Is Wal-mart too big to fail?
Yes, I’m kidding. But not entirely.
I can still remember back when communities protested mightily whenever Wal-mart announced it was opening a store nearby. Some folks hollered about unwelcome traffic. Others hollered about the awful impact on local small businesses. Still others hollered about coolie wages and nonexistent health insurance. But Wal-mart usually prevailed. And the protests died down.
Because the fact is, no matter how much folks dislike the company on principle, it does offer good stuff at low prices. (Notice how the unions, despite their loud criticisms, never suggested a boycott of Wal-mart? They couldn’t — their members saved too much money shopping there)
So why am I rehashing this old territory? Because there’s an interesting piece in Bloomberg Business Week (feels weird calling it that, but I’ll get used to it) chronicling how Wal-mart now plans to take over shipping responsibilities from its suppliers. Its logic is hard to dispute: Because it has economies of scale, it can negotiate better prices for fuel, it can make sure its trucks are traveling with full loads and taking the most advantageous routes, and it can better monitor the inventory levels in its stores. Wal-mart expects the suppliers to lower wholesale prices by whatever amount they save in transportation costs. And Wal-mart says it will in turn lower the prices in its stores.
And there’s the rub. Presumably suppliers will continue shipping to other retailers — but with Wal-mart shipments out of the equation, they will lose economy of scale. It will inevitably result in high shipping costs, which they will pass on to the retailers, who in turn will have to either raise their own prices or cut into what are already paper-thin profit margins.
The upshot? Wal-mart gains even more market share at the expense of the ever-dwindling supply of competitors.
Wal-mart’s motives are pretty transparent. In this economy, every company is looking to shave costs. And Wal-mart has suffered through four consecutive quarters of declining per-store sales.
Still, on the surface I want to holler Foul! But I can’t — for the same reason that the unions and communities have for the most part grudgingly accepted Wal-mart’s presence. It’s hard to applaud something that reduces competition — but it’s even harder to condemn something that will result in lower prices, particularly at a time of high unemployment. And even environmentalists have grudgingly admitted that Wal-mart has developed a pretty good green track record. I have every reason to believe that it will operate its fleet of trucks and such in an environmentally responsible manner.
I guess I’ve persuaded myself. Go for it, Wal-mart — if you can do things more cheaply, maybe your competitors will have to learn to fight back on service, on unique stock items, on factors other than price. That, in fact, would really broaden consumer choice.