The Best and the Worst about Wal-Mart

Not Affiliated with Wal-Mart in Any Way

Suddenly, The End

Sadly, this will be my last substantive post on Always Low Prices.

Soon, this website will go dark.

I appreciate your readership and participation in this venture; it's been very exciting to have a ring-side seat at such an interesting commercial, political, and ideologically prize-fight. I'm sorry to have to exit during an early round, and it is unlikely that I will return to blogging about Wal-Mart any time soon.

I have not been bullied by Wal-Mart into this decision, but have decided -- not without considerable disappointment -- that my direct involvement in an often over-heated public-policy discussion is no longer in the best interests of me or my employer.

Why am I leaving the blogosphere? Well, I'm not -- I just won't be writing anything about Wal-Mart. My other blog , Truck & Barter will host the ALP archives (which will be closed to new comments), and I will continue writing about economics generally. I take this severe measure to prevent even the appearance of a conflict of interest. My recent public exposure brought this risk to the forefront...

But something more fundamental has happened: I'm getting ready to perform serious research -- on my own -- about Wal-Mart. At the recent economic conference, I asked a Wal-Mart representative if it would be possible to perform reasearch about Wal-Mart's logistics and disaster response activities. While Wal-Mart expressed no firm commitment, and no dialogue has been started between me and Wal-Mart, the mere existence of any such potential personal contact with Wal-Mart that would benefit my career is inconsistent with the independent stance of ALP. In short, I don't want a credibility problem in the future, so I'm taking harsh measures now.

The Importance of Branding for Big-Box Stores

A friend of mine was recently bemoaning the disappearance of small stores and old-time department stores, where clerks knew the products and had information and advice that we, as customers, could trust. Understandably, he is frustrated when he walks into a Big Box store, asks a clerk a question about a product, and the clerk starts looking at the box to read whatever is there (as if my friend, perhaps because he is a sociologist, is unable to read that information himself).

One reason Big Box stores have become so successful has to do with the success and reliability of brand names and branded products (yeah, yeah, I know changes in technology, the legal environment, and relative factor prices play a role, too):

If we want to buy a standard household appliance, we can search the internet or consumer magazines for information about quality and reliability, and then go shopping; Alex Tabarrok at the Marginal Revolution last year posted on the importance of the internet in this regard.

But even if we didn't have the internet to search for information about product quality, big box stores would still become important by emphasizing low prices for well-known branded products. The strength of the branding replaces our need to rely on store clerks for information.

So when I want to buy something, I just go to a big box store and buy it at a low margin -- there's much less need to rely on knowledgeable clerks because the brand names themselves convey tonnes (hey, we're metric in Canada) of information.

From a different perspective, what I'm suggesting is that the knowledge we have about different branded products is a necessary condition for the existence of many Big Box stores. If we as customers didn't know about the qualities of different brands, or if we couldn't learn about them through experience or word-of-mouth or advertising or the internet or something, then Big Box stores would not be able to just schlep out the merchandise and sell it. If they tried that, customers would not shop there but would go to the full-service stores that provided more point-of-sale information about the products they carried. And without branding, there wouldn't be a free-rider problem that is so often identified with resale price maintenance arguments.

Here is Russell Roberts' excellent piece on the impact of Big Box retailers on the quality of life (link via his piece in Cafe Hayek).

I wonder what will become of the importance of product branding as Walmart develops and markets more of its own, in-house brands and products.

Why Wal-Mart Works -Trailer

Go here to see a three-minute trailer for the upcoming Why Wal-Mart Works film. If the trailer is representative of the film, I think you will find that "pro-Wal-Mart" is not exactly a good phrase to describe the film. Neither is "fair and balanced"; instead, it goes in an entirely different direction...

You can pre-order on Amazon, where reviewers are already panning and praising the film, even though it hasn't yet been screened.

UPDATE: I just spoke to Ron Galloway, the producer of the film. He says the not even he has seen the final cut of the film, so all the talk on Amazon is just hot air.

Experimental II

Wal-Mart is opening up another one of those experimental supercenters -- this time in Aurora, CO. Incredibly, the general public can view pretty detailed statistics for the store online in "real time". (Note to WM Facts -- your link goes to the wrong webpage!)

