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Saturday, February 11th, 2006


 

The Wal-Mart Effect: How the World's Most Powerful Company Really Works -- and How It's Transforming the American Economy

by Charles Fishman

Really Bigger Than Texas

A review by Gerry Donaghy

To help put the economics of Wal-Mart into perspective, I'd like to start by looking at this book as a retail product. Believe it or not, according to walmart.com, Wal-Mart stocks The Wal-Mart Effect. They are selling it for $14.63, which is $11.32 below the price that the publisher has printed on the dust jacket. Without going into specifics of how much the average bookstore pays to stock this book, it's safe to say that Wal-Mart is selling this book for about two dollars more than its wholesale cost. If the average bookstore nets around $12 per copy sold, Wal-Mart only nets $2 (rounding up), meaning that Wal-Mart has to sell six copies of the book to net the same amount of cash that the average independent bookstore makes by selling just one copy. But, Wal-Mart has 3,811 stores, and if every store only sells one copy of The Wal-Mart Effect, they'll net $7,622. A single independent would have to sell 635 copies to make the same revenue on this book.

In The Wal-Mart Effect, Charles Fishman does a commendable job of connecting the various strands (or tentacles if you're not an aficionado of the company) of a corporate ecosystem that affects suppliers, customers, employees, even people who never set foot in a Wal-Mart. The ultimate thesis is that there is a high cost to the low prices that Wal-Mart offers. Some of these costs are high profile, like the sweatshops that created a scandal when it was reported that they were manufacturing Kathie Lee Gifford's signature line of clothing. Some are not so obvious; if you saw what it takes to drive the price of salmon down to below five dollars a pound, you probably wouldn't eat it anymore. Or, how in any county where a Wal-Mart opens, the poverty rate increases (or, more to the point, poverty doesn't decrease as much) as local business are shuttered, unable to compete with this retail leviathan.

Another dark corner of Wal-Mart that Fishman shines his investigative light on involves not so much the code of silence between current Wal-Mart employees, managers and suppliers, but also how the impact of the retailer isn't acknowledged in major economic indicators. For example, when the Consumer Price Index is compiled as a tool to gauge inflation, Wal-Mart's prices are not included in the calculations. So, while Wal-Mart manages to lower prices on certain products from year to year, those results aren't recorded, and their influence ignored. Also, since Wal-Mart doesn't release its specific sales data to clearing houses that compile such information, it's difficult to gauge how much of a segment Wal-Mart actually dominates. If consumers are suddenly eating 15 percent more snack cakes than last year, that figure is suspect because it doesn't account how many snack cakes Wal-Mart sold during the same time.

Early in the book, Fishman hints at what his overarching message would be. He writes in his introduction: "…although there may be some dispute about whether the average Wal-Mart store associate earns $8 an hour or $9 an hour, Wal-Mart could not afford to pay these people $12 an hour. There isn't enough money -- at least not without raising prices." Wal-Mart bears a considerable amount of responsibility for the unfortunate conditions that their commitment to the lowest price creates in terms of human and environmental costs. But they are merely feeding a larger machine, that of consumers addicted to paying as little as possible for things. As Fishman winds up The Wal-Mart Effect he asks, "Do we value cheap merchandise more than good factory jobs?" The answer seems to be a resounding yes when Fishman reports that even people who consider themselves Wal-Mart "rejecters" spend an average of $450 a year there.

It's like the old Pogo cartoon: "We've met the enemy and he is us."


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