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The Wal-Mart Effect. Chapters 5 The Man Who Said NO to Wal-Mart. Chapter 5 – The Man Who Said NO to Wal-Mart. “They had the lure of Wal-Mart volume. Once you get hooked on the volume, it’s like getting hooked on cocaine. You’ve created a monster for yourself.” Jim Wier, former CEO, Snapper.

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The Wal-Mart Effect

Chapters 5

The Man Who Said NO to Wal-Mart

Chapter 5 the man who said no to wal mart l.jpg
Chapter 5 – The Man WhoSaid NO to Wal-Mart

“They had the lure of Wal-Mart volume. Once you get hooked on the volume, it’s like getting hooked on cocaine. You’ve created a monster for yourself.”

  • Jim Wier, former CEO, Snapper

BUS-115 Introduction to Business

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Doing Business withWal-Mart

  • Being a supplier for Wal-Mart reorganizes the business to sustain ever-increasing need for more volume

    • Priorities end up skewed

    • Changes character of supplier company

    • Wal-Mart lowers value of product’s brand

      • At first expenses are cut

      • But eventually company goes into a “death-spiral”

        • “There’s no profit in that price, no room for reinvestment, for innovation, for rising health-care costs, or a sudden spike in … prices”

BUS-115 Introduction to Business

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Snapper Lawnmowers

  • When Snapper stopped doing business with Wal-Mart, it lost 20% of its business

    • Short-fall made up by winning hearts of independent dealers

      • Well-made product

      • Long-life time

      • Service

      • Profit

BUS-115 Introduction to Business

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How to Compete with Wal-Mart

  • Focus on things besides price

    • Quality

    • Design

    • Fashion

    • Total cost of ownership

    • Feel of shopping experience

    • Status

  • A higher selling price leaves more room for profit

BUS-115 Introduction to Business

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How Snapper Competes

  • Focus on niche (something better)

    “We’re NOT obsessed with volume.We’re obsessed with having differentiated, high-end, quality products”

  • Emphasis on quality

    • Zero defects

    • Tireless attention to detail

    • Constant improvement

BUS-115 Introduction to Business

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How Snapper Competes

  • Relentless focus on efficiency is as important as quality

    • Attention to detail and measurement

    • Productivity 3x what it was 10-years before

      • New lawn-mower every 109-seconds

      • Heavy use of robots

      • Small focus-factories w/in main factory

      • ½ the number of workers, job flexibility

      • Everybody’s performance is posted for all to see

      • Workers familiar with product

        • Paid to cut grass

  • “When you make a premium product, if you don’t control quality and durability, you have nothing”

BUS-115 Introduction to Business

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How Snapper Competes

  • Manufacturers many of its own parts

  • Measures itself again rest of world but manufacturers products in U.S.

  • Distribution, inventory costs cut

    • Warehouse middleman cut out

    • Runs its own regional warehouses

    • Just-in time manufacturing made possible by predicting demand

    • Technology where it makes sense

      • Reduce labor costs to 10%

      • Removes China competition

BUS-115 Introduction to Business

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The Wal-Mart Effect

Chapters 6 – What Do We Actually KNOW About Wal-Mart?

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Chapter 6 – What Do WeActually Know About Wal-Mart?

  • Wal-Mart is very secretive with its data

  • Wal-Mart does NOT like to talk about its pricing effects

    • Short-run: Prices decrease by 1.5-3.0%

    • Long-run: Prices decrease by 7-13%

BUS-115 Introduction to Business

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Has Wal-Mart Created More Jobs than It has Destroyed?

  • Wal-Mart’s success comes largely at the expense of existing retailers

  • Net increase of 100-new jobs in first year of Wal-Mart opening

    • 150 new jobs – 50 who lost other retail jobs

  • 4-retailers close within first 5-years

  • 5-years after a Wal-Mart arrives, average county has a net increase of 30 jobs

    • 300 Wal-Mart jobs – 250 retail jobs lost – 20 distribution jobs

    • 6 jobs per year

  • BUS-115 Introduction to Business

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    Wal-Mart’s Effect on Inflation

    • Grocery inflation rate in U.S. is 15% lower than actually reported by CPI

      • Wal-Mart has 16% of national market

      • Supercenter prices across 20 categories were on average 27% lower than at traditional grocery stores

    BUS-115 Introduction to Business

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    Effect of Wal-Mart

    • Kenneth Stone, Economist, Dean of Wal-Mart scholars

      • In towns with Wal-Mart, sales of general merchandise leap 55% after 3-years

      • Small-towns within 20-miles, sales drop 13%

      • The losers after 5-years of Wal-Mart:

        • Grocery stores -5%

        • Specialty stores -21%

        • Clothing stores -18%

      • Winners

        • Restaurant sales up 3%

    BUS-115 Introduction to Business

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    Effect of Wal-Mart

    • Kenneth Stone’s rules of thumb

      • Rule 1: merchants selling goods or services DIFFERENT from Wal-Mart benefit

      • Rule 2: merchants selling the same goods as Wal-Mart are in jeopardy

    BUS-115 Introduction to Business

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    Does Being a Supplier to Wal-Mart Help or Hurt Your Business?

    • Reasonable profitability allows

      • Companies to hire talented people

      • Pay employees well

      • Do research and development

      • Respond to customer’s needs, Innovate

    • The more business you do with Wal-Mart, the less profitable each sale is

      • Wal-Mart either

        • forces you to get it together or

        • Pushes you to bankruptcy

    BUS-115 Introduction to Business

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    Is there a Connection Between Wal-Mart and Poverty? Business?

    • Stephan Goetz, economist

      • Should communities give tax breaks to encourage Wal-Mart to locate there?

      • Presence of Wal-Mart were correlated with increased family poverty rates in U.S. counties during the 1990s.

        • Rates of poverty fell 10% more SLOWLY in communities with Wal-Marts

    BUS-115 Introduction to Business