Wal-Mart Effect Revisited

On July 2, 2008 we reviewed Charles Fishman's The Wal-Mart Effect for About Business. Fishman's book critically evaluated the impact of Wal-Mart on retailers and its suppliers. Wal-Mart's dominance led to many innovations in packaging and in production. Being such a large buyer of supplier's goods and services they were able to continue to reduce prices in products and pass those cheaper prices on to Wal-Mart customers.

In last year's post we also mentioned Wal-Mart's "green initiative" and commitment to sustainability. On July 16, 2009 Wal-Mart President and CEO Michael Duke committed the company to Sustainability for the long term, announcing its Sustainability Product Index and 15 question survey that is being submitted to its 100,000 product suppliers worldwide. Results of the survey will lead to a great transformation in the way Wal-Mart and by inference other retailers will be doing business. Executive Vice President and Chief Merchandiser John Fleming discusses this initiative in the video below. The survey asks what suppliers are doing to cut their carbon byproducts, what they are doing to create more efficient production. Wal-Mart expects answers from suppliers to this survey by October 1 and then will go to the next stage in planning.

It is expected that where unit pricing tags are part of the everyday shopping experience now, that environmental labeling will be added to these tags for each and every product Wal-Mart sells and each consumer buys. Duke calls this the need that every consumer has for transparency so they will know how the product was made, who made the product, its contents and so forth. This is a radical initiative and Wal-Mart invites other companies in join with them in this effort. Sustainability to Wal-Mart is now as important to them as low prices.

After Wal-Mart's announcement the New York Times published an extensive article by Stephanie Rosenbloom, At Wal-Mart Labels to Reflect Green Intent. Rosenbloom quotes Michael Duke, "We have to change how we make and sell products. We have to make consumption smarter and sustainable." Wal-Mart's ability to require suppliers submit to its standards will have a ripple effect throughout industry.

The Wal-Mart Effect by Charles Fishman is available at the Berkshire Athenaeum and other Public Libraries.

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.