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Walmart
buzzed, B&W
hairylunch
Wow. I really like Fast Company, but rarely make time to read it. Today, I saw a link to this story about Walmart (warning: it's pretty long, close to 5,500 words). Talk about impressive - the article is a year old - and Walmart is the largest company in the world, bigger than GE, General Motors, etc, and has four times the annual revenue (almost $250 billion) of the next largest retailer, Home Depot. Apparently in 2002, 7.5 percent of the money spent at retailers (besides auto-parts stores) went to Walmart. Absolutely nuts.

The article is interesting in that it has two main points - Walmart forces companies to optimize their processes, making the companies leaner, and more efficient and also that while working with Walmart is necessary (Dial, the largest consumer goods company, relies upon Walmart for a little under a third of it's business), it's also signing a deal with the devil. Many companies go bankrupt, as Walmart apparently demands each year that the prices be lower than the previous year, no matter what, which also contributes heavily to outsourcing to drive costs down.

There also seems to be no grey when dealing with Walmart, it's all black or white. If you over commit, Walmart won't cut you any slack, but instead you have to meet their demands or you're no longer a supplier. A good example of this is when they're discussing Huffy, who had made a deal to supply a low end, low margin bike, in as much quantity as Walmart needed. The bike took off, and the demand exceeded Huffy's production capability - so Huffy had to sell it's design to competitors to manufacture their high-end bikes (which had higher profits), so they could produce the low end bike, costing it profits, while giving it's competitors profits. Crazy.

I really like Fast Company because most of their articles are pretty balanced - even with all the companies that go bankrupt as they can't meet Walmart's constant demands for continuous improvement, the author points out that companies can survive if they do perfect everything (lean manufacturing, just in time delivery, continuous process improvement, etc), and if they innovate - because if you innovate, and your product is new, Walmart can't demand you drive the price lower.

There's lots of good quotations throughout the article, but one of the best is "We want clean air, clear water, good living conditions, the best health care in the world--yet we aren't willing to pay for anything manufactured under those restrictions." In other words, American consumers will buy the cheap goods, even if it's costing us jobs, and general quality of life.

Of course, this is a chicken and the egg type problem - with 35.9 million people in poverty (or more meaningfully 12.5% - that's 1 out of 8!), shopping at Walmart to get good prices is almost a necessity for many Americans. Not to mention that the idea that by saving money, you're hurting the economy sounds outrageous at first. (I'll admit I'll shop occasionally, probably bi-monthly, at Walmart - sometimes the convenience of being able to do all my shopping at once, the 24/7 hours, and "low, low prices" will cause me to make a stop.)

While the Fast Company article talks about Walmart in a global economy, reading it makes me wish I could find the NPR story my brother mentioned to me that was talking about a study that showed how Walmart actually hurt local economies. Also makes me wonder about things in a global perspective - i.e. how are the countries that we outsource to affected? Does quality of life improve for those countries? In other words, while America may be suffering some, is the overall quality of the world improving?

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