Essay: Is Wal-Mart Good for America?
Currently Wal-Mart has 4,227 stores in the U.S and 3,210 internationally. Wal-Mart is the largest retailer in the world. In 2004 Wal-Mart accounted for 6.5 percent of the retail sales. In 2004 Wal-Mart had 1.3 million employees (Emek Basker). Sam Walton, a former JC Penney employee, started a small store named Walton’s in Bentonville, Arkansas in 1945. It grew into a multi-million dollar retail company known as Wal-Mart. Wal-Mart has done great things for consumers by keeping their prices low and affordable. They helped China create a middle class in their economy because most of the goods sold at Wal-Mart are manufactured in China.
Although those things are good, they come at a price. They have created a more competitive market for retailers and manufacturers which caused a lot smaller retailers to close and go out of business. Wal-Mart also manipulates their suppliers by forcing them into unfair contracts and Wal-Mart provides very little chance for growth and promotion for their employees. In order for Wal-Mart to keep their prices low, they have to find the cheapest goods. Those goods are usually purchased from overseas manufactures.
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This business model has created a drop in manufacturing jobs in the US. Many believe that Wal-Mart is responsible for the loss America’s production industry. Wal-Mart set the standard for most retail businesses. In order to keep income flowing, most retail stores have modeled their stores after Wal-Mart. Wal-Mart offers a wide variety of merchandise in all their stores. They call them supercenters. You can find everything including but not limited to groceries, medicine, tires, pet supplies, music, electronics, clothing, books, office supplies, beauty products, sporting equipment, and gardening tools.
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The philosophy behind Wal-Mart was for customers to be able to find everything in one store for a cheap price. Since Wal-Mart has become so popular, more and more stores have taken the same approach to retail. Emek Basker quoted Target’s chairman in his study saying, “Target is the world’s premier student of Wal-Mart”. Target has now become a supercenter offering everything in one store. Since more retailers have adopted Wal-Mart’s business model, consumers have more options for lower prices. The only way Wal-Mart can stay competitive in this market is to cut back on labor, cut employee benefits, and continuously find cheaper manufactures. Suppliers are forced to lower prices in order to secure contracts with Wal-Mart and other retail stores. This in turn forced them to lay off hundreds of people in order to remain profitable. Manufacturers needed cheaper labor so they moved most of their factories overseas.
They also found that US labor laws were too restrictive and that other countries did not have that problem. When Wal-Mart and other retail stores saw that it was cheaper to manufacture products overseas, they sent their suppliers over to China. They were able to get their raw materials cheaper and have Chinese workers assembled their products for a lot cheaper than they would have to pay workers in the U.S and not give them benefits. That allowed them to keep their prices down. Because a lot of manufactures ran to China for cheap labor, the Chinese started demanding more money.
After a while labor in China got higher and it was no longer that much cheaper to manufacture in China. Once the Chinese were being paid more their living standard rose and they were able to buy in the market. Whereas before the Chinese workers didn’t make enough money to be able to live decently. When they started making more money they were able to create a better life by building houses and buying in stores. Although Wal-Mart created a middle class in China, they have not done much to help maintain our middle class. I feel Wal-Mart hasn’t contributed to our economy as much as they contributed to China’s. Since Wal-Mart has had a helping hand in the changing over of jobs from manufacturing to retail I feel our economy is at a low.
The people who held manufacturing jobs were the middle class. When we moved those jobs a lot of them were forced to get jobs in retail. A lot of them went from making 60,000 dollars a year down to minimum wage. The cost of living has gone down because the wages have gone down. When no one makes enough money to buy expensive things, one or two things happen, either the existing businesses lowers their prices so that they’ll still make money or low cost stores are created to accommodate the living wage. The housing market most definitely goes down because no one can afford a house on a minimum wage. What they did to our economy by leaving the U.S and manufacturing in China impacted our economy in a negative way and virtually did the opposite of what they did for China’s economy.
Although we lost manufacturing jobs we gained service sector jobs however, there is a downfall to those jobs. The consequences of creating a competitive retail market and keeping prices low resulted in jobs going to China. Some argue that the loss of those jobs were inevitable and were due to a technological advancement more so than the retail market becoming competitive. Brink Lindsey in his article Job Losses and Trade says “Between 2000 and 2003, manufacturing employment dropped by nearly 2.8 million, yet imports of manufactured goods rose only 0.6 percent.” As to say yes we lost a lot of manufacturing jobs but the imports from China didn’t rise that much. I have to disagree with him. Yes we did lose those jobs and yes I do feel we did lose those jobs to outsourcing to China. Everything we buy is made in China.
