Wal-Mart Stores Essay

Wal-Mart is the world’s largest corporation and private sector employer, with 1.9 million employees worldwide and 1.3 million employees in the United States. Its annual revenue in the fiscal year ending on January 31, 2008, was $375 billion, with weekly revenue topping $7 billion. In 2008 it operated more than 7,300 Wal-Mart stores and Sam’s Clubs in 14 nations, reaching about 180 million customers each week. Its sales in the United States are larger than the next five largest retailers combined. More than 125 million U.S. consumers shop at Wal-Mart every week, and it is estimated that about 85 percent of Americans shop at Wal-Mart at least once in a given year. This vastness has raised concerns about Wal-Mart in some quarters, but most economists believe that its ability to reduce costs and to pass these savings along to consumers have been beneficial to the overall economy. Academic studies show that Wal-Mart has had a significant impact on the U.S. economy.

This gigantic corporation, headquartered in Bentonville, Arkansas, began in 1962 when Sam Walton opened the company’s first discount store in Rogers, Arkansas. The company grew rapidly, reaching 24 stores in 1967, 125 stores in 1975, and 882 stores in 1985, becoming the nation’s largest retailer in 1990, as it systematically spread its operations outward from its Arkansas base. It began international operations in 1991, moving into Mexico, and currently has operations in Argentina, Brazil, Central America, China, Japan, and the United Kingdom. It is the largest private employer in the United States, Canada, and Mexico.

Wal-Mart’s growth and competitive advantages can be explained by its pioneering efforts to effectively use new technology. By the late 1970s, it had connected all its stores, distribution centers, and central headquarters to its computer network—well before competitors. It was an early adopter of bar codes in its distribution system. It completed a company-wide satellite communications network in 1989—linking all operating units with its Arkansas headquarters into what is now the world’s largest private satellite communications network. In 1990 it introduced Retail Link software that connected its stores, distribution centers, and suppliers, providing detailed inventory data. It is currently in the forefront of utilizing radio frequency identification, which facilitates tracking shipments, inventory, and sales with tags on individual items that can be read by radio signal. Currently, its sheer size allows it to develop these systems more cheaply because it can spread their fixed costs over a greater sales volume— and to negotiate steep discounts from suppliers.

Wal-Mart has increased its productivity remarkably, increasing inflation-adjusted sales per worker by about 55 percent from 1982 to 2002. The McKinsey Global Institute calculates that in the late 1990s, WalMart’s real value added per worker was more than 40 percent higher than for other general merchandise retailers. McKinsey estimates that one-eighth of the productivity growth for the entire nation in the last half of the 1990s was because of Wal-Mart.

Studies have concluded that Wal-Mart charges about 15 to 27 percent less than traditional grocery stores and supermarkets and about 23 percent less than drugstores. In addition, Wal-Mart forces its competitors to lower their prices, too—by about 10 percent. Adding together these direct savings and induced price drops elsewhere, research suggests that poorer families, female-headed households, and nonwhites have gained the most. One study concludes that in 2003, the savings in the grocery sector alone equaled $782 per household per year—the equivalent of a 1.5 percent increase in income. Another estimate puts the overall savings to Wal-Mart’s customers in 2007 at $109 billion, with savings of a similar magnitude for those who shop elsewhere.

On the other hand, economic studies suggest that Wal-Mart’s impact on local employment has been fairly minor. Its compensation levels are similar to most other retailers, although its growth has forced unionized competitors to cut wages, resulting in a drop in general merchandise and grocery sector wages of a little under 1 percent. These major savings to consumers and minor impacts in the labor market may explain why 73 percent of professional economists in a recent survey agreed that a Wal-Mart store typically generates more benefits to society than costs, while only 15 percent disagreed.

Wal-Mart is the nation’s biggest seller of groceries, toys, guns, diamonds, jewelry, CDs, apparel, dog food, detergent, sporting goods, video games, socks, bedding, and toothpaste—not to mention its biggest film developer and optician. It is also the largest customer of brand-name sellers such as Procter & Gamble, Kraft, Revlon, and Gillette. Wal-Mart began offering private-label brands in 1991, with the launch of Sam’s Choice. Because price matters immensely to many of Wal-Mart’s customers, its cut-rate house brands can substantially eat into sales by traditional suppliers. For example, Wal-Mart’s Ol’ Roy dog food, named for Sam Walton’s English setter, has surpassed Purina as the world’s top-selling brand. Approximately 40 percent of products sold in Wal-Mart are now private-label store brands. When Wal-Mart establishes a private label, it is often able to cut out the middle people and deal directly with overseas suppliers. In 2004 Wal-Mart bought 15 percent of American imports from China. If it were an individual economy, the company would rank as China’s eighth-largest trading partner.

Bibliography:

  1. Nora Ganim Barnes, The Effects of WalMart Stores on the Economic Environment of Counties in the Northeast (University of Massachusetts Dartmouth, 1994);
  2. Emek Basker, “The Causes and Consequences of Wal-Mart’s Growth,” Journal of Economic Perspectives (v.21/3, 2007);
  3. Jason Furman, Wal-Mart: A Progressive Success Story (New York University Press, 2005);
  4. Michael J. Hicks, The Local Economic Impact of Wal-Mart (Cambria Press, 2007);
  5. Thomas J. Holmes, The Diffusion of Wal-Mart and Economies of Density (National Bureau of Economic Research, 2008);
  6. “Japan: The Wal-Mart Way,” BusinessWeek (24, 2004);
  7. Nelson Lichtenstein, Wal-Mart: The Face of Twenty-First-Century Capitalism (New Press, 2006).

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