Posted by: nickgerlich | September 18, 2007

Good For Them

There’s probably no faster way to start a debate than to toss Wal-Mart into the discussion. It’s the store that many people love to hate, but go there anyway. And because it is such a big target (pun intended), it frequently finds itself under the magnifying glass of criticism. Organized labor despises the place. Property owners don’t want it in their backyard. And social critics abhor work conditions in the overseas factories that fill the pipeline with the stuff WM sells.

I’m sure Sam Walton can’t find a peaceful minute of repose.

Wal-MartOn those rare occasions when I appear in a physical classroom, I like to require my students to watch Is Wal-Mart Good For America?” This PBS documentary takes a long look at the world’s biggest retailer, examining everything from the storefront to its supply chains.

From a marketing perspective, Wal-Mart has done no wrong. It has embodied what we academics know intimately as the 4Ps: Product, Price, Promotion, and Place. The evolution of this rural Arkansas company into a global force is a case study like no other.

It is hard to debate that Wal-Mart has done its homework. It has taken the idea of EDI (electronic data interchange) and turned it into one of its chief competitive advantages, keeping its store shelves filled with items before they can be depleted. With over 3000 stores, WM keeps its fleet of trucks on the highways, spreading out in a hub and spoke arrangement to restock stores within a several hundred mile radius. A never ending process, it is this logistical mastery that has kept the discount chain from becoming another K-Mart.

WM’s use of opening price points is sheer genius, for it has convinced Americans that it has the lowest prices on everything it sells. Instead, that opening price is merely a come-on to lure people in the store. But once you decide you don’t want the 37″ LCD for $499, but instead want the 42″ plasma for $999, you are now fair game for profiteering. It matters not that you might find a similar model for less elsewhere, because once you have been sucked into the store, you have swallowed the hook of low prices.

PBS focused on a couple of Ohio towns, one that was home to a Thomson Electronics factory, the other home to Rubbermaid. Both Rust Belt towns had suffered mightily in the de-industrializing of America, as production centers have now located primarily overseas. Career employees were left high and dry without work.

And the implication was that Wal-Mart is to blame for everything bad in our economy.

This is where I beg to differ. While PBS did not go so far as to explicitly lay blame on Wal-Mart’s doorstep, I could almost hear weepy violin music in the background. But we must remember: Wal-Mart did not start out as a retailing giant. Sam Walton started with one store, and through shrewed business practice, grew an empire.

And it’s an empire that any of his competitors AND suppliers could have built for themselves had they the grit and brains that Walton had.

Sure, it is always sad when small town Main Street merchants go belly-up, but such is the evolution of business in America. Charles Darwin may have been a naturalist and proponent of evolution, but he could just as easily have been describing businesses as he was species.

The Wal-Mart effect is more than just that emanating from this one chain, as it describes what has happened all across retailing. Big box retailers dominate the landscape; category killers take no prisoners in their quest to maximize sales. While I lamented the closing of Randy’s Music last week, I accept it as an inevitable outcome of modern retailing.

So while it is fashionable to bash Wal-Mart these days, the fact remains that they are doing plenty of good. While they may not always have the lowest prices, their way of doing business has permeated the American economy. We thus have lower prices on thousands of goods offered by countless retailers. Yes, jobs are often displaced in the process, but employment is not an entitlement. It is the result of possessing a skill someone else is willing pay for, and the burden is on us to keep that skill set sharp.

I will be the first to admit that the Wal-Mart experience is not always one to which I look forward. Long lines at the checkout are not a great way to spend an evening. But if I and all other shoppers at least feel like we are getting a good return for our time and money, then Wal-Mart has done its job.

Dr “Looks Good To Me” Gerlich

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