Wal-Rant 2.0: Another day, another Wal-Mart excursion
Or: Why I won’t shop at Wal-Mart until the dictatorship changes regimes.
Anyone who has been a longtime reader of this blog will know I have a long-standing love/hate relationship with Wal-Mart Stores Inc., the Svengali-esque corporation that controls 11% of the Global Domestic Product. That’s not an exaggeration, by the way, that’s according to a number of easily accessible Economics sources.
Love/hate aside, I was trepidatious when “We’re Remodeling” banners and signage went up around our local Wal-Mart. After all, it’s taken me almost two years to get used to the last refresh. An overall remodel would no doubt rock a boat that is already, understatedly, rocked every time I walk into one of their stores.
Here’s what the remodel ended up consisting of. Mainline brands — clothes, cleaning supplies and housewares — now occupy about 40% of the total floorspace. Hardware, which once spanned 20% of the store, occupies four aisles along the back wall. Automotive’s six aisles of goods are sandwiched into two aisles. The pharmacy has remained relatively unscathed. Petcare, once three full aisles, now occupies two small half aisles and a strip along the back wall. And groceries, which once accounted for almost 40% of floorspace, has been reduced to just over 1/3 of floorspace.
This was accomplished by WalMart reducing the numbers of brands of each item they carry while simultaneously spreading out the remaining numbers of brands in thinner shelves. And the kicker: they now stock fewer of each item. Where they once stocked 7 brands of pasta, 8 boxes deep, they now stock 3 brands of pasta 4 deep. The same is true in hardware, in petcare, automotive. Even office supplies weren’t spared the brunt.
Now it would be easy to say “Well, just buy your things elsewhere,” right? Wrong. WalMart requires many of its vendors to enter into exclusivity agreements. You can sell to WalMart or you can sell to someone else. But not to both. And, because of the company’s unique supply chain, it can afford to buy insanely huge quantities of any item. So, if you manufacture candle holders and sell them to WalMart, Freds, and Costco, WalMart gets the luxury of saying to you, “Sell to us, or else.” The else being to find another supplier to copy your product and sell it to WalMart at such a volume discount as to make it impossible for you to sell your product to anyone for anywhere near the price WalMart will pay your competitor.
This has a decidedly anti-market effect. But what happens when WalMart stops carrying the product? You’ve already tooled your entire supply chain to service the behemoth and — in many cases — WalMart owns the patents that make your new supply chain methods possible. You have a choice. Retool your entire production line or go out of business.
Unfortunately, these suppliers and manufacturers have been operating at such narrow profit margins in service to volume that retooling production and supply lines is an impossibility. They shut down.
Since the product you once wanted was a low-volume product for WalMart, WalMart doesn’t miss the revenue. The product doesn’t exist anymore and thus you’re forced to purchase some other product — a product that, chances are, WalMart carries. Meanwhile, WalMart’s strategy of fewer products means it can further reduce its staffing needs and add to the profitable bottom line — 19% last year, a year in which they ‘laid off’ an estimated 9,000 employees worldwide. (They say they laid them off instead of fired them because, a.) it sounds better, but b.) if the employee remains on unactive status for a certain period of time, in some states, WalMart is able to avoid paying unemployment.)
Meanwhile, there are all these savings, right? Wrong again. Prices last year increased in WalMart stores by an average of 7.4% according to one watchdog group. For those doing math, inflation in 2009 was less than 1%.
At the end of the day, the question is a simple one: for how long do we let Standard Oil decide the price of gasoline?