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Maintaining Optimism in the Face of Reality. Occasional observations on the state of the world, society, business and politics. Usually anchored by facts, always augmented by opinion.


Walmart's Scale  | e-mail post

I had a couple of my friends since college visit this weekend. It was good seeing them. We discussed a variety of things, but on Sunday morning, the conversation for some reason turned to Walmart. My friend from L.A. was particularly surprised that I, a business owner and typically pro-business Republican, am actually very much in favor of municipalities using zoning to prevent Walmarts from moving into cities. As he says, he is used to reflexive support among his friends in L.A., but was surprised I would be on board.

I said it was a matter of scale. Walmart is too big, but because of the fragmentation of the market in which they operate, they are a long way from causing antitrust concerns. And believe me, by the time they are big enough to meet antitrust criteria, we're in trouble. thus, the only option for regulation under our current legal regime is this sort of local zoning control.

I thought I would take a moment to help people understand just how large Walmart is, because I think it is easy to lose perspective on something like this. I mean, everyone knows they're big. But how big?

Employees: Walmart employs 1,700,000 people, according to the most recent figure on Yahoo Finance. If it were a state, it would be the 39th largest state in the nation, just behind Nebraska. Clearly, "fewer people than Nebraska" doesn't make it sound so large. Let me put it another way. Consider the following small businesses:
These companies, combined, employ about 1.7 million people. (Again, figures from Yahoo Finance's company profiles).

Put a third way, about half of the U.S. population is "working age" right now (25-64). That means that about 1.1% of the U.S. labor pool is employed directly by Walmart. This doesn't include the largely contract (and in some cases illegal, judging from occasional news reports) labor used to clean their stores, and other effectively direct employees.

Market Scale: Walmart's trailing 12 month revenue is about 2.91 billion. According to federal statistics, total U.S. retail sales for 2004, excluding automotive, was 2.63 trillion dollars. Again, about 1.1% of all retail spending goes to Walmart. Comparatively, the following eight rather large store chains combined had about 2.87 billion in revenue over the same period:
I could go on, but hopefully this gives some food for thought about just how large Walmart is.

Now, I have obviously skipped discussing any of the reasons I am troubled by Walmart, since scale alone is not necessarily a negative. I will likely return to these issues another time. To summarize to the point of near vacuity, but as a hint of my feelings it comes from their corporate practices in dealing with labor and vendors, the macoeconomic impact they have on our trade deficit (not to say Walmart is solely to blame for our trade imbalance, of course), the manner in which they encourage a race to the bottom in product quality in the name of reducing price, and their simply unpleasant merchandising and aesthetics, as long as I'm on a rant.

More to come on these things another time. Enjoy your Memorial Day.
e-mail post | Link Cosmos | [Permalink]  |  | Monday, May 30, 2005
Comments:
While I am not a big fan of the products stocked at Walmart, I truly believe using zoning to reduce competition is a gigantic mistake.

True unfettered competition is the only way to improve the wealth of a community, of a state and of our nation.

The use of zoning by unions and local merchants to block Wal-Mart is a blocking of an entity freedom to conduct business. If their business is not ant-competitive in nature (i.e. price fixing or selling below cost to bankrupt competitors), government has no business obstructing trade.

Trade is a fundamental right - enshrined in the virtues of the Fifth amendment (i.e. unreasonable search and seizure) and should not be tolerated.
 
If not Wal Mart then who or what should force change? The products and aesthetics are worse then Wal Marts currently. I go to a dreary grocery store in CA and pay twice as much as I would at a Wal Mart. Service is terrible and selection is poor. In Vegas(I live there the rest of the time) were we have Wal Marts, prices are better, stores are not only kept up better but actually rebuilt every decade or so and service is better. In Vegas I shop at grocery stores usually because the products are better and I have more options then Wal Mart for a slightly higher price. Grocery stores are better in Vegas because they have to be, if not I would go shop at Wal Mart. CA they have no competition amognst the couple chanins left and it shows. The Market will control Wal Marts size, as it should not the government. Zoning is just another form of regualtion. Unions would rather run a company into the ground then let it offer reasonable prices and good service. What would we be driving today if it wasn't for foreign auto competition?
 
Amen. Competition is the only way to ensure high quality service. Wal-Mart became so large because it embraced two fundamental concepts:

1 - Focus on selling inexpensive items
2 - Cutting-edge logistics to improve inventory turn and focus on delivering the products that sell.

The urban myth is Wal-Mart abuses its workers and thus that is why they sell items for large discounts. The truth is they are significantly ahead of the competition in sourcing of products.

Once again, I go into Wal-Mart for only certain items and I am more likely to be in a Target or Costco, but I will not disparage the successful.
 
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