A Stitch in Haste

NOTE: See major update below.

Some intellectual finger-food in the form of an Time interview with Wal-Mart CEO H. Lee Scott Jr. Not peer-review quality, but sometimes it helps to reduce down to first principles, just like a marathon runner can enjoy a leisurely stroll through the park every now and then:

WAL-MART'S IMAGE SEEMED TO MORPH FROM CHARMING SOUTHERN DISCOUNT STORE TO A RETAIL BULLY FULL OF DEAD-END JOBS. WHY DID THAT HAPPEN?

Our size really does bring with it some disadvantages. And in some ways being in Arkansas was a disadvantage in that we thought you could ignore the rest of the country. We let other people define who Wal-Mart is. Now we're telling the Wal-Mart story, about the quality of jobs we have and about the 1.5 million Wal-Mart associates who have a lot of pride in the company.

WHAT DO YOU OWE WAL-MART EMPLOYEES?

We owe them fairness, respect, and I think we owe them opportunity. The fact that we have thousands of people lined up for 500 jobs [at a new supercenter] tells you that people will improve their lives when they can. They will join a company that has good benefits, that pays better and that provides opportunity for promotion. You could find yourself pushing carts in Mississippi and then find yourself managing in Germany.

...
YOU'RE GOING TO BUILD 250 NEW SUPERCENTERS NEXT YEAR. SOME COMMUNITIES HAVE FOUGHT AGAINST THEM. DO WE REALLY NEED THAT MANY SUPERSTORES?

Customers decide that, don't they? If they're not shopping, you wouldn't build them. Many of the stores that you assume are controversial are some of our best stores. We just opened a store in Stockton [Calif., where some towns have blocked new Wal-Marts] that's done fabulously well. Some people within communities don't want us, but the shoppers sure as heck do.

WHAT'S WAL-MART'S BEST-SELLING ITEM?

Bananas.

...
WHAT ARE YOUR FAVORITE NON-WAL-MART STORES?

I do not have favorite stores. This week I've been in Target, Best Buy, Meijer and Wal-Mart. I really enjoy walking stores, seeing what the competition is selling. The new Bloomingdale's in New York is so well done. It's a great place to look at handbag merchandising. Their men's socks are amazing too — kind of expensive, though.

...
SO WILL CONSUMERS HAVE A MERRY CHRISTMAS?

Christmas will come. It comes every year. But it comes later every year as people take that last paycheck and go shopping. That means retailers have to be sharper in their offerings, so I think it will be very good for the consumer.

BE HONEST. HAVE YOU EVER EATEN HALF A BAG OF COOKIES IN TARGET AND THEN JUST LEFT IT THERE?

No. At Target or anywhere else, if there's a shopping cart blocking a parking space, I'll push it into the store. Retailing is already hard enough.

I wonder how much attention was paid to men's sock displays in, say, the former Soviet Union, or Castro's Cuba, or Saddam Hussein's Iraq. And what does it say about American and global capitalism that what was once an "exotic" fruit is now the best-selling item in the largest retail chain in America?

It bears repeating -- over and over and over. Companies that are successful are successful for a reason. Yes, sometimes the success is nefarious (e.g., sweetheart deals with government, corrupt business practices, even outright criminal conduct), but they never last long and have more to do with human nature generally than with any inherent defect in capitalism. The real success stories, the Wal-Marts, Microsofts, Apples, McDonalds, etc., got where they are by making the world a better place.

There is something wrong, seriously wrong, with anyone who would want to fight that.

MAJOR UPDATE: ...anyone like this fool --

[T]he real story of Wal-Mart, the story that never gets told, is the story of the pressure the biggest retailer relentlessly applies to its suppliers in the name of bringing us "every day low prices." It's the story of what that pressure does to the companies Wal-Mart does business with, to U.S. manufacturing, and to the economy as a whole. That story can be found floating in a gallon jar of pickles at Wal-Mart.

