has slipped as the Internet has changed peoples shopping habits and as other discounters have done a better job of attracting affluent consumers and providing higher quality and better service.

In the meantime, where you stand on Walmart probably depends on where you sit, as Jeffrey Useem writes in Fortune magazine: If youre a consumer, Walmart is good for you. If youre a wage-earner, theres a good chance its bad for you. If youre a Walmart shareholder, you want the company to grow. If youre a citizen, you probably dont want it growing in your backyard.

QUESTION:

In 2015, Walmart raised its minimum wage to $9 per hour (up from the federal minimum of $7.25). Why do you think Walmart did this, and what impact do you think it will have?