The world’s largest retailer has been too efficient for its own good, argues Milton Moskowitz
Isn’t it odd that the people who are screaming at oil companies for
gouging motorists at petrol pumps are the same ones who have been
screaming at Wal-Mart for its ruthless low-pricing policies? They would
presumably like oil companies to reduce prices so that motorists would
not have to pay so much to fill their fuel tanks – and for Wal-Mart to
raise prices so that it might be able to improve the wages and benefits
of its 1.3 million employees. Neither action is likely – and for good
reason: it would fly in the face of how a company operates in a
capitalist society.
It took Wal-Mart only 40 years to become the largest retailer in the
world. It did so by brilliantly executing a two-pronged strategy of
locating stores in small towns and selling
products at lower prices than any other retailer. It always played by
the rules. It did not engage in bribery or dirty tricks. It did not
extract rebates from vendors.
Sam Walton, founder of the company, was a folksy character who loved to
visit stores and meet employees. He brought a collection of them to
Bentonville, Arkansas, every spring
to participate in the company’s annual meeting. He would lead them in
the Wal-Mart cheer. Wal-Mart did not browbeat employees so much as
inspire them to be upbeat about themselves and the company’s mission to
deliver low-priced merchandise to customers. There was genuine
enthusiasm in the ranks. And that was also true at the Asda stores in
the UK, which slavishly copied the Wal-Mart culture before being
acquired by the American company in 1999.
Wal-Mart ran afoul of the law of unintended consequences. It did what
it said it would do – become the low-price leader – so well that it
lost sight of social dislocations that came with its success. That it
has now resolved to reform itself (EP7, issue 7, p3) is great news. It
has actually become the first company in the history of American
business to advocate an increase in the minimum wage.
Activists and NGOs need to keep up the pressure on Wal-Mart to follow
through on its promises. Yet at the same time it’s useful to keep in
mind the business context. Wal-Mart has been blamed for driving small
stores out of business, but, as Geoffrey Colvin, a senior editor of
Fortune magazine, has said: ‘Wal-Mart can’t drive anyone out of
business. Only customers can do that, and millions of them happily
drive past those little stores because they’d rather pay lower prices.’
The way the company has behaved has not been inherently bad, just
emblematic of the new global economy where low prices are so important
and the wolves on Wall Street need to be kept at bay. Perhaps it’s this
new economy that critics of Wal-Mart should hate, rather than the
company itself.
Milton Moskowitz is an author and compiler of The 100 best companies to
work for in America list. The Moskowitz Prize, for outstanding research
on SRI, is named after him.
