TOPICS > Economy

Is Wal-Mart Unique?

BY Liz Harper  August 20, 2004 at 9:30 AM EST

Wal-mart in Mexico City (Photo by Daniel Aguilar/Getty Images)

Its rapid and widespread growth strategies have transformed the retail industry, prompting other companies to emulate it and generating a series of social and economic changes.

A Unique Phenomenon
Labor historians, economists and retail market analysts almost universally agree Wal-Mart is a unique company in terms of its impact and its influence on changing corporate business and labor practices.

But experts — even Wal-Mart’s toughest critics — dismiss suggestions that it is the only corporation to rely on low-wage labor by discouraging the unionization of its employees, import cheaper merchandise from foreign nations, or demand manufacturers and suppliers lower their prices.

Size Matters
As the largest retailer on Earth, Wal-Mart is most conspicuously unique in terms of its size. With nearly 3,550 stores visited by roughly 100 million people each week, Wal-Mart is a convenient shopping mecca for American consumers.

Reporting $256 billion in revenues for the 2004 fiscal year, Wal-Mart ranks as the world’s largest corporation by sales — even pulling in $33 billion more than oil giant Exxon-Mobil, the world’s second highest income-earner. To put it in perspective, Wal-Mart’s revenues are greater than the combined sales of its top competitors Target, Sears Roebuck, Costco Wholesale, Home Depot and The Kroger Co.

A toy aisle in Wal-Mart Photo Credit: Wal-MartMany retailers — such as Kroger’s, Toys “R” Us, The Sports Authority — focus their business around a specific merchandise category, rather than selling a wide range of consumer goods. But, Wal-Mart’s strategy of selling a variety of products at discount prices has enabled the company to gain greater control of the retail industry and to demand manufacturers lower their prices, says Peter Solomon, founder and chairman of the investment banking advisory firm that bears his name.

Wal-Mart dominates numerous sales sectors, selling everything from sports products, office supplies to clothing apparel and groceries. It claims at least 20 percent of the country’s retail toy business — and now sells more groceries than any other U.S. supermarket chain, having overtaken Kroger.

Despite its apparent behemoth size in the United States, Wal-Mart, as a matter of perspective still controls only a small piece of the retail industry, accounting for roughly 4 percent of global retail sales.

Added to this breadth of products, Wal-Mart has also demonstrated an ability to expand at a rapid clip, increasing by 55 percent since 2000.

As the dominant discount retailer, Solomon said that Wal-Mart has transformed the standard retail marketplace, making it more difficult for traditional retail businesses to compete against the Wal-Mart superstore model. While there are other “big box” mass retailers, Wal-Mart’s success has forced other retailers to change the way they do business if they want to survive.

That makes Wal-Mart “incredibly unique,” says Solomon.

“It has trail-blazed the discount business, brought down prices for the average consumer, making it very hard for others to compete against. Because it is an extremely effective company at delivering low prices consistently, Wal-Mart has consequently forced other retailers to lower their prices as well,” Solomon told the Online NewsHour.

Wal-Mart’s Innovative Business Strategy
Wal-Mart’s uniqueness comes from a business strategy as radically innovative as those of the Pennsylvania Railroad, Standard Oil and General Motors of the 19th and early 20th centuries, according to Nelson Lichtenstein, a labor historian at the University of California at Santa Barbara.

Like Wal-Mart, those companies, all titans of their time, boosted efficiency and productivity far ahead of their rivals by creating a new management paradigm for their particular industry, Lichtenstein told the Online NewsHour.

Wal-Mart distribution center Photo Credit: Wal-MartWal-Mart’s sophisticated distribution system and information technology to track inventory has significantly improved its efficiency and productivity — making it far more profitable than other retailers.

As a result of Wal-Mart’s profitable strategy, many other retail companies, such as Kmart Corp., are trying to emulate Wal-Mart’s distribution system and telecommunications structure.

A Unique Growth Strategy
In addition to its overall business strategy, Wal-Mart’s growth strategy is strikingly different from most other big box retailers. Most companies establish stores near major urban areas with a potentially large clientele base, Lichtenstein explained.

Wal-Mart, by comparison, “spread out like molasses from its Arkansas base by constructing new stores strategically located near distribution hubs and smaller towns, rather than leapfrogging across the nation like the other retailers,” Lichtenstein said.

And its growth is completely homegrown. Unlike many other companies, Wal-Mart has not bought up existing retail chains in order to preserve control over its corporate culture, experts say, which has helped Wal-Mart stay ahead of its rivals.

As an illustration of its productivity-driven corporate philosophy, Wal-Mart began an internal “survival of the fittest” competition among individual stores. By building more stores than necessary, store managers felt a strong incentive to “crack down on workers and improve the efficiency of their store to stay alive,” Lichtenstein said.

This aggressive growth strategy — with its potentially negative implications for workers in the U.S. and abroad — has forced other retailers to follow suit, or fall behind, Lichtenstein said.

Dominating the Retail Industry
Wal-Mart’s market dominance does give it extraordinary power to pressure suppliers to reduce their costs, but that is hardly unique. Target, Kmart Corp. and Home Depot — among other corporations — have compelled manufacturers and suppliers to lower their prices.

Nevertheless, Wal-Mart still manages to sell products at lower prices than other retailers. On average, a Wal-Mart Supercenter offers prices 14 percent lower than its rivals, according to a 2002 study by UBS Warburg.

But, several academics and human rights groups say Wal-Mart’s commitment to “Every Day Low Prices” forces the company to drive down labor costs in its own stores and in its suppliers — despite the negative affects on workers.

Wal-Mart has faced lawsuits accusing the company of gender discrimination and forcing employees to work off the clock without pay, as well as a federal grand jury investigation into Wal-Mart’s alleged use of undocumented immigrants for cleaning services.

Ellen Rosen, professor at the Center for the Study of Women at Brandeis University, says such allegations are a direct result of the methods Wal-Mart uses to keep down labor costs.

International developmental agency Oxfam International said in a recent report that Wal-Mart and “other major global retailers in the apparel and food industries” are “driving down working conditions for millions of mostly women workers worldwide.” Oxfam said Wal-Mart “has led the field” in demanding “ever-quicker and cheaper goods” from vendors and workers in developing nations, making it impossible for foreign contractors to improve basic labor standards.

On the other hand, Solomon emphasized that Wal-Mart’s unique stature and size, coupled with its commitment to low costs, has had a positive impact on the U.S. economy.

“Wal-Mart’s relentless determination to drive down prices have lead to a significant price deflation — much more effective than the policies of the U.S. government,” Solomon maintained.

A Bad Reputation
So, if Wal-Mart’s controversial labor practices do not differ much from those used by other companies, why does the giant retailer seem to receive the bulk of the bad press about large discount retailers?

“It’s successful and there’s no limit to its growth — it’s aggressively expanding. Its very size means everyone wants to emulate it. So, it becomes a lightening rod of what is acceptable and not acceptable in terms of business and labor practices. Wal-Mart is seen as epitomizing arrogant corporate power, and it is considered the wave of the future,” Lichtenstein concluded.