The Wal-Mart Effect

January 31, 2007 at 2:09 pm | Posted in Non-Fiction | Leave a comment

The Wal-Mart Effect: How the World’s Most Powerful Company Really Works–and How It’s Transforming the American Economy is a balanced – but inevitably incomplete – assessement of the world’s biggest private employer. The facts behind Wal-Mart are undeniably impressive: 97 percent of Americans live within 32 kilometres of a Wal-Mart; its grocery business has become the largest in America in only 15 years. And it has rapidly expanded abroad, becoming Mexico’s biggest retailer and taking over the British Asda supermarket chain (although it has recently closed down operations in Germany and South Korea). In just five years, Wal-Mart’s giant “Supercenters” have doubled in number, to around 2,000 in the United States.

Although stonewalled by Wal-Mart in his attempt to obtain company information, Fishman takes a balanced view of the giant and he notes the positive effect that Wal-Mart’s aggressive pricing strategy has had on inflation in the US. Yet he also does not omit analysis on the effect of the low-wages that Wal-Mart pays on workers and their families. Fishman mixes up case studies of individual suppliers and their pressure to reduce prices with surveys of academic studies and media coverage of the giant. It is a pity that Fishman at times is reduced to quoting at length from The New York Times and other outlets, but Wal-Mart’s cone of silence about its activities means that statements out of Bentonville (home of Wal-Mart’s Arkansas headquarters) and from many people connected to the giant (under pressure from Bentonville) were usually impossible to obtain. This lack of access to information about Wal-Mart is the story behind Fishman’s book.

New Zealand does not currently have any Wal-Mart stores and quite likely never will. The economies of scale that Wal-Mart requires simply do not exist in a country with the population of a small US state. But that does not mean that Wal-Mart does not effect New Zealand. Observers have long noted that The Warehouse models itself to an extent on its much bigger US counterpart and Fishman’s book provides evidence for this. The Warehouse has attempted to copy Wal-Mart’s strategy of “Price Rollbacks” for example and instituting “everyday low prices” (rather than sales every other week). In addition, The Warehouse is currently trying to start up a grocery business, with its “Warehouse Extra” concept. The key difference of course, between The Warehouse and Wal-Mart lies in the disparities in scale. Short of an (improbable) enormous retail shake-up, the former will always be a price-taker; the latter will always be a price-setter.

Still, it is clear that both the Australian Woolworths chain and the local Foodstuffs co-operative are afraid of the impact a Warehouse incursion into the grocery business would have in New Zealand. That is why both companies have bids on the table to buy the “big red sheds”. But if the aggressive Woolworths (what is it with big retailers beginning with the letter “W”?!) takes over the Warehouse, as seems likely, it could be that Wal-Mart shows an interest in acquiring a well-oiled Australasian imitator, long run along similar lines to itself. Warehouse → Woolworths → Wal-Mart?

The Wal-Mart Effect was selected by The Economist as one of its books of the year in its December 9, 2006 edition. The print edition of the magazine is held on Floor 2 of the City Library. Alternatively, search for “Fighting to be tops” in the Ebsco database (available free to DPL members) to read the list online.

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