However, klbrowser is ambivalent:

Seems that a brand new Wally World (Wal-Mart) is opening tomorrow in my neighborhood. I have mixed feelings about this. Local Wal-Marts have gotten a bad rap because of their bullying tactics in discouraging unionization. And of course I don't like the way the employees are treated or paid. But on the other hand, this is very near my home, and it would take a lot less energy for me to shop there than it would for me to drive to my neighboring town to shop the nearest Target. If they have elecric carts, that is. And face it, with no income at the moment, I can't afford to shop at the more expensive places. So I am gonna take a peek at the new store tomorrow, mainly out of curiosity. This is one of only two Wal-Marts in the world made primarily of recycled materials. It has solar panels and wind machines, and is heated with vegetable oil. I probably will not shop there regularly, especially once the LTD company starts paying. But I hope no one will see me as the devil for setting foot in there.

The Wal-Mart press kit (WARNING PDF - 17MB) contains lovely drawings and photos, including this one comparing the height of a wind turbine to the Statue of Liberty.

Also, the store has a dedicated RV and parking area, for those of you interested in such things, and a gas station with portable above-ground tanks;

The main benefit of the portable design of the TFS is that the storage tanks and all delivery pipes are above ground... The storage tank is completely enclosed in a traffic impact rated housing that has also been rated to withstand ballistic assaults... Another benefit to having the TFS system is that it allows for other types of future development. This system is portable, and can easily be removed. The site would be clear of any environmental concerns, unlike historic gas station sites.

The Value of the Independents

From Don Taylor's Up Against the Wal-Marts: How Your Business Can Prosper in the Shadow of the Retail Giants

CostCo is the largest warehouse retailer, followed by Sam's.

From the snippets I've read, Mr. Taylor's book is about what small business owners and managers can do to make themsleves the greatest competitors to Wal-Mart and the rest of the big-box chains. It may not often sound like it on this blog, but I am rooting for the independents to grow and prosper. It is their dynamism that keeps Wal-Mart in check... You might also want to check out Boomtown USA for the community angle on the same theme

ALP In BusinessWeek

ALP is featured in the UpFront - Blogspotting section of the November 14th, 2005 edition of Businessweek. Scanned print edition below the fold:

Wal-Martization of Banking in Massachusetts?

If there is one group of people who will benefit most from check-cashing at Wal-Mart in Massachusetts, it is people who are NOT regular bank consumers. But the Massachusetts Bankers Association apparently doesn't care about people who do not use its member's services:

"We think it is a bad turn of events," said Bruce Spitzer, communications director at the Massachusetts Bankers Association. "Do bank customers really want to see the Wal-Martization of the banking industry? We don't think so."

This man cannot be serious. What exactly will the average consumer be missing? Well, it's conceivable that there are bank customers who prefer to pay more for their banking services in exchange for nicer tellers and structures, more locations, etc. but bank customers aren't the only "stakeholders" here -- both bank tellers and noncustomers will be affected. I think non-customers will clearly benefit, so let's move on to bank tellers. As far as they are concerned, the Wal-Martization of the banking industry -- if that process is to be understood as a moving towards a bare-bones, low-cost, low-salary model -- occurred long, long, ago.

In 2002, the median hourly earnings of full-time bank tellers was $9.81 ($10.15 in 2004), in line with what Wal-Mart pays its mean hourly worker. About 1 out of every 3 tellers works part-time. So it's not as if bank tellers will be made worse off financially by working at Wal-Mart (though it is plausible that Wal-Mart will want a check-cashing teller to work odd hours).

WM's Effect on Radio

From Radio - The Forgotten Medium, what happens when Wal-Mart moves into town:

Blog Reactions to the GI Conference

It's a small world. Jack Schultz of Boomtown USA wrote this post and later sat down at my table for lunch:

But, it is in the area of productivity that Wal-Mart really shines. The two keys here are information technology and supply chain management. In the area of supply chain management, one of the factors that I have argued for the past five years is that part of their advantage is the location of their Distribution Centers (DCs) in rural markets. I’m convinced that the lower costs and more productive labor in these markets is a huge benefit to the company.

Wal-Mart Watch profiles David Neumark, who sat down next to me at the same lunch:

Today we’ve chosen Dr. David Neumark, an economist with the Public Policy Institute of California who co-authored a paper for Wal-Mart’s self-funded academic conference today in Washington, DC. Neumark dared to challenge the company on its own dime, and presented a paper that contradicts today’s other rosy presentations. His study examined Wal-Mart’s effect on employment and earnings, and concluded that “Residents of a local labor market do indeed earn less following the opening of Wal-Mart stores.” From Neumark’s paper:

The Fark tagline is amusing: "Behold! Mighty Wal-Mart hath suppressed U.S. inflation". And in the comments, a serious discussion has ensued embedded in a flame-war. The first casualty: Tracy Sefl of Wal-Mart Watch, who is being quoted and satirized pretty unfairly,, although ""Wal-Mart is only telling part of the story, which is not the same as telling the whole story" lends itself mightily to such insignificant attacks.

