Wal-Mart Company is one of the most powerful in retailing. For more than 10 years it is considered among the largest of retail supermarkets in the U.S. In addition, the position and influence of Wal-Mart is strong not only in the USA, but in other countries. The influence of the world’s largest retailer on the U.S. economy has become a national political issue and issue of international interest. However, in order to assess the impact of Wal-Mart it is necessary to consider its politics and make in-depth study of its business model. The main problem and matter of concern is not only that the company offers retail goods at low price in comparison with prices of competitors, but the main question is how it achieves this. (Fishman 2006)
Wal-Mart Company since its foundation has been keeping to a strategy of low prices – a strategy through which it can offer products at lower prices than other competitors. On the one hand, this is certainly a huge plus for buyers. But on the other hand, this brings many negative effects, such as low salaries of employees, bankruptcy of smaller competitors (including small local shops). Finally, Wal-Mart policies lead to decrease of the quality of some products in struggle for low prices. Also it is necessary to say that Wal-Mart dictates its terms to suppliers, and even such large company as Procter & Gamble.
When speaking about the Wal-Mart principles of operation and its impact on the global retail, we should consider the company’s history, namely the principles of its activities and the basic marketing policy. The Wal-Mart company founder was Sam Walton, who for all his life believed that success could be achieved only through perseverance, continuous improvement and friendly attitude to customers and partners (partners he called his employees). Walton had a great goal, and he went to it guided by his own views and values. When Sam Walton opened his first store under the name «Five & Ten Cents», then he turned his attention to a strategy of low prices, that is why he tried to avoid middlemen, buying goods from producers. In addition, he reduced the price to yield less profit than his competitors, and Sam believed that in the long run, this strategy would be compensated.
Walton’s shops pleased customers not just with low prices, but with very low prices. Quickly enough the main idea of the entire chain of stores has become: “Low prices. Always sales”, and people “swallowed” this idea. And why not, if those shops proposed absolutely the same products for less money! Without serious competitors in small towns, Wal-Mart began to strengthen its position – the company’s strategy was paid off. In the early 90’s Wal-Mart was more lucrative business than the most popular supermarket chains – Sears and Kmart. And Sam Walton was recognized as the richest man in America. He wrote his autobiography, in which he told about the history of the company, and where he formulated the ten rules of business, which became “the bible” for traders from all over the world:
- Be committed to the business.
- Share profits with partners
- Motivate partners.
- Talk with your partners problems.
- Appreciate what partners do.
- Celebrate success.
- Listen to each partner.
- Anticipate the expectations of customers.
- Control costs.
- Swim over the flow.
It should be noted that by “partners” Sam Walton meant all employees of the company. In 1992 Sam as the richest man in America got the Medal of Freedom from President George HW Bush.
The success of Wal-Mart is simply in the chosen strategy, and persistence in obtaining lower prices by any means: pressure on suppliers, the deterioration of product quality – all costs that occur because of lower prices in Wal-Mart. Opening stores in the suburbs, the company received a competitive advantage – cheaper labor, low taxes, cheap land. All this contributed to the growth of Wal-Mart and lower prices. (Fishman 2006)
The company was very often accused of changes in the culture of small-town America, ruining small family stores. But Wal-Mart not only affected family shops, but also small networks of shops, which were closed, resulting in layoffs of people. Other stores also were made to cut prices, which led to lower wages and layoffs. Finally, Wal-Mart is in a constant struggle with suppliers for lower prices, and leaves no choice for even such major brands as Gillette. All this affects the quality of goods, and Wal-Mart also affects the design of products, giving their mandatory guidance to companies. (Fishman 2006)
So, it should be said about the great an impact of Wal-Mart company on the U.S. economy. In 2001, the intelligence consulting firm McKinsey has come to the conclusion that the improvement of management systems in the retail giant may have played a significant role in boosting productivity in the U.S. in the late 1990’s than a tremendous wave of investment in information technology. Their analysis showed that productivity growth (by 1,4% in the years 1972-1995 and to 2.5% in 1995-2000) was nearly a quarter ensured by the efforts of the retail sector. But the main credit for this belongs to the huge achievements of the company Wal-Mart, which has made a bet on lower prices and supermarkets, which has led to increased efficiency and sales volumes, and forced its competitors to follow the example. (London 2005)
Wal-Mart has not only contributed to productivity growth, but also dramatically increased the purchasing power of ordinary citizens, giving them the opportunity to save money. Company founder Sam Walton has calculated that by increasing the efficiency of the company only in the 1982-1992 years, its customers were able to save, by conservative estimates, about13 billion dollars. He wrote that company Wal-Mart was that powerful driving force that has raised living standards in agricultural areas, and its customers were well aware of this. (Fishman 2006)
Wal-Mart was a pioneer in many of management practices. In its report McKinsey Company concluded: “By making a huge contribution to productivity growth in the retail sector, Wal-Mart shows the impact on market structure, management and efficiency, can provide managerial innovations and effective use of IT by individual companies.” (London 2005)
Anderson K. “Globalization and the Wal-Mart Effect”. Web. 20 Apr 2010
Courser Z. “Wal-mart and the politics of American retail”. 2005. Web. 19 April 2010
London S.“Why size isn’t everything for the modern multinational”. Financial Times, Nov. 2, 2005
Fishman Ch. The Wal-Mart Effect. New York: Penquin, 2006