Wal-mart Power

Since Wal-Mart's conception in 1962, Sam Walton's philosophy was, "Buy products at the lowest possible cost and pass the savings to the consumer." This strategy, along with Wal-Mart's depiction as a down-to-earth, folksy retailer, worked well for the Walton's. Today, Wal-Mart is king of the retailing world with over 3,000 stores in America and 1,000 overseas (Wal-mart.com). In fact, the retailing behemoth was recently determined the largest corporation in the world. Over the past few years, Wal-Mart has expanded its horizons offering not just merchandise but groceries, car servicing, banking, video rental, and even gasoline. The future holds even more promise as Wal-Mart's presence on the web is gaining ground. As Bob Ortega puts it in his book, In Sam We Trust, Wal-Mart is “the ultimate temple of consumer choice at bargain prices.”

But how, and at what costs, did Wal-Mart achieve such lofty heights? It is hard to believe Wal-Mart gained such status purely on a sound business plan. Consequently, Wal-mart has been accused of unfair and monopolistic practices over the years. As evidence, anti-Walmart advocates point to the small-town "mom and pop" businesses that suffer painful and slow deaths from the grip of Wal-Mart. Even the venerable K-mart, of whom Sam Walton studied and admired, fell to the hands of Wal-Mart. Over the years, Wal-Mart has been able to out-price and out-stock any of their competitors, strangling the competition. However, is Wal-Mart’s success the result of monopolistic practices or the culmination of superior business methods and execution? I believe, rather, that it is a combination of both. Many experts believe Wal-Mart’s inventory management and distribution schemes, considered the most efficient and advanced of any business in the world, are the keys to its success. Contrarily, Bob Ortega of the Wall Street Journal attributes Wal-Mart’s dominance to its monopolistic machinations: “Wal-Mart uses its size and clout to bleed its rivals dry.” Assimilating these two different positions, I argue that Wal-Mart’s success is a combination of monopolistic dominance and untouchable business operations.

In order to substantiate my argument, I will now examine the definition of a monopoly and show how it applies to Wal-mart.

Under the Sherman Act of 1890, a monopoly is defined as an entity that controls a price within a market or excludes competitors by impairing their ability to compete. For example, tactics such as “predatory,” or below-cost, pricing with the intent to drive out competition is often connected with monopolistic enterprises. Additionally, corporations guilty of utilizing political influence or other unfair practices to eliminate competition may be considered monopolies. Capitalism, on the other hand, allows fair price competition between businesses. However, questions arise when businesses, through fair market practices, gain the ability to control prices. By law such businesses are, in a way, “legal monopolies.” Nonetheless, the government carefully watches these businesses to make sure that their legally obtained power is not abused.

Because Wal-Mart is a shining example of this situation, the retailer juggernaut has been a frequent target for accusations of unfair pricing and competition over the years.

In 1993, Wal-Mart was accused of “predatory” pricing and taken to court. Three small-town druggists in Arkansas believed Wal-Mart was selling drugs below-cost in an effort to eliminate competition. A lower Arkansas court found Wal-Mart in violation of Arkansas’ 1937 Unfair Practices Act by specifically “meeting or beating the competition without regard to cost.” However, in 1995, the Arkansas Supreme Court overturned this ruling in a 4-3 decision. The court stated, “drug stores are far from destroyed . . . there is simply enhanced competition in the area.” Wal-Mart, the court determined, controls prices only because it has found innovative ways to do business through “fair market practices.” In other words, the court came to the conclusion that Wal-Mart was guilty of nothing except success.