Wal-Mart is not just the world's largest retailer. It's the world's largest company -- bigger than ExxonMobil, General Motors, and General Electric. The scale can be hard to absorb. Wal-Mart sold $244.5 billion worth of goods last year. It sells in three months what number-two retailer Home Depot sells in a year. And in its own category of general merchandise and groceries, Wal-Mart no longer has any real rivals. It does more business than Target, Sears, Kmart, J.C. Penney, Safeway, and Kroger combined. "Clearly," says Edward Fox, head of Southern Methodist University's J.C. Penney Center for Retailing Excellence, "Wal-Mart is more powerful than any retailer has ever been." It is, in fact, so big and so furtively powerful as to have become an entirely different order of corporate being.

Wal-Mart wields its power for just one purpose: to bring the lowest possible prices to its customers. At Wal-Mart, that goal is never reached. The retailer has a clear policy for suppliers: On basic products that don't change, the price Wal-Mart will pay, and will charge shoppers, must drop year after year. But what almost no one outside the world of Wal-Mart and its 21,000 suppliers knows is the high cost of those low prices. Wal-Mart has the power to squeeze profit-killing concessions from vendors. To survive in the face of its pricing demands, makers of everything from bras to bicycles to blue jeans have had to lay off employees and close U.S. plants in favor of outsourcing products from overseas.

Some hasty stitches:

1. To claim that Wal-Mart is in any way the most powerful corporation ever, or "an entirely different order of corporate being" is to demonstrate such a profound ignorance of business history that one must question the "expert's" educational credentials. Standard Oil wielded far more power in its time than Wal-Mart does today. Heck, J.P. Morgan (the man, not the company) essentially controlled the entire American economy at the zenith of his career).

2. Keep in mind what the author is lamenting -- oh those evil low prices Wal-Mart makes possible! Pure Broken Window Fallacy! Yes, Vlasic loses some of its historical profits -- which, incidentally, go, according to the socialists, to greedy lazy stockholders, not workers. Meanwhile, the savings the consumer reaps go to -- other businesses! The lost Vlasic profit finds its way to some other company that is providing some other good or service (or perhaps it goes into the consumer's bank account, which even a socialist cannot argue is a bad thing).

3. Another huge fallacy is exhibited in this piece: Just because Wal-Mart may have no "real competitors" today (a misrepresentation, incidentally -- besides Costco, Target, etc., Wal-Mart has millions of competitors...they just happen to be small), that does not mean it won't have competitors tomorrow if it suddenly stops doing what it does (and remember exactly what Wal-Mart does: it give us lots and lots of cheap stuff!). People often fail to remember that market power without barriers to entry means absolutely nothing in the long run. We are so conditioned to seeing monopolies imposed by government (the Postal Service, defense contractors, pharmaceutical patents) that we forget that those barriers to entry are a pre-requisite to sustained market power. Either that, or the company that reached the top can only stay at the top by continuing to satisfy its customers in a way no one else does as well.

Compare and contrast: There was a time when Woolworth's was a near-monopoly in discount retailing. The chain no longer exists (although the company does...it morped into Foot Locker). There was a time when Montgomery Ward was a near monopoly in its niche. It went bankrupt. There was a time when Sears had a near-monopoly in what today we call the "superstore" concept. It got kicked out of the Dow Jones Industrials Average. "Monopoly power"? Feh!

4. The piece proceeds to invoke -- surprise -- offshoring. More broken windows! How many domestic jobs were saved by Wal-Mart helping keep prices low throughout the economy? (Keep in mind, Wal-Mart, mostly through its Sam's Club subsidiary, sells -- sells a lot -- to businesses, especially small businesses.) Lowering supply costs to those businesses makes it easier for them not to go offshore, or not go bankrupt either.)

Of all the socialist logical-pretzel-twisting arguments one is likely to see, the notion that it's good for consumers to pay higher prices has to be the single most perverse. Perhaps even evil. People who advocate such nonsense are not motivated by concern for workers or small businesses...they are motivated by hatred of the successful.

Hat tip to Marginal Revolution. Meanwhile, here's another response to some more anti-Wal-Mart drivel.

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(Cross-linked at Outside the Beltway.)