Sunday, December 04, 2005

Wal-Mart good for America?

Ted Kennedy has taken the political lead in attacking the Wal-Mart which would be the world's 20th largest economy if it were measured as an independent country:

"But what Wal-Mart's leaders can't seem to grasp is that average Americans are offended by its shameful tactics to boost profits at the expense of the families of hard-working men and women."
The idea that Wal-Mart has been boosting profit is risible in the face of a whopping 3.5% margin (paid registration required). To the contrary, CEO Lee Scott has been criticized for ignoring the bottom line in an attempt to shore up the company's image. The Senator is correct in pointing to (and shrewdly seizing upon) Wal-Mart's stumbling publicity. According to a new Zogby poll, 38% of Americans have an unfavorable opinion of Wal-Mart, 55% have a less favorable opinion than they did before based on recent news related to the Arkansas-based retail giant, and 56% think Wal-Mart is bad for America. The leaked internal memo discussing ways Wal-Mart could decrease its healthcare costs and increase efficiencies by hiring healthier workers (seems like a fabulous idea to me) and the company's decision to abstain from using Christmas in its advertising have not helped.

Continues Kennedy:
"They have used predatory pricing practices to put small companies out of business.
Surely, the largest company in the world, which made more than $10 billion in profits last year, can do better by its workers, better by our communities, and better for the American taxpayer."
The problem with this sort of demagoguery is that it ignores the perspective of the consumer. From the vantage point of consumerism, Wal-Mart is a retailing apotheosis. It has everything, is located everywhere, and sells its stuff at bargain basement prices--even its grocery prices are 20% lower than other supermarkets. A Global Insight study found that Wal-Mart saved consumers an astounding $263 billion in 2004 alone. These lower prices coupled with Wal-Mart's state of the art logistical system make it the most attractive outlet to many consumers, particularly those in the lower echelons of the economic ladder. The aforementioned study also found that Wal-Mart's presence decreased at-home food prices 9.1% over the last two decades. In 2003, the average US household spent $3,114 on food annually--thus Wal-Mart has saved Joe American $283 per year just on sustenance. This may mean nothing to corpulent silver-spooners like Kennedy, but for the working class that is substantial. The one-stop shopping also saves consumers time and expenses spent on transportation. This is the reason that the lauded mom-and-pop stores get run out of town when Wal-Mart shows up--they can't give shoppers what they want.

No one is forcing consumers to choose Wal-Mart, nor is anyone forcing 1.3 million Americans to become 'associates'--in a free market system people vote with their collective wallets. If you're peeved at the company's practices, don't own stock, shop, or work there. What gets me is how it is usually supercilious metropolitan types that rail on Wal-Mart. Or it's the unions (the Zogby poll referred to earlier was funded by a union group)--of course, if Wal-Mart became unionized, operational costs would rise, efficiencies would fall, and store growth would stagnate (see GM). And when Wal-Mart advocates something that the Kennedys of the world putatively support, like increasing the minimum wage, the attacks do not relent and instead Wal-Mart just puts off its supporters like myself (though given Wal-Mart's average hourly wage of $9.68, an upping of the minimum wage would hardly increase its costs while giving at least an initial financial boost to a large portion of its shoppers).

Kennedy makes some good points, especially the accolades he gives to Costco for the company's corporate citizenship. And Costco's stock has certainly outperformed Wal-Mart's as of late, as has the company's more prestigious antagonist, Target. Let Americans choose who they want to do business with, invest in, and work for. If Wal-Mart is regarded as too callous or vile the company will sink. Retailing is something that literally anyone can participate in (used Ebay lately?)--it's not like big oil where antitrust issues are pertinent. There's no need for meddling from the likes of Kennedy.


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