So if the jobs didn’t go to China and were replaced by technological advancements why is everything made in China? Yes I do believe technology got the job in some cases. The majority of those jobs did get outsourced to China. Wal-Mart’s market domination forced smaller retailers to close. Stores that only offered one type of product became insignificant. Customers have gotten used to one stop shopping. Why go to several small stores to get the same products offered in one large store for less money. Because Wal-Mart buys in larger volume, their costs are lower. Because their costs are lower, they can offer products much cheaper than smaller stores. When a Wal-Mart opens in an area, smaller retailers loose customers. Although Wal-Mart causes smaller retailers to lose market share, there are instances where having a Wal-Mart near boosts sales. The Wal-Mart in Oakland, CA is in a shopping center with 9 other smaller stores. They are the anchor store so they bring a lot of foot traffic to the other stores that are there. However, the stores are mostly restaurants and specialty shops. They are not in direct competition with Wal-Mart because they offer products that Wal-Mart doesn’t.
Landing a contract with Wal-Mart can be very profitable for suppliers although it may not be the best decision. Wal-Mart sells millions of goods every day. If a supplier can get their products in Wal-Mart stores, then it’s very likely that they will make money. Wal-Mart buys millions of whatever product the supplier is selling. After they’ve become the main source of income for the supplier, they demand the product at a lower price and threaten to drop the contract. Wal-Mart is usually a supplier’s biggest contract and has a huge effect on the company’s profitability. The decision they have to make is to either close or meet the demands of Wal-Mart. Wal-Mart's cut throat contract negotiations cause suppliers to lay off people to cover the deficit or they cut costs in the manufacturing department.
You would think the supplier would be in control of their business and the pricing their product. Wal-Mart has made it so they are in control and they tell suppliers what to do and what prices they are going to pay. They become the main source of income for suppliers. In order for suppliers to meet their demands, they have no choice but to comply. As Wolfgang Schmitt former CEO of Rubbermaid said from the Is Wal-Mart Good for America video “Wal-Mart’s way of disciplining the supplier is to show that volume can be given or it can be taken.” This is to say Wal-Mart controls what it does with the supplier’s products. Either they stock them on the shelves or they don’t.
A classic example of Wal-Mart’s drastic contract negotiations is Vlassic pickles. In the article The Big Squeeze by Charles Fisherman, he tells the story of the relationship between Vlassic and Wal-Mart. Wal-Mart offered consumers an industrial size jar of Vlassic pickles for less than $3. Vlassic was only making $.01 per jar sold. Wal-Mart wanted to pay Vlasic even less for the jars so they threatened Vlassic that they would not carry their products if they didn’t reduce the cost. Vlassic was forced to comply and eat the loss of revenue because they didn’t want to lose their shelf presence in Wal-Mart.
Wal-Mart employs a lot of people. They hire young people, old people, people with no college degrees, and disabled people. However, most of their employees are part time with no health coverage. Although Wal-Mart offers several different career paths, it is not easy to advance from entry level to middle or upper management. Wal-Mart, in my opinion and in the opinion of others, mistreats their workers. They purposely hire a bunch of workers part time so they don’t have to pay benefits or overtime. They only pay a little above minimum wage. As it was stated in Living Wage Policies and Wal-Mart in an UC Berkeley Research Brief “Wal-Mart’s workers earn an estimated 12.4 percent less than retail workers as a whole and 14.5 percent less than retail workers in general.”
There is also little chance you get promoted. People criticize Wal-Mart because it’s almost impossible to make a career out of working there. From my personal experiences, I know family members and friends who work for Wal-Mart and they completely dislike it. They keep the jobs because they need them. They complain that the managers mistreat them and that their complaints are ignored by HR. I appreciate the fact that Wal-Mart offers such good prices. I will continue to shop at Wal-Mart even though I don’t agree with their business practices, because they are so affordable and convenient. However, they are ruining our economy. They are forcing jobs overseas. They are making companies lose money with their unfair contracts, and they are mistreating employees.
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