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The Wal-Mart Effect. Week 1 Who Knew Shopping Was So Important?. Deodorant & Paperboard Box. I’m probably not the best negotiator in the world. I lack the ability to squeeze that last dollar – Sam Walton Deodorant & Paperboard box

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the wal mart effect

The Wal-Mart Effect

Week 1

Who Knew Shopping Was So Important?

deodorant paperboard box
Deodorant & Paperboard Box
  • I’m probably not the best negotiator in the world. I lack the ability to squeeze that last dollar – Sam Walton
  • Deodorant & Paperboard box
    • The Perfect Wal-Mart moment - largely unseen, unnoticed, and all apparently good
      • Wal-Mart uses it’s muscle to force efficiency and reduce cost
      • Relentless pursuit of efficiency & cost-cutting
      • Waste eliminated
      • Savings is recurrent and permanent
      • A new standard of efficiency is established, lowering costs for everyone

BUS-115 Introduction to Business

the wal mart effect3
The Wal-Mart Effect
  • A wasteful routine is detected and eliminated
  • Costs are lowered, especially for consumers
  • But in the wake of these changes comes a ripple of unintended consequences that also affect everybody
    • Not immediately noticed
    • Unacknowledged
    • Scale of change not understood
    • Communities and everyday life changed

BUS-115 Introduction to Business

supercenters
Supercenters
  • Wal-Mart Supercenters
    • Double the size of traditional Wal-Mart store
      • Sprawling, own “eco-system”
    • Growth rate
      • 9-Supercenters in 1990
      • 888-Supercenters by 2000
      • Over 2,000 Supercenters today
        • 1000 more than just 5-years ago
        • 7-Supercenters opened/month for 120-months in a row
        • 16-Supercenters opened/month for last 5-years

BUS-115 Introduction to Business

groceries
Groceries
  • Supermarkets - well-established, experienced, well-run national chains
    • Kroger – 1883
    • Safeway – 1915
    • Albertsons – 1939
  • Unionized
    • Good-paying jobs
    • Benefits
    • Formalized labor relations

BUS-115 Introduction to Business

groceries6
Groceries
  • 15-years ago Wal-Mart did not sell groceries
  • Today, Wal-Mart now sells more groceries than ANYONE IN THE WORLD
    • Wal-Mart sells more groceries than Kroger and Safeway COMBINED
  • Wal-Mart continues its onslaught
    • For the past 5-years, 16-new Supercenters are opened each month
    • 40% of Supercenters are devoted to groceries
    • Wal-Mart has16% of grocery market – in some cities 30%
    • Wal-Mart captures grocery market by pricing about -15% lower than its competition

BUS-115 Introduction to Business

groceries7
Groceries
  • Wal-Mart Effect
    • Lowered prices for groceries
    • Changed supermarket business
      • 31-supermarket chains have gone bankrupt
      • Effect on unionized grocery workers
        • L.A. Times - The Wal-Mart Effect:Part 1: An Empire Built on Bargains Remakes the Working World
        • Will Wal-Mart Take the Labor Challenge?

BUS-115 Introduction to Business

the most powerful company in the world
The Most Powerful Company in the World
  • Wal-Mart is everywhere
    • Over 4,000 stores in the U.S.
    • More than 1 Wal-Mart for every county
    • Largest retailer in North America
    • In 2004, Wal-Mart opened 4-new Supercenters PER WEEK
  • Wal-Mart is very visible
    • Hard NOT to see
    • Create their own gravitational force and sprawl
  • Does everyone shop at Wal-Mart?
    • 1/3 of Americans shop there each WEEK
    • Average American household spends $2,060 per year (Wal-Mart’s profit = $75)
    • 7.2-billion visits worldwide per year
      • China expansion

BUS-115 Introduction to Business

the most powerful company in the world9
The Most Powerful Company in the World
  • Wal-Mart is largest private employer in the U.S.
    • 1.3-million workers in U.S.
    • 3-million additional jobs are dependent directly on Wal-Mart
    • Wal-Mart = Home Depot + Kroger + Target + Costco + Sears + Kmart COMBINED
    • Wal-Mart sells more in 10-weeks than Target does in a year
  • Wal-Mart is the largest company in the history of the world
    • 1.6-million employees world-wide
    • ExxonMobile v. Wal-Mart
  • Wal-Mart’s performance is indicator of entire U.S. economy
    • Wal-Mart Starts Discounting Early
    • Today’s Wal-Mart stories

