Posted on 01/01/2006 3:06:28 PM PST by flixxx
The Wal-Mart Model
The American economy continues to surge ahead, though you won't read much about it in mainstream media. Economic growth in the third quarter was 4.1 percent--despite Hurricane Katrina!--the 10th consecutive quarter with growth over 3 percent. Unemployment is 5.0 percent--lower than the average for the 1970s, 1980s, or 1990s. Since April 2003 the economy has created a net 5.1 million new jobs. Core inflation is only 2.1 percent, and gas prices, which surged above $3 a gallon after Katrina, are now down around $2. Productivity growth for the five-year period of 2000-2005 is 3.4 percent, the highest of any five-year period in 50 years.
This is a remarkable performance and owes something surely to the Bush tax cuts and to Alan Greenspan's stewardship at the Federal Reserve. But it also tells us something broader about the American economy. Mainstream media coverage about the economy tends to be full of bad news, especially during Republican administrations, and to focus on economic problems. But over the longer term the story of the American economy is one of success. A quarter century ago many economic commentators said that the era of low-inflation, high-job-creation economic growth was over. In the ensuing 25 years it has come to be the norm.
The negative bias of economic coverage can be seen in stories about the current No. 1 private-sector employer in America, Wal-Mart, and the No. 1 employer back in the 1970s, General Motors. The GM story is genuinely grim: The company is laying off thousands of workers and closing plants and is threatened with bankruptcy. Stories about Wal-Mart tend to focus on allegedly low wages and healthcare benefits, and to say less about the company's continual profitability and the low prices that benefit consumers. These companies are not entirely comparable; they're in different businesses. But some of the differences between them illustrate why the American economy, which seemed to have run out of gas 25 years ago, is now doing so well.
One big difference is this: General Motors' business model was designed for a static economy; Wal-Mart's for a dynamic economy. From the 1930s, GM--as one of only three major automakers--was able to pass along to consumers the high costs imposed by wages, pensions, and health benefits negotiated with the United Auto Workers. When emerging foreign competition started to make life tougher for Detroit executives in the 1970s, they tried to insulate themselves with government tariffs and domestic-content requirements. More recently, they've tried to offload their high healthcare costs onto the government. Wal-Mart, in contrast, started off with many retail competitors and has sought more, by taking on supermarkets. It competes by holding down costs and prices for consumers.
Quick reaction. Wal-Mart has been much more skilled at adapting to market conditions. Its computers keep it instantly apprised of sales, and its distribution system keeps stores stocked with items consumers want. Someone making a 3-ton car cannot adapt so quickly, but even so it still takes GM years to get new models on the market--and often they're not what consumers turn out to want.
Then there are employment costs. Yes, Wal-Mart does not pay high wages or provide healthcare benefits to all employees. But not all workers today want full-time jobs (they may want to be home when kids return from school) or health insurance (many are covered by a spouse's policy or Medicare). And Wal-Mart promotes from within: You can work your way up from the store floor to management ranks. GM and the UAW, in contrast, insist on a sharp line between labor and management, with all employees working full time and getting full benefits. That made sense when almost all workers were men supporting families. But it is a poor fit with a labor market in which many workers are women, teenagers, or retirees seeking extra income.
In retrospect it's not so surprising that 25 years ago, when GM was deemed the prototypical firm, experts were pessimistic about the American economy. They failed to foresee that more nimble firms like Wal-Mart would rise and would supply the amazing resilience that has enabled the American economy to thrive, as Greenspan has observed, even when hit by calamities like September 11 and Katrina.
Disposable liabilities? I suppose that's why 76% of all Wal-Mart managers have come from the ranks of their hourly employees. What other company in the U.S. offers that kind of upwardly mobility to their hourly workers, most of whom have no post-secondary education? Costco?
More than 100 million Americans shop at Wal-Mart every week. Just how do you define a highly restrictive budget?
How you define a "ghetto" store? Retailing stats show that the typical "ghetto" store charges higher prices to cover the risks associated with doing business in those kinds of areas. Ghetto's typically don't offer a great deal of competition in retail.
You're starting to sound like a viral/buzz marketer, many of whom are prone to the overuse of statistics.
Not having the stats in front of me, I'd say that there is a significant portion of the population that shops wal-mart for select commodity items. And a portion that shops there for other things, such as furniture, clothing, etc. I can't provide a SKU by SKU breakdown.
"Ghetto stores" fall into two distinct categories. There are those that are part of large chains and they do indeed charge more for products due to insurance costs, shrinkage and other costs associated with tough neighborhoods. Then there are the highly profitable and lower priced independents, which I frequent to satisfy my singular taste for loud summer shirts. These stores have their own supply chains and expertise not available to large chain retailers. So, it's possible to buy three or four hideously designed shirts at the everyday low price of 3 or 4 for $20.00.
Yes, I'll be the first to concede that Wal-Mart's electronics is run-of-the-mill, general stuff such as VCR/DVD combos, regular TVs, and DVD sets. IMO most people who buy TVs and stuff from Wal-Mart are apartment dwellers or buying it for the kids.
Yeah, I'd like to know how life goes for that kid at Circuit City. I wish him the best, he has a real talent.
I don't think Wal-Mart is in any danger into the far future. It's worrisome that they missed Dec projections, which may clobber Wall Street tomorrow with "Americans are running out of money!" panic.
