Thursday, December 08, 2005

Voting on Saturday Afternoon

Even business students are surprised at the scale and pace of global trade, its surge of pervasive competition for markets and resources. How can something this powerful happen so quickly, a student once asked. I’ve found it convenient to introduce the basic answer through a simple thought experiment: “Imagine that you’ve graduated from college, found a job, and have to furnish an apartment. You need a microwave oven. Where do you find one?” Someone always suggests a big-box retailer. “Fine – you go there, and there’s a unit that does what you need it to do, nice stainless steel and black housing, $158.00. There’s another one that looks pretty similar, $146.50, and a third one that has the same specs, doesn’t look quite as cool as the first one, $117.99. Which one do you buy?” There may be a question or two – “no, they’re all safe, UL approved with a grounded plug and 16-gauge stranded cord” – but, in a dozen times of using this discussion, all the hands or paper ballots go for the $117.99 model. “Do you care where it’s made?” I ask. No, saving $40 seems far more important to cash-strapped twenty-somethings than country of origin or a union-made label.

No American business is more prominently associated with the implications of several hundred million consumers making dozens of similar decisions, with the fears, myths and disparate impacts of global trade, than Wal-Mart. Huge by any standard – in the U.S. alone, for the fiscal year ending Jan 31, 2005, the company had $229 billion sales revenue, more than 530 million square feet (about 12,000 acres) of store space and some 1.2 million employees – the company is “Exhibit A” for the massive effects created by a grassroots campaign of competitive shopping. While venerable retail pioneers such as Sears (efficient mail order delivery of products that ranged from a dress pattern to all the pre-cut lumber for a balloon-framed house) and K-Mart (one of the original Big Box discounters – “Attention K-Mart shoppers . . . New special in aisle 19”) have each staggered through financial distress (and recently merged), Wal-Mart units currently post year-over-year growth rates that range from 7.8% (Sam’s Club for 2003) to 18.3% (International segment for 2005). President and CEO Lee Scott cheerfully observes in his 2005 shareholder letter: “. . . even with the size and success we have achieved, today Wal-Mart has earned less than three percent of the global retail market share. In other words, about 97% of the retail business around the world is not being done at Wal-Mart today.”

The unspoken suggestion that “today” really means “yet” provokes a vivid dialog about the company, in the press and in the blogosphere. Activist groups (e.g. like this, or this allege various kinds of workplace abuse, while defenders such as Sebastian Mallaby in the Washington Post and John Tierney in the New York Times (The Good Goliath, Nov 29, 2005 – the text is available online through the Geneseo library page, but the link doesn’t seem to work very well) argue that the company provides far more to lower-income individuals through low prices than it exacts from low wages (and the belief that Wal-Mart imposes some unique regime of “low wages” on its workers deserves a dedicated post, a topic I plan to return to in a follow-on blog). Byron York in National Review reviews the “documentary” The High Cost of Low Price, highlighting out-and-out falsehood (the circumstances of H&H hardware going out of business) and selective reporting (see, e.g., the quote from optical supply house owner John Bruening: “The Wal-Mart came May 18, and I sat back and waited for our business to go down the tubes. But it shot up, which the movie people didn’t want to hear about. We’re up about 38 percent right now. It has been so anti-climactic.”)

While the ambition of labor unions to reverse long-term trends of declining membership (especially the United Food and Commercial Workers, eyeing a potential trove of a million-plus workers) explains some aspects of the surprising furor directed at an enterprise whose mission focuses on supplying lower-income individuals with useful [1] goods of serviceable quality at extremely low prices, I speculate that other factors also inform the virulence of attacks on the company. These may include nostalgia for a poorly understood past, an understandable fear of economic dislocation (which causes people to overlook the long-term benefits of Schumpeterian “creative destruction” – class prejudice and a phenomenon variously referred to as the Rage of Caliban or the Pogo effect.

Nostalgia for an imagined past of “yeoman retailers” seems analogous to rhetoric about the lost glories of the family farm, with the twinned bogeymen of agribusiness and big-box discounters destroying an intrinsically wholesome way of life. There are certainly pleasures and deep satisfactions in farming and commerce, but just as hoeing weeds, mucking out a barn or slaughtering some pigs will affect and inform one’s attitudes about farming, so also would waiting hours behind a counter, grappling with the brutal economics of Main St. competition or simply enduring the social tedium of working day after day with the same two or three store employees open one’s eyes to the reality of small-time retailing: it ain’t all it’s cracked up to be.

