The Retail King Wal-Mart

Wal-Mart has quickly become the world’s largest company with its one stop shopping convenience and low prices. There is no debating that Wal-Mart is a dominating force in the American and world economy. However, there is a clash between two different views of how Wal-Mart achieved this status. The defenders of Wal-Mart say that they are so successful because they are market savvy and make good economic decisions. The other side argues that Wal-Mart only became successful by killing off all their competition with their low prices. The only thing that matters to those that like the company is that they save consumers money through their low prices, but you cannot tell this to all the owners of smaller stores that Wal-Mart has put out of business, such as Gary E. Hawkins. The CEO of a family-owned supermarket in New York, he said “It will be a sad day in this country if we wake up one morning and all we find is a Wal-Mart on every corner.” This is obviously a conflict of different interests, and it is unclear as to whether Wal-Mart is beneficial or harmful to the economy.

Wal-Mart grew to its enormous size mainly because of the low prices it offers its consumers, which seems to be an obvious benefit to the economy. New England Consulting estimated that Wal-Mart saved U.S. customers $20 billion in 2002 alone. With the price cuts other retailers make to compete with them factored in this total reaches $100 billion. When you combine these savings with the convenience of being able to buy ones food, clothing, electronics, gas, and almost anything else one could desire in one place you have a winning formula. The low prices they charge get them large percentages of the consumer’s money, which in turn allows them to charge such low prices. Many economists agree that even though some of Wal-Mart’s practices might offend some consumers, most will find it too difficult to resist the temptation of their low prices. People complain that these low prices kill off all other competition, but the American economy is based on competition, making it hard to fault them for being one step ahead of their competitors.

It is clear that Wal-Mart is a very market efficient company. They understand that a successful business must continually expand their market if they want to continue improving. They provide consumers with almost any good they could possibly need and are even expanding into banking and healthcare. They also have expanded overseas, often seeking cost advantages by buying finished goods and raw materials directly from foreign manufacturers, which allows them to sell their goods for less. Many will argue that this takes away money from suppliers here in America, but none can debate that this is a very successful tactic. Another reason they are so successful is their understanding of economies of scale. By increasing their size and production they can increase profits greatly. However, this is beginning to become an issue for them because they are growing too large for their own good. Eventually any growing company reaches a point where growing larger is basically impossible due to agency issues, which essentially means issues in the management of such a large group of people. A longtime supplier of the company said, “Their biggest danger is just managing size.” Although this has begun to become an issue for the company, good economic decisions have kept them still very successful.

Obviously Wal-Mart knows how to be efficient in the market, but it is still debatable whether they are good or bad for the economy. A study by UBS Warburg showed that Wal-Mart offered prices 14% percent less than their competition on average, which is the main reason that nearly 13,000 American supermarkets closed between 1992 and 2003. Economists have predicted that for every supercenter Wal-Mart opens, two supermarkets will close. This leaves thousands of people out of a job, with no other opportunities other than working at Wal-Mart. Then they are faced with making the average of $13,861 a year, in 2001, which is about a thousand below the federal poverty line for a family of three. They also have been accused of forcing employees to work off the clock and discriminating against females. Many employees have complained about performing mind-numbing tasks endlessly for very little pay.

Another problem many have is that since they are always trying to lower their prices they must get their goods from suppliers for a lower price. This means they must either get supplies from foreign markets, which take the money out of the American economy, or the suppliers here in America must lower the cost of their goods, which tends to deliver products