The Wal-Mart Revolution

Commentary, Poverty, Rebecca Walberg

The big box phenomenon, of which Wal-Mart is the ultimate example, was not central to the work of authors Richard Vedder, an economic historian, and Wendell Cox, an expert in urban studies. When they began to write The Wal-Mart Revolution, they did so in the true spirit of academic inquiry, without having prejudged the question at hand. The result is an incisive summary of how Wal-Mart came to be, how it has changed American spending habits, and what effects, positive and negative, it has had on the economy.

Wal-Mart has evolved, Vedder and Cox argue, as a natural development in the context of American retailing. A brief chapter summarizing the invention and establishment of the general store, and the department store, establishes Wal-Mart as a logical, if not inevitable, response to the second half of the 20th century. Discount retailers came to prominence because of prosperity in the post-war years. For the first time, households in the lowest quintile in terms of income had the ability, and the power, to act as consumers.

And there is a “Wal-Mart phenomenon” at work here. Many companies founded before Wal-Mart, such as Target, benefited from the revolution in retailing and discount selling. Home improvement chains, like Lowe’s and Home Depot, as well as Circuit City in electronics and Staples in office supplies, have copied the Wal-Mart model in terms of inventory, pricing and marketing, and have made great gains. The desire of consumers to purchase goods at the cheapest price possible coincided with the need for the reliability associated with a major chain, rather than an independent retailer. On the other side of the equation, the sheer size of discount sellers allowed them to negotiate with their suppliers for unprecedented discounts.

There is more at work here than sheer buying power, though. Through a number of technological and logistical innovations, Wal-Mart and its imitators have made significant improvements that have reduced or eliminated many costs of doing business. Inventory and purchasing refinements have made it increasingly possible to order precisely the right volume, which results in lower prices at the point of sale and more predictable orders for suppliers.

Further, the authors show that one of the major losers in the discount-retail wars of the past decade, K-Mart, suffered in comparison with Wal-Mart not because of pricing but because of inventory technologies. In the late 1990s, a series of poor decisions combined with obsolete inventory management to create a situation in which K-Mart was oversupplied with unpopular products and quickly sold out of products in demand. More important than simply offering low prices was the ability to predict consumer demand, to carry minimal inventories while meeting local needs, and to respond to changes in demand as rapidly as possible. As specialty retailers not in direct competition with Wal-Mart, such as Toys R Us and Best Buy, have incorporated some of Wal-Mart’s techniques for managing supply and meeting demand, the result has been consistently lower prices and expanded selection for consumers everywhere in the US, whether or not they frequent the local Wal-Mart.

One frequent broadside against Wal-Mart is the charge of exploitation of workers. According to some critics, Wal-Mart, like other big box chains, pay substandard wages and provide few, if any, benefits. This depresses the income of workers in the area, the argument goes, and forces even full time workers to rely upon the state for health care and other services normally provided by employers. Despite these criticisms, it is inarguable, Vedder and Cox demonstrate, that retailing was easily the largest source of new jobs between 1998 and 2004, and that more than half of all new retail jobs created in this period were with Wal-Mart.

To the first charge – that Wal-Mart workers are underpaid – the authors counter that as unskilled retail workers in suburban areas, Wal-Mart employees in fact earn slightly more than the national average for equivalent jobs. Many of the comparisons that appear to cast an unfavourable light upon Wal-Mart’s staffing policies rest on faulty premises, by comparing cashiers at a suburban Wal-Mart with those at an urban department store, for example. As to the allegation that Wal-Mart deprives its workers of the benefits they might enjoy elsewhere, Vedder and Cox demonstrate that, when health coverage, stock options and other benefits are measured as a percentage of total earnings, Wal-Mart spends 20% again of wages, which is slightly above the national average.

Throughout the book is an examination of the effects of Wal-Mart upon the working poor. Because many of the products sold at Wal-Mart are necessities – basic clothing, food staples, household supplies and toiletries – they are not discretionary items in the family budget. Lower prices at Wal-Mart allow the average family, according to their calculations, to spend $900 less each year. For those with the means to =patronize specialty stores and boutiques, this is negligible. To someone on welfare, or working for minimum wage, this is a significant savings.

While Vedder and Cox explore some of the hostility toward Wal-Mart, especially its mutual antipathy with unions, there is room for more analysis of why Wal-Mart, more than other big box stores or discount retailers, is such a lightening rod for criticism. The charges brought against Wal-Mart, some legitimate, some mendacious, often are presented as a defense of the poor. That it is the poor themselves whose buying power increases through the “Wal-Mart Revolution” suggests that issues of class and privilege contribute to the volatility surrounding the issue, and deserve further study.