The Wal-Mart Effect

1. The Wal-Mart Effect Chapters 5 The Man Who Said NO to Wal-Mart

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. The Wal-Mart Effect Chapters 6 – What Do We Actually KNOW About Wal-Mart?

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. Is there a Connection Between Wal-Mart and Poverty? • 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