Monday, March 27, 2006

The Wal-Mart Effect, by Charles Fishman

My wife and I decided a few years ago to not shop at Wal-Mart, primarily because of a Fast Company article we read called “The Wal-Mart You Don’t Know” that highlighted the detrimental local and global effects of Wal-Mart’s business practices. The author of that article, Charles Fishman, has now published a book, The Wal-Mart Effect: How the World’s Most Powerful Company Really Works—and How It’s Transforming the American Economy. (One chapter is excerpted as an article available on Fast Company’s website, The Man Who Said No to Wal-Mart.”)

In short, Fishman’s book is meticulously researched and documented, thoroughly readable and accessible, extremely fair and balanced in its perspective, and devastating in its analysis and critique. This is no mere hatchet job on Wal-Mart – it’s a methodical, painstaking and careful study of all the questions that Wal-Mart raises. Some sample issues:

Does Wal-Mart actually create jobs in a community, or does it kill off existing businesses and jobs? Both. A new Wal-Mart may hire 300 people, but on average, 250 people at nearby businesses will lose their jobs, and about four local businesses will close. A Wal-Mart not only siphons business away from other merchandise retailers, it also impacts service and repair businesses, as it becomes cheaper to buy new ones than repair them. Wal-Mart’s cheapness of products contributes to a throw-away society.

What is Wal-Mart’s effect on local communities? A study of Iowan small towns showed that restaurants near Wal-Marts had 3% increases in business, probably because of increased traffic. But nearby towns without Wal-Marts lost 47% of their retail sales, as customers drove out of town to shop at Wal-Mart. During the period that Iowa went from no Wal-Marts to 45 Wal-Marts, 43% of men’s/boys’ clothing stores in Iowa went out of business.

Wal-Mart demands that suppliers reduce their costs and lower their prices, which in turn reduces margins for suppliers. A company that does 10% or less of their business with Wal-Mart has an average profit margin of 12.7%, but one that does 25% or more of their business with Wal-Mart has a margin of 7.3%. And Wal-Mart’s pricing demands have cannibalized markets, becoming the downfall of dozens of vendors – Vlasic pickles and Levi’s jeans are just two of many examples Fishman highlights in the book.

More significantly, from a global justice perspective, Wal-Mart’s business practices lead to overseas manufacturing that is poorly monitored and prone to countless human rights and labor abuses. In order for companies to provide products at low enough a price to satisfy Wal-Mart’s demands, factory workers are forced to work fourteen hours a day, six or seven days a week. A factory worker in Bangladesh was beaten with the pants she was making when she didn’t make production quotas. Fishman makes the point that Wal-Mart’s customers are buying pants that were literally used to beat the people who made them.

Wal-Mart’s sheer size makes it an unparalleled force for either good or ill, and Fishman argues that it has not yet wielded its might in ways that promote human rights or environmental stewardship. It has only used its power to squeeze every possible economic efficiency out of suppliers and workers. Its bottom line of “everyday low prices” means that it does not provide adequate health care insurance for its workers, outsourcing health-care costs onto the government. It means that workers are forced to work overtime without pay or locked in stores overnight. It means that suppliers and factories are not encouraged to have safety or quality controls because such safeguards would add costs to their systems.

All this (and much, much more) reinforces my conviction never to shop at Wal-Mart again. True, I have little sense if other retailers have similar, if smaller, impacts. What would be really useful would be if all retailers and suppliers had far more information available about their labor and manufacturing conditions, and whether purchasing those products are ultimately helpful or harmful. Maybe some day we’ll be able to identify fair-trade toilet paper and toothpaste the way we can now identify fair-trade coffee, and regulators and watchdog groups can enable our consumer choices to be more just. But until then, for me and my family, conscientious shopping means that we vote with our shopping carts and shop at stores other than Wal-Mart.


scott said...

just stumbled across your blog. Interesting and disturbing article, and I would have no problem not shopping there either. I just wonder, and you allude to this as well, is Wal-Mart doing stuff no other company is doing, or are they just doing the same stuff better (or worse)?
p.s. you are a beautiful family

Al Hsu said...

Scott - It's not that other companies don't also have detrimental effects on workers, companies or the environment, but Wal-Mart in particular is such an 800-pound gorilla that its power and influence is absolutely unparalleled in the economy. Fishman uses an analogy of a little kid who jumps on your back and wants a ride. It's cute and fun when he's four, but if he does that when he's a twenty-four-year-old 300-pound linebacker, there are going to be different effects. So Wal-Mart's laudable principles and vision (low prices for consumers, cost-efficiency, etc.) served them well when they were a smaller company, but now that they have grown so huge, the scale of those same business practices has gigantic repercussions and unintended consequences on everybody, from workers and suppliers to end customers.

Unknown said...

Along the same lines as what Scott asked, have you found much information about other companies, esp Target? I've always wondered how their practices compared.

Al Hsu said...

I love Target, partly because it's based in Minnesota and I grew up in Minnesota, so I think of it as a local hometown company. It's true that Target has some of the same issues, but from what I've heard, it seems like they treat their workers better and pay better wages and benefits. Targets also tend to be better staffed and provide better customer service, partly because they're not as ruthless about keeping costs down and don't understaff their stores. Not sure about their overseas suppliers and manufacturers - it seems like no matter where we buy stuff, companies use unjust factory conditions. Though I've heard that places like the Gap and Old Navy actually have pretty good worker protections for their clothing factory workers.

I've also heard other folks say that Costco is a good alternative to Wal-Mart, but I've never shopped at a Costco and don't know much about it. So, anyway, Target may not be perfect, but it's my preferred alternative to Wal-Mart, and I go there a lot.