The Effect

4/19/2007
Edwin Pahk
 Brief History
• Walmart was launched by Sam Walton in
1962.
• Walton sought to provide customers with
low prices by passing on savings from
wholesalers rather than pocketing the
money like other retailers.
• This ended up being a cornerstone of the
business strategy in the Walmart empire.
• Sam Walton, established many business
practices that allowed him to keep prices low for
consumers.
• Although he dreaded unions and really didn’t like
paying his workers anymore than he should,
Walton understood that he must keep his
workers happy and introduced profit-sharing
plans and sold them the notion that working at
Wal-Mart meant limitless opportunity.
• And for the most part Wal-Mart had a great
reputation due to Sam Walton until his death in
1992.
Sam Walton
 Current Facts
• Wal-Mart is the largest corporation in the world.
Their revenues equal 2% of US GDP.
• Wal-mart operates over 5000 stores worldwide
and employs 1.6 million people, 1.3 million
people in the U.S. Only the US government
employs more people than that in the U.S.
• Serves more than 138 million people weekly
worldwide.
• Wal-Mart plans to open up 225 supercenters this
year alone
Wal-Mart Locations
• Four of the five Walton heirs are the top 10
richest people in America, whose net
worth in one year alone increased from
$94 billion to $102 billion.
• Supercenters on average take up 186,077
square feet while discount stores average
98,079 square feet.
• The average wage of the Wal-Mart worker
is approximately $10/hour.
Wal-Mart Distribution Center
Wal-Mart SuperCenter
 The Story behind Wal-Mart’s
success
• Wal-Mart can attribute their success to two
very important factors
• Supply chain efficiency
• Control of Payroll
 Supply Chain Efficiency
Ever since the 1970s Wal-Mart used computers
to keep track of inventory and sales data
between their stores and warehouses.
• Wal-Mart was so efficient that it was believed
that they had a three day turnaround, not from
the store to the warehouse but from the store to
the manufacturer.
• This allowed them to keep low inventories and
not lose money to fad items, which go in and out
of style quickly.
• Along with efficient control of their supply chain,
Wal-Mart also finds its savings by getting 85% of
their products from foreign manufacturers,
mainly from China.
• Due to this outsourcing Wal-Mart has been
accused of supporting sweatshops in order to
keep its low prices.
• Wal-Mart’s “Made In the U.S.A” Campaign in
1985, which guaranteed that Wal-Mart would
choose the U.S. supplier over the foreign
supplier if they were within 5% of the price, was
ineffective due to the overwhelmingly cheap
prices that they could obtain products from other
countries with lax policies on labor.
 Control of Payroll
• Wal-Mart always kept wages down by fighting off unions
and limiting health benefits, overtime and bonuses.
• Studies have shown that where Wal-Mart’s average
wage was below $10/hr, other large retail-employees
have average wages of around $11/hr.
• Full Time employees have health benefits but the
package is so expensive (35% almost double the
national average) that less than half opt to buy it.
• Wal-Mart's statement on unions:
At Wal-Mart, we respect the individual rights of our
associates and encourage them to express their ideas,
comments and concerns. Because we believe in
maintaining an environment of open communications, we
do not believe there is a need for third-party
representation.
 The Wal-Mart effect: Local
Economy: Direct Effects
• Regardless of these facts people continue to
work for Wal-Mart due to the number of jobs it
creates when it enters a local economy. An
estimated 500 jobs are created from a Wal-Mart
supercenter. These earnings translate to a
positive effect on the economy
• Because Wal-Mart provides almost all needs for
a low price, lower income families benefit from
the cheap prices.
• But local businesses do suffer due to
competition.
• The overall effects directly appear to be positive
 The Wal-Mart Effect: Local
Economy: Indirect Effects
• Positives: Due to increase in retail consumption,
there are spillover effects to other local
businesses such as restaurants. And increased
local retail activity from Wal-Mart employee
earnings.
• Negatives: Lost local retail activity with
competing businesses, loss of local white collar
firms that provide business to local businesses.
• Overall appears to be a negative impact.
 The Wal-Mart Effect: Local
Economy: Fiscal
• Positives: Increased sales tax and
property tax revenues.
• Negatives: Increased demand of local
services such as waste management,
police and fire services.
• Overall positive effect
 Legal Issues
• Wal-Mart, due to its labor policies and business
practices has faced many legal issues
concerning its conduct.
• Wal-Mart faces class action lawsuits due to
work off the clock issues. Managers give out
unreasonable tasks to complete in a certain time
and ask that workers don’t log in the extra hours
in order to stay under payroll standards, or else
they’ll receive a penalty from headquarters.
• In 2000, Wal-Mart paid $50 million to settle
an off-the-clock issue with 69,000
employees in Colorado.
• In 2002, a federal jury in Oregon ordered
back wages to be paid to 83 workers.
• Last December, a California jury awarded
$172 million to thousands of Wal-Mart
employees who had been illegally denied
lunch breaks.
• Approximately 40 of these class action
lawsuits are still pending
 Sexual Discrimination
• Wal-Mart has had issues concerning the
lack of women in higher positions through
out Wal-Mart stores
• On average women managers get paid
$90,000 while men on average are paid
over $100,000
• Now Wal-Mart faces a class action lawsuit
with up to 2 million current and former
Wal-Mart employees concerning sexual
discrimination
 Wal-Mart vs. Unions
• While most companies don’t make it easy to form
unions, Wal-Mart has gone above and beyond to prevent
unions from forming. Sam Walton prevented unions by
caring and giving personal attention to employees
(calling them “associates”), now they use the strong arm
approach
• In 2000, when workers in a Jacksonville, Texas, meat-
cutting department successfully voted to unionize, Wal-
Mart announced two weeks later that it would be closing
its meat-cutting departments nationwide and switching to
pre-cut meat. Four of the employees who voted in favor
of the union were fired.
• A year ago, employees at a Wal-Mart tire and
lube shop thought they had enough votes to
unionize, but the company fired one of the likely
yes-voters and transferred in six likely no-voters.
Again, an administrative judge ruled that Wal-
Mart's conduct had been illegal, but the goal of
blocking the union had been achieved.
• And in February 2005, the company announced
that it would be closing a Wal-Mart in Quebec,
one of only two unionized Wal-Marts in North
America (the other is also in Quebec). Wal-Mart
claimed the store was losing money, but it
refused to release numbers.
 Wal-Mart vs. Costco
• Why all the bad publicity when Costco and
Target appear to be the same type of store?
• First of all size - In terms of annual revenue,
Wal-Mart is nearly four times the size of The
Home Depot, the country's second largest
retailer, and almost twice the size of Target,
Costco, and Sears (which includes Kmart)
combined.
• Costco pays on average $17/hr to their workers,
resulting in less turnover, and have unionized
workers.
• Costco’s business and labor practices are
overall considered to be the “high-road”
approach, paying their workers more to be
happier with less turnover and thus spending
less on areas such as job training, while at the
same time providing customers with cheaper
goods.
• The counter argument- The mean income of a
Costco shopper is $74,000, which is
substantially higher and appears to support the
idea that Costco supports the rich. A possible
explanation could be the number of small
business owners that shop there.
 Conclusion
• Wal-Mart and its economic effects are
debatable, but the presence and effect of
Wal-Mart as an economic actor can
definitely be felt.
• Anti-Trust practices? As Wal-Mart
continues to outgrow its competitors when
do we draw the line on how much market
power Wal-Mart is allowed to take?