The Wal-Mart Effect ( On our Bookshelf )

How do they do it?

How does Wal-Mart (recently changed to Walmart) have such low prices? How did it become the largest retail store in the world? How did it become the world's largest, most often visited, grocery store in the world? And, how do they, year after year, in all kinds of economic conditions, maintain their low prices, high volume, and continue to grow and expand?

Charles Fishman, senior editor at Fast Company magazine, set out to answer some of these questions, producing what Economist magazine called the best business book of 2006, The Wal-Mart Effect - How the World's Most Powerful Company Really Works - How it's Transforming the American Economy. A paperback edition came out in 2007 with a new chapter and as Walmart is always in the news, his book remains timely and up-to-date.

Fishman, who is an investigative reporter, researched his book without the cooperation of Walmart, which at the time of his research was notably secretive about its practices. Nevertheless, Fishman wrote a balanced book, seeking to understand Walmart without condemning or glorifying. Some things he found:

Walmart employs 2 million plus people in the United States alone. Walmart also has the highest employee turnover rate, nearly 50%. Despite this it is the major employer in most states in the United States. Shopping at Walmart for groceries, you will save 15% over any other grocery store, supermarket or otherwise. Walmart has 1 billion dollars in sales per day. When Walmart opens a Supercenter, it adds 500 jobs to an area. However, within that area over 5 years 450 non Walmart retail jobs are lost. Walmart sticks closely to its "Always Low Prices. Always" motto even though their own profit margins are notoriously low at 36 cents on a $10 sale.

Walmart makes its money based on volume. Suppliers want that volume. Walmart buys to supply all their stores. To contract with Walmart brings sales to suppliers but also lower prices to Walmart as they persistently drive prices down as the cost of doing business with them. Low prices this year are expected to be lower still the next year. Fishman explores clearly the effect of this low price strategy on consumers, suppliers, local businesses and communities, national and global economies.

Walmart's emphasis has resulted in major changes in the packaging industry. In fact there are few industries that have not been impacted by Walmart's emphasis. It's made its suppliers much more efficient. Its distribution and inventory systems have helped its own efficiencies and Walmart's practices have been seen as a major counter in combating inflation.

Since Fishman's book came out, Walmart has been changing. It has announced a "green" or sustainability initiative. It is now supporting purchases with local farmers. It has become a major pharmaceutical provider and initiated $4 per generic drug prescription. This has forced other pharmacies to follow suit. Also many employee suits are wending their ways through the court system and Walmart is having to settle.

If you want to understand the Wal-Mart Effect, Fishman's book is for you. If you are planning to do business with Wal-Mart, this book will be an eye-opener. Also Walmart has not only changed its logo, but its motto. While the "low prices always" is the back drop, its new motto is "Save Money, Live Better".

The Wal-Mart Effect is available at the Berkshire Athenaeum and other public libraries.