Bad for Local Economy - Bad for Consumers - Bad for Workers - Bad for Global Economy

August 20, 2004

The local economy IS better because of Walmart. -Deon Lackey
This might not be quote worthy, but it made me laugh.
She was trying to explain that Wal*Mart does good things, like provide more jobs, allow consumers to have more money (thus stimulating the economy), and her friend who worked there had excellent health care.
She didn't seem to mind that the average wage is $6/hr—it was more important that her tube of toothpaste was $1.89 at the store in Livingston, and 79 cents at Wal*Mart, or that local business is hurt. Of course, you knew that, and some Wal*Marts sell fish, and you'd probably notice if that happened. Elliot Schlegelmilch
August 20, 2004

She should check to see things like the $0.79 tube is 1.4oz, while the $1.89 tube is 2.0oz. Yes, the larger tube is still more per oz, but you're getting more and saving trips to the store to buy more. In addition, she's ignoring the cost of gas to get from Livingston to Bozeman to go to the Wal*Mart. Assuming (the highly unlikely case) that she is traveling to Bozeman just to get the one tube of toothpaste at Wal*Mart in order to delude herself into thinking that she is saving $1.10, and she has a vehicle that gets average gas mileage, she is spending ~$5.39 on the toothpaste, which we all know is much less than the $1.89 it was in Livingston.

Along with the wage issue, the 'provides jobs' issue is another fallacy. While a Wal*Mart may employ ~100 people, each of those people are worse off than they were without the Wal*Mart. For each person employed by Wal*Mart, that represents an average of 2 lost jobs in the community, so while Wal*Mart employs 100 people, those people represent ~200 jobs that existed in the area pre-Wal*Mart or would have existed in the community as the community grew. Also, as you pointed out, the Wal*Mart employees make an average of just-barely-over minimum wage, as opposed to the 10-15% higher than that that a similar job would make at a comparable other employer. So, in addition to Wal*Mart employing fewer people, the people they employ make less money. This further hurts the local economy by reducing the spending power of those individuals who are employed by Wal*Mart.

Another thing that many people don't realize is that many of the products offered at Wal*Mart are not, in fact, the same products they seem to be... for example, a [brand name A] DVP7011 may be available in Wal*Mart, and a DVP7021 at Target, then a DVP7001 at someplace like Avitel. All of these products will appear to be the same, they will look the same and have the same feature list, but they are not the same. Wal*Mart wants you to think that the DVP7011 they have for $99.00 is the same component as the DVP7001 that Avitel has for $229.00. If you begin researching these pieces, you are likely to notice things like 30 day vs 6 month warranties. If you start digging further, you learn things like the life expectancy of the 7011 is 10-14 months, while the life expectancy of the 7001 is 6-8 years. On a scale of money out of pocket, the 7011 is cheaper, but on a dollars spent over lifespan, the 7001 is much cheaper... So, not only is Wal*Mart hurting the local economy by reducing job availability, they are increasing overall cost to consumers by fooling them into believing that they are saving money, when, in fact, they are actually loosing money. This same- product, different item number is also used by many stores to avoid having to pay their lowest prices guarantees. If Circuit City is the only place in the world that carries a DVP7051, then they know that nobody else can possibly have it for a lower price!

Coupled with this (and getting back to the lost jobs), Wal*Mart comes into a community and opens up, and lots of people flock to Wal*Mart to buy cheap plastic crap (CPC), thinking they are saving themselves money. Meanwhile, lots of local businesses who are charging higher prices, but just more than covering overhead loose customers. In many cases, even a temporary loss of business—that is, until the customers realize that all the CPC they buy at Wal*Mart falls apart and needs to be replaced, is enough to shut the doors... This means that the local consumer has a more difficult time finding a quality product, or the price for the quality product increases significantly. There are two reasons for this:

  1. The local merchant, in order to not close, raised prices to cover costs on reduced sales, or
  2. The consumer now has to pay price plus shipping to get the quality product.

In fact, contrary to Clacy's opinion that the only businesses that are hurt by Wal*Mart (or other big box stores) are those that do not have a valuable service or a product that people want, what happens is that people seem to want the service and support of the local store, but they want to pay the cheap price, so the consumer visits the local 'expensive' store to get information and to perform research, increasing the costs to the local store by using valuable employee time, then returns to Wal*Mart to make the purchase in the belief that they are saving money. This behavior is actually another nail in the coffin of the local business, and certainly harmful in the long run to the consumers.

A further interesting thing on this, is often people are shopping at a big box store to save money, when, in fact, they are not. In many cases, the price comparison between like items at a big box store and a local retailer, the prices are very close, and are less expensive at the local dealer almost as often as they are less expensive at the big box. However, the average consumer knows that they will save money by shopping at the big box store, so they don't even check the prices or the product availability at the local store.

Additionally, the big box store (though this may not be true of all the employees) is not interested in a long-term relationship with the customer, nor are they interested in the success of the customer, while the small, local store (though this may not be true of all the employees) is typically interested in both the long-term relationship with the consumer and the consumer's success. This is reflected in many aspects of the business, and dictates that the employee will make more money at the small business than at the big business. The big box store considers labor a just an expense, and one to be cut at all costs, while the local retailer considers staff to be an important and integral part of the business and company image. Toward this end, the local business hires people, trains them, and then strives to retain them. The big box hires people and seeks out the minimum level of competency they need to imbue to the staff to avoid lawsuits, then proceeds to avoid excessive expenses of all sorts in regard to those employees. Now, we're back to the employees being paid less than at the competitor.

Along the lines of the defective pay scale at the big box stores, big box employees become less employable otherwise the longer they are at the big box store. The local businesses do not want to hire employees that have learned to cut corners and have spent a great deal of time working with incorrect, misleading, or malevolent information, as these employees are more likely to tarnish the image of the local business and are also going to require more training and the training is more likely to have to be repetitive and redundant than with a new, green employee... This means that, in addition to the big box store actually reducing the number of employees in a community, and reducing the wages of those that are employed, they also reduce the employability of those that they do employ, insuring that the employees of the big box stores continue to have lower incomes than others in the community.

However, some people will argue that, though the big box stores can hurt local economies and individual consumers, they will improve the global economy. This, also is untrue. Though it is (obviously) true that the majority of money coming into a big box store leaves the immediate community where the individual store is, and goes to another location. However, this does not imply a significant contribution to a stronger national or global economy. While the government is only about 1/7 as efficient at redistributing money as the private sector, bit businesses are about 1/10 as effective at distributing money as small businesses or individuals are. Large businesses bring in a lot of money, send some out to payroll, send a bunch out as expenses, and keep another big bunch in their own coffers. Individuals and small businesses tend to have a much higher turn around rate on any given dollar. This means that they put out a larger percentage of their income in payroll, and that they spend more on product. In most cases, the big box and the local store are selling product that is not created in the local community. This means that the small business is moving a larger portion of its net intake out of the community into the global economy than is the big box. So, not only is the big box bad for the local economy, bad for the individual consumer, and bad for its own employees, the big box is also bad for the global economy.

Not that this is one of my pet peeves or anything...