Not only has Wal-Mart been charged with unfair pricing, but it also has been accused of unfair practices such as selling products made in sweatshops of developing countries. Because Wal-Mart was supposedly abusing ethically questionable labor practices abroad to edge out competition in the U.S., anti-Wal-Mart advocates believed that the retailer was guilty of monopolistic behavior. In 1996, the National Labor Committee alleged that Kathy Lee Gifford’s clothing line, sold at Wal-Mart, was manufactured under abusive conditions. Investigations into the factories making the clothes found under-paid and overworked seamstresses, including children, working in hazardous conditions. Wal-Mart never denied the allegations and has since hired independent factory monitors to control the situation. Wal-Mart spokesman, Tom Williams, was quoted in the June 24, 2000 San Francisco Chronicle saying, “We admitted publicly that we are working to improve conditions around the world and we began requiring suppliers to ensure that every factory conforms to local workplace laws and that there was no illegal forced or child labor.”

If Wal-Mart has not been legally found as a monopoly and has ceased “unfair” practices, then why does controversy still surround the retailing juggernaut? Kelly Pate of the Denver Post notes that “The name 'Wal-Mart' has become a metaphor for all that's deemed bad and good about this country - corporate dominance and suburban sprawl, great prices and convenience.” As Pate suggests, Wal-Mart offers many benefits to the consumer but usually at the expense of the surrounding community and businesses. Due to the convenience, location, wide selection, and “everyday low prices”, Wal-Mart is irresistible to most consumers. However, as more customers are drawn to Wal-Mart, business is taken away from the competition. Retailers in direct competition with Wal-Mart such as Ames, Hills, Montgomery-Ward, and most recently K-mart either have suffered terrible losses or have filed for Chapter 11. In 1996, the National Trust for Historic Preservation conducted a study on the effects of Wal-Mart on three small communities in Iowa. It was shown that 84% of Wal-Mart’s sales came at the expense of businesses in surrounding counties. Other studies have shown that despite the initial increase in economies of small communities when Wal-Mart arrives, the broader economic impact is offset by the negative impact of regional losses of economic stimulation, variety, and vitality over time.

Adding to the problems, Wal-Mart’s mobility often leaves towns with empty and massive store-shells and barren parking lots. As Wal-Mart heartlessly seeks higher profits elsewhere, towns are left with eye-sores and missing revenue streams. Communities are becoming increasingly aware of this “Wal-Mart effect,” and Wal-Mart knows it. In an effort to appease small businesses and town officials, Wal-Mart has made efforts to improve its hometown image by donating to local charities and rewarding scholarships to students. To be fair, it is true that some areas actually benefit from the presence of Wal-Mart with stimulation of the immediate and surrounding economies. In addition, towns are beginning to accept that “big box” retailing such as Wal-Mart, Target, and Costco is the present trend and what consumers want. However, the towns realize that letting these giant retailers in the area can be a make or break situation.

From the time of its “5-and-dime” start in Arkansas, Wal-Mart has been on a rampage slashing its way through towns and communities across the world. Because of its sheer size and ability to crush competitors, Wal-Mart obviously has characteristics of a monopolistic machine. The methods by which Wal-Mart gained such power and control have come under high scrutiny as to whether they fall under monopolistic practices or not. Consequently, Wal-Mart has been an epicenter of heated allegations ranging from price fixing to labor law violations. Even though Wal-Mart has not been found a monopoly under legal terms, its perfection of both distribution and price has given the corporation power that even some genuine monopolies never possessed.

Works Cited

Emert, Carol. “Mighty Wal-Mart Rules Retail World With Iron Fist.” San Francisco Chronicle. 24 Jun. 2000, late ed.: D1.

Muller, Thomas and Elizabeth Humstone. “What Happened When Wal-Mart Came to Town? A Report on Three Iowa Communities with a Statistical Analysis of Seven Iowa Counties.” The National Trust For Historic Preservation (May 1996): 8.

Ortega, Bob. In Sam We Trust. New York: Times Books, 1998.

Ortega, Bob. “Retail Combat: Warehouse-Club War Leaves Few Standing.” Wall Street Journal. 18 Nov. 1993, eastern d.: A1+.

Pate, Kelly. “Wal-Mart aced concept Kmart began.” Denver Post. 27 Jan. 2002, late ed.: F1.

WalMart.com. 23 Apr. 2002 <http://www.walmart.com/cservice/aw_story.gsp?NavMode=9>.