More Later...

Big Media (Part II)

The day-after brings more big-media reporting, much of it very diverse in subject matter an conclusions. As expected, the press accounts go straight to many of the pro and con findings, but fail to note just how tentative the results are.

Stephen Greenhouse of the NYTimes announces a mixed report card:

With critics hammering Wal-Mart day after day, the company sponsored an unusual conference on Friday about its impact on America's economy, and it got some good - and a few not so good - grades.

Amy Joyce of the WaPo talks about two things that I, personally, did not experience:

The event was a strange hybrid of academics and public relations at which attendees toted around registration information in plastic Wal-Mart shopping bags. A room full of people asking questions was reminded -- after a journalist asked about a statistic in a paper -- that reporters were not allowed to take part in the Q&A.

[KB: The reporter was Steven Greenhouse of the Times; he asked David Neumark to try to reconcile competing datapoints, and since the question was very good, nobody in the audience really cared that he's not an academic.]

Outside, Wal-Mart critics greeted attendees. About a dozen demonstrators with the United Food and Commercial Workers union and its Wake Up Wal-Mart organization gathered outside the J.W. Marriott to protest the conference, some arrayed behind a large Wake Up Wal-Mart banner. A few others handed out fliers headlined "Research Confirms: Wal-Mart Needs to Change" that touted some of the more critical findings of the academic papers.

Security guards checked attendees' identification before allowing them to the registration table.

Strange hyrbid, yes. But I did not even see the UFCW folks, because I entered using the Pennsylvania Avenue entrance, while the union folk were on the other side of the building. I hadn't even known that they protested until I was talking to some people after the conference. Also, I was NOT asked to ID myself when I registered, and very, very few people toted around plastic bags, although they were offered when you picked up the symposium materials.

Reporters were asking for opinions from economics Ph.D's. For the most part, I had to hold my lips sealed. But others could talk more. Alison Vekshin wanted responses to Global Insight's paper:

One academic at the conference expressed doubts about the study's methodology.

"I think it's a nice, good effort, but some of the analysis is not valid to what they studied," said Vishal Singh, assistant professor of marketing at the Graduate School of Industrial Administration at Carnegie Mellon University in Pennsylvania.

"They ignored the competition," he said. "But competition has to come into play, in the late 80s and 90s certainly, looking at what Kmart is doing or what Target is doing when making the location decisions."

Holling said the retailer created 210,000 jobs last year.

"When Wal-Mart moves into a county there is higher overall retail employment, but, yes, there is disruption in the retail sector," he said. "Wal-Mart does displace other employment."

Disposable income is 0.9 percent higher than it would be if Wal-Mart did not exist, according to the report.

The researchers also concluded that Wal-Mart has contributed to lower prices.

Thankfully, Wal-Mart did not even try to form a final, coherent message from the studies. I should add that Wal-Mart insisted that it will be a more transparent company, and is very interested in its own economic impact. To that end, it will make data available to economists who want to perform economic impact analysis...

Here's an earlier installment of Big Media Reports.

UPDATE: Maria Halkias of the Dallas Morning News was kind enough to quote me. :

Kevin Brancato, management scientist for Rand Corp., said the conference was billed as an event that would point to an overall trend. Nine independent studies were also presented at the daylong session.

"No one disagrees that Wal-Mart has lowered prices," he said. "But what impact on the economy in total does Wal-Mart have? I don't think the conference answered that."

Still, he said, the work presented by Global Insight was sincere and honest.

"The work Wal-Mart has done in the past was propaganda. This is a big first step."

That most certainly is representative of what I said, though the exact words aren't mine, which is perfectly fine, since I was talking off-the-cuff. Also, I think there is a consensus on some issues, but certainly not the hot-button ones of wages and benefits. The propaganda I was referring to were many -- not all -- local economic impact assessments...

I think that the question I want answered is, "If we let a Wal-Mart into Queens, what's the probability that wages in competing stores will decrease?" We're nowhere near that type of resolution, and I doubt we'll ever get there...

I should note that ALP is NOT affiliated with RAND, and that I have performed no RAND work involving Wal-Mart. My use of the RAND label was unwise...