Change happens: Junior sells the family farm and moves the family into an apartment downtown, and Fred’s Hardware goes out of business a few months after the Lowes opens. The pains and hardships of dislocation are deep, and sometimes, as in the case of middle managers laid off as American business gradually absorbed the impact of the PC revolution, the pain lasts for the rest of the working life. No one should minimize the toll. Focusing only on the tragedies, though, obscures millions of successful adaptations, including most especially the sons and daughters of farmers and retailers who pursue a college education instead of taking over the family business – a vast pool of human capital which in earlier ages would have joined the ranks of youths “to Fortune and to Fame unknown.”

New methods of organization and distribution – such as Wal-Mart’s uniquely capable logistics infrastructure – offer a comparable process of freeing human capital for alternative and higher uses. The benefits will range from a more efficient trucking system (I suspect that few of the Wal-Mart trucks that one sees all the time run empty) to the time saved for a single mother who needs to complete several shopping errands between work and picking her kids up from daycare. Certainly many of the thousands of capable young men and women who don’t go into old-fashioned retail will go on to make surprisingly useful contributions in other fields.

The serviceable quality of most Wal-Mart merchandise often does not equate to excellence or elegance, and in matters of taste there are many products which an educated sensibility would find unlovely. How should we evaluate criticism of a “tacky” printed plaid jumper or the winter coat in a “boring” color, when the price of these articles is a Godsend to the parent outfitting a little girl for school? Criticism of Wal-Mart products on purely aesthetic grounds smacks of a sensibility both elitist and indifferent to the actual needs of individuals one doesn’t know very well or care for in any specific personal sense. It also may reflect a disconnect between the experience of parents and childless adults (or small v. large families): polyester Cookie-Monster comforters and faux-walnut chipboard chiffoniers that the urban metrosexual hopes not to be caught dead with (in this world or the next) might be just the ticket for The Twins’ room (and little Sally can use the stuff they’ve outgrown). Finally, and not to put too fine a point on it, experience suggests that the average shopper at the Pittsford Wegmans is thinner, better dressed and better off than his or her counterpart at the Wal-Mart Super Centers in Geneseo or Henrietta. I speculate that certain grocery chains or a big-box retailer such as Target – whose fundamental operations aren’t terribly different from those of Wal-Mart – tend to get a “good store” rating from bien pensants in no small part because of snobbery. Better produce or higher-quality design factors into why one feels one way about Wegman’s or Target and another way about Wal-Mart – you won’t find a Michael Graves pepper mill (or gourmet pepper) in Wal-Mart – but here again the instinctive preference for fashion over popular taste suggests the operation of class prejudices.

Walt Kelly’s Pogo famously observed that “we have met the enemy and he is us.” Originally a rural / agrarian phenomenon, Wal-Mart has morphed into a mainstay of America’s exurban disapora. “Sprawl” is an unlovely feature of contemporary American life (though arguably it’s less unlovely than a 19th Century America where the Adirondacks and Catskills were clear-cut for fuel and the streets of a pre-automobile city were littered not only with tons of horse manure but also scores of abandoned horse carcasses). On some level – imperfectly, and with the potential that rationalized development incentives could mitigate its worst effects – sprawl works for most Americans. It’s a byproduct of the home ownership dream, a desire to find good schools (or, at the very least, not to condemn one’s children to terrible ones) and the need for freedom and flexibility in personal transportation. Through the accretion of literally billions of purchase decisions – “voting on Saturday afternoon” as I’ve put it – Wal-Mart both embodies and empowers a host of lifestyle choices, providing a vivid reflection of the world we have made for ourselves.

Full disclosure: Though not much of a shopper, I do buy stuff at Wal-Mart and Sam’s Club every year. Through my CREF retirement funds I (and virtually every one of my Geneseo faculty colleagues) have an ownership exposure to WMT (despite huge growth in the underlying business, the shares have been relatively flat in the last few years). I’m also a regular customer at Sundance Books, and remind everyone that Fred can get you just about anything you want at prices quite competitive with Amazon or Alibris.

[1] Item 1, “Description of Business” in Wal-mart’s 2004 10-K report provides the following sales breakdown:
CATEGORY                                           PERCENTAGE
--------- OF SALES
Grocery, candy and tobacco 26
Hardgoods 20
Softgoods/domestics 16
Pharmaceuticals 9
Electronics 9
Health and beauty aids 7
Sporting goods and toys 6
Stationery and books 3
Photo processing 2
Jewelry 1
Shoes 1
---------- -
100 %
---------- -

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