BTW, I'm an apartment dweller, though being in NYC the apts tend to be a little pricey. But I got your meaning.
We all do. The memo written by the Executive Vice President for Benefits was leaked last October and is available all over the web. I'm not aware that Wal-Mart ever denied that Ms. Chambers wrote the memo or claimed that it's inaccurate.
The Chambers memo is an indication of the corportate business plan. It goes farther than health benefits, which I agree are being addressed by companies throughout the U.S. It talks about reducing employee costs all over the spectrum including discouraging long term employees and reducing the 401K contributions. The business plan is to make an already profitable company even more profitable at the expense of the employees.
You're talking about a fraction of the work force. How about the rest? The rank and file cashier and stocker and the like? According to the Chambers memo it's better to get rid of them after a year or two than to keep them. End even those that climb to the manager ranks, the company thinks that their compensation is too high and needs to be slashed. Why else would they propose cutting 401K matching by a third?
Actually all it points out is that 7 year employees exist.
No, she points out that a 7 year employee costs 55% more than a one year employee, that the 7 year employee is no more productive than the 1 year employee, and that the 7 year employee is more likely to remain with Wal-Mart because they've priced themselves out of the entry level wages of the competition. And that such employees are to be discouraged.
"[Economic Idiots such as Paul Krugman] failed to foresee that more nimble firms like Wal-Mart would rise and would supply the amazing resilience that has enabled the American economy to thrive, as Greenspan has observed, even when hit by calamities like September 11 and Katrina."
As a small business owner, I know first hand that you have to find your niche and run with it. No business is immune to changes in the economy, natural disasters, or just flat-out bad luck, but being quick and nimble and able to please your core customers is pretty obvious, and WalMart does just that, no matter what the economy.
Which has been better than ever, despite what the MSM tries to spoon-feed us each and every day. *Rolleyes*
What's good for Wally World is good for America!
A brilliant company sadly maligned. Well, let the Rats pay twice as much at Bed, Bath and Beyond for the same kitchen gadget they could get at Wal-Mart. My savings go back into the economy and support even more jobs.
And don't forget the phenomenon of the Wal-Mart millionaire. Doesn't get much press, but around these parts there were plenty of low-on-the-totem-pole WM employees who participated in stock programs and who are now sitting mighty pretty on some big old nesteggs.
And don't forget the phenomenon of the Wal-Mart millionaire. Doesn't get much press, but around these parts there were plenty of low-on-the-totem-pole WM employees who participated in stock programs and who are now sitting mighty pretty on some big old nesteggs.
Laffer was on Sean the other day and addressed this. He said the Chinese have "out-sourced" their entire economy to us--they are completely dependent upon their ability to make stuff we want to buy.
This has led to good quality and low prices for goods Americans don't need to make for themselves. This in turn has allowed Americans (according to Laffer) to make more complex, expensive stuff to export around the world.
One thing Laffer didn't bring up, but his comments brought to mind for me was that, if China truly is dependent on selling goods to the U.S. and finds itself more and more trying to turn on the spicket---
well, hell's bells, one big effect of that is that prosperity--some resemblance of capitalism, economic freedom---spreads more and more in China.
With economic freedom, political freedom begins an inexorable march.
So when I shop at Wally World, I'm pumping the U.S. economy and promoting the cause of freedom in China. Cool!
Why do employers need to "care" about their employees, as you suggest?
Only this: an employer who doesn't grow a good work force won't be in business for long. These are market forces to account for, period.
This is "bullying"? Please.
Most of the people here would LOVE to see the Guvmint operated with even 1/50th of the efficiency of a Wal-Mart.
You may think such efficiencies are unreasonable or unfair, but obviously there are many suppliers who are willing to become more efficient and reliable in order to do business with Wal-Mart. And that's bad how?
I sure saw a bunch of "bullying" on tv yesterday, also, when, for example, a head football coach had the audacity to sit a QB down when he wasn't delivering on time.
Yeah, around here Target is snooty. But let the market decide!
It's pretty simple: Shop where you want and don't go out of your way to bash someone who shops somewhere else.
Isn't Target a French company?
Uh, you need to get out more!
One of the brilliant aspects of Wal-Mart is that they customize their stores to the particular market.
In Florida, for example, I read that they knew that at one store, in the run-up to a storm, the most bought items were the usuals and pink grapefruit juice.
So every time there was a storm coming, that WM stocked up and sold tons of pink grapefruit juice. It was just something the people that frequented that WM liked.
I frequent a WM that is near a town that is quite well-off. The WM is stocked with good-looking housewares, for example, only for less. Yes, the WM sells charger plates (an accoutrement of fancy dining, for those not familiar with them), only for 1/3 the cost of those sold at chains such as Bed, Bath and Beyond. Not quite the same quality, but obviously WM has figured out that even rich people like to save some bucks on things that are not necessities.
Fishing popular in the area? WM is likely to have an extensive fishing department.
Equestrian sports? Yep, WM will have this, too. Maybe not like a true tack shop, but horsey basics.
If the WM you've been in are "ghetto" stores, that may be because they are keying off "ghetto" surroundings. They sell what people in the area want to buy and they key their price ranges to what people in the area can buy.
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