BUS-115 Introduction to Business

wal mart s effect
Wal-Mart’s Effect
  • Wal-Mart shapes consumer behavior
    • Where we shop
    • The products we buy
    • The prices we pay
    • Our sense of quality
    • Reset our expectations
  • Wal-Mart shapes business behavior
    • Reaches deep within its suppliers operations
    • Changes how their products are made, packaged, and presented
    • Changes the lives of the factory workers who make the products
  • Wal-Mart shapes communities
    • Reshape economic life of towns
    • Steadily, silently, purposely moves the economies of the world
    • Sometimes even changes the countries where the products are made

BUS-115 Introduction to Business

the most powerful company in the world11
The Most Powerful Company in the World
  • Obsessive, data-gathering habits
    • Data v. information distinction
  • Innovation done slowly, deliberately
    • Warehousing, logistics, data management, merchandizing
  • Studied competitors, borrowed from them, and improved their innovations

BUS-115 Introduction to Business

the most powerful company in the world12
The Most Powerful Company in the World
  • The Wal-Mart Effect
    • Wal-Mart is:
      • The boldest, most innovative, most democratic validation of free-enterprise in the world or
      • An insatiable, insidious beast exploiting the people it pretends to defend or
      • Something somewhere in-between

BUS-115 Introduction to Business

the wal mart effect13
The Wal-Mart Effect

“Eventually, Your Greatest Asset becomes your Greatest Liability”-Steve Jobs, co-founder of Apple.

  • Wal-Mart’s Core value - always lowering costs
    • The larger it becomes, the harder it to grow by lowering costs
      • Sexual-discrimination class action suit on behalf of 1.6-million female ‘associates’
      • Adequacy of health benefits and effect on states-Medicaid
      • Locking employees in stores
      • Forcing associates to work ‘off the clock’
      • Wage Caps and moving full-time employees to part-time

BUS-115 Introduction to Business

does wal mart understand
Does Wal-Mart Understand?
  • Bentonville – source of strength
    • Far from distractions
    • Work ethic, frugality, focus, hard work
    • But Bentonville is isolated, lack of perspective
    • Inability to see itself clearly
      • Family-friendly
      • “Average hourly wage is nearly twice the minimum wage”
        • $660/month after rent, health insurance
      • Wal-Mart jobs are intended as “supplemental”
        • 2/3 of Americans, Wal-Mart is the single-largest employer where they live

BUS-115 Introduction to Business

does the u s understand wal mart
Does the U.S. Understand Wal-Mart?

“Wal-Mart is just plain greedy”

  • 2004 Microsoft profit was $12.3-billion
  • 2004 Wal-Mart profit was $10.3-billion
    • Giving ALL the profit to ‘associates’ would mean an extra $6,400/employee
    • About $3 per hour
    • There isn’t enough money to raise wages from $8-9/hour to $12/hour

BUS-115 Introduction to Business

the birth of wal mart
The Birth of Wal-Mart
  • Sam Walton:
    • Sell stuff people need every day just a little cheaper than everyone else
    • Sell it at the lowest price all the time
    • If you do, people will flock to your store (volume)

BUS-115 Introduction to Business

wal mart core values
Wal-Mart Core Values
  • Incredibly demanding corporate culture
  • Unrelenting focus on cutting costs
    • If you spend $1, how much merchandise do you have to sell
  • “Sales cure all ills”
  • Hard work, long hours
  • Accountability
  • Devotion to numbers
  • Competitiveness
  • Core respect for competitors
  • Continuous improvement

BUS-115 Introduction to Business

has wal mart outgrown its culture
Has Wal-Mart Outgrown Its Culture?
  • Sam Walton’s 10-pound bass
    • Sam Walton wanted his employees to be happy
  • Many early employees became millionaires
    • 100 shares of stock in 1970 = $11.25-million in 2000
    • 100-shares bought anytime from 1970-1980 and held for 20-years = up to $1.7-million
    • 100 shares of stock bought after 1990 and held 15-years = $20,000

BUS-115 Introduction to Business

has wal mart outgrown its culture19
Has Wal-Mart Outgrown Its Culture?
  • “The surest indicator of Wal-Mart’s failure to evolve is the wave of workplace problems the company is facing.”
    • By fall, 2005, Wal-Mart faced 40-separate law suits filed by employees (forced to work off the clock)
    • In 2000, it settled a Colorado class-action suit brought by 69,000 employees for $50-million
    • October, 2003 federal agents raided for illegal aliens
    • August, 2004, Wal-Mart closes Quebec store after union was certified to bargain

BUS-115 Introduction to Business