Wal-Mart effect

n.

The economic effects attributable to the Wal-Mart retail chain, including local effects such as forcing smaller competitors out of business and driving down wages, and broader effects such as helping to keep inflation low and productivity high. Also: WalMart effect.

Example Citations:

At Wal-Mart, ''everyday low prices'' is more than a slogan; it is the fundamental tenet of a cult masquerading as a company. Over the years, Wal-Mart has relentlessly wrung tens of billions of dollars in cost efficiencies out of the retail supply chain, passing the larger part of the savings along to shoppers as bargain prices. New England Consulting estimates that Wal-Mart saved its U.S. customers $ 20 billion last year alone. Factor in the price cuts other retailers must make to compete, and the total annual savings approach $ 100 billion. It's no wonder that economists refer to a broad ''Wal-Mart effect'' that has suppressed inflation and rippled productivity gains through the economy year after year.

However, Wal-Mart's seemingly simple and virtuous business model is fraught with complications and perverse consequences. To cite a particularly noteworthy one, this staunchly anti-union company, America's largest private employer, is widely blamed for the sorry state of retail wages in America. On average, Wal-Mart sales clerks — ''associates'' in company parlance — pulled in $ 8.23 an hour, or $ 13,861 a year, in 2001, according to documents filed in a lawsuit pending against the company. At the time, the federal poverty line for a family of three was $ 14,630.

— Anthony Bianco and Wendy Zellner, "Is Wal-Mart too powerful?," Business Week, October 6, 2003

Wal-Mart's decisions influence wages and working conditions across a wide swath of the world economy, from the shopping centers of Las Vegas to the factories of Honduras and South Asia. Its business is so vital to developing countries that some send emissaries to the corporate headquarters in Bentonville, Ark., almost as if Wal-Mart were a sovereign nation.

The company has prospered by elevating one goal above all others: cutting prices relentlessly. U.S. economists say its tightfistedness has not only boosted its own bottom line, but also helped hold down the inflation rate for the entire country. Consumers reap the benefits every time they push a cart through Wal-Mart's checkout lines.

Yet Wal-Mart's astonishing success exacts a heavy price.

By squeezing suppliers to cut wholesale costs, the company has hastened the flight of U.S. manufacturing jobs overseas. By scouring the globe for the cheapest goods, it has driven factory jobs from one poor nation to another.

Wal-Mart's penny-pinching extends to its own 1.2 million U.S. employees, none of them unionized. By the company's own admission, a full-time worker might not be able to support a family on a Wal-Mart paycheck.

Then there are casualties like Kelly Gray. As Wal-Mart expands rapidly into groceries, it is causing upheaval in yet another corner of the economy. When a Supercenter moves into town, competitors often are wiped out, taking high-paying union jobs with them.

— Abigail Goldman and Nancy Cleeland, "The Wal-Mart effect," Los Angeles Times, November 23, 2003

Earliest Citation:

The Bentonville, Ark., chain founded by billionaire Sam Walton got its start 28 years ago by opening stores in rural towns like the 5,600-population Hearne. The 1,485-store, 32-state chain is the fastest growing retailer in the USA. K mart is its chief rival.

But it also has a reputation for hurting small-town businesses that can't match the lower prices the chain can offer due to volume buying.

The Wal-Mart effect has been so huge it's spawned the formation of consulting firms that specialize in advising small-town businesses on handling the arrival of a Wal-Mart.

— Julie Morris, "Store shuts doors on Texas town," USA Today, October, 11, 1990

Related Words:

anchor store

big-box store

CNN effect

CSI effect

Ikea effect

Kmart realism

power center

spave

Wal-Martian

Categories:

Companies

Economics

Retail

Effects

Wal Mart effect has only supressed inflation by way of the current calculation which is deeply flawed!! Since the consumer has started making near all purchase decisions based on price and price alone what has been happening to thousands of products is that they are by way of outsourced manufacturing and other "cost saving" measures becoming a lesser product but they go into the data compilation as the same or comparable product! In many cases the product is presented as the exact same product but it's usable lifespan to the consumer has decreased significantly! For example a mid point downhill ski 13 years ago was said, by all manufacturers that I dealt with, to have a life span of 100 on hill days, last time I checked (which was 4-5 years ago so it may be worse agian by now) the lifespan of the "comparable product" was 60 days. Now according to economists (the price is about the same in dollar terms now as it was then) this is anti-inflationary or at least neutral data but to the consumer the cost of keeping $500.00 skis on their feet for 600 days has risen from $3,500 (6 pairs \@ 100 days/pair) to $5000 (10 pairs \@ 60 days/pair) and that my friends is inflation of over 40% in a 7-8 year window that went unaccounted for. For another example. I work in a retail location and recently a product we carry became "trendy" and the maker of the product moved all manufacturing to China rather then up their capacity at home. A new order of product arrived for us and still having some of the older product in the store we compared the two and you can pick out the lesser of the two literally from across the room! and not just due to my familiarity with the item, I've had customers notice the difference when they see both the older and newer batches together. The rub comes in because in this case (our store is a regular stop for our local Consumer Price Index data collector) the sku\#, everything is the same so the only data collected was that the price was indeed the same period over period, so as far as economists are concerned, no inflation here, even though the consumer is paying the same $180 for a product that will not cover the span of usefulness as it did just a month or two before.

Inflation is always going to happen but this relatively new, and very widely based, inflation by way of product depreciation is not accounted for and therefore policy makers are not making fully informed fiscal decisions (they've been operating under the premise that prices are inflating by 2-3% a year. not that prices are inflating 2-3% AND the vast majority of products are simultaneously loosing usefulness by 5-10% a year) which puts the man on the street in a far worse position than had the product remained the constant and price inflation been higher.

The issue here is not with Wal Mart but with the inflation metric itself. I think Wal-mart is soon taking over the world.