What I read last week: the big box edition

As I mentioned in a previous post, I was working on Charles Fishman's The Wal-Mart Effect. I finished the book, and my first thought was, I need to re-read it. It is that packed with information.

Fishman's reporting is thorough, and he deftly weaves the facts he digs up into larger narratives. More proof that he's a good reporter? The stories in each chapter are not slanted or one-sided -- and he's capable of puncturing our preconceived notions about Wal-Mart by putting them to logical tests.

For me, the most valuable chapters in the book were the last three. Chapter 7, "Salmon, Shirts, and the Meaning of Low Prices," is a look at how American demand for cheap goods leads to horrific overseas working conditions; it's a cri de coeur for American shopping awareness, a moral demand for us to look at any imported good and try to imagine the human cost that goes into our bargains.

Chapter 8, "The Power of Pennies," has the book's most underplayed -- and smartest -- insight: what may hurt Wal-Mart in the long run is its customer experience. It is too easy for someone to go into a Wal-Mart -- thinly staffed, merchandise stuffed onto the shelves and racks, customers packing the aisles, lines stagnating in front of the cash registers -- and conclude that yes, the company's a relentless profit machine and we are but fodder for its world domination plans.

However, Fishman points out, a no-frills airline like Southwest is beloved by its customers, despite a startling lack of amenities and a business strategy designed to turn its competitors into greasy spots on the tarmac. The difference? Southwest works on being fun. People get the idea that they're all in this with the airline, so they don't begrudge the bare-bones approach. Also, Southwest keeps a strong focus on keeping its customers happy in ways that'll differentiate them from the rest of the competition.

(For example, it is only one of two airlines -- rival discount carrier JetBlue is the other -- that will not automatically cancel your return leg of a round-trip flight if you happen to miss your departing flight. Moreover, it is the only national airline that will not charge a change fee when you try to catch a later flight. For more on how airlines will cancel your reservations out from under you, read "Being Late Has Never Been So Expensive," in the Aug 1, 06, WSJ. That Southwest doesn't do it? Smart -- few people will need to take advantage of the policy, but disgruntled customers at other airlines will provide good PR for the airlines that don't cancel, then charge one-way fares to re-book that leg.)

Anyway, nobody riots when Southwest announces plans to expand. Nobody passes ordinances aimed at limiting their presence or making them pay higher wages or more benefits. And Southwest's effect on the airline industry, Fishman argues, is not unlike Wal-Mart's effects on rival retailers.

The experience of consumption may limit Wal-Mart's growth, Fishman posits. He may be on to something -- "Fashion Emergency for Wal-Mart" (BW, Jul 31, 06) outlines the difficulty the megaretailer's had in wooing customers to new products:

[S]hoppers hardly view Wal-Mart as a fashion mecca. "Perception is an issue," admits [executive VP for apparel Claire] Watts.

The new post is key to addressing Wal-Mart's biggest sales problem. Nearly 130 million customers shop its 3,200 U.S. stores a week. Yet just 45% shop the whole store, estimates research firm William Blair & Co. And 40% of regulars stick to low-margin basics, bypassing higher-margin sections such as apparel. But it is apparel, with gross profit margins about double Wal-Mart's 23% average, that could really drive profits, says Citigroup analyst Deborah Weinswig.

If people don't explore the store -- because they can't, or they don't want to -- that places pressure on Wal-Mart.

I would urge anyone who's going to read the book to do so now. Wal-Mart's at an interesting point in its history -- facing geographic saturation through all but the urban U.S., trying to get a handle on retail as a high-margin business, retrenching after its international efforts ("Has Wal-Mart Peaked? The Big Box Global Takeover Is Falling Short," Reason, Aug 1, 06) and trying to provide a wide-scale model for organic retailing.

The Wal-Mart Effect's last chapter will help you frame your perspective of Wal-Mart -- and American business -- going forward. In Chapter 9, "Wal-Mart and the Decent Society," Fishman writes:

Wal-Mart is carefully disguised as something ordinary, familiar, and even prosaic. The business model is built on the shopping cart. But, in fact, Wal-Mart is a completely new kind of institution: modern, advanced, potent in ways we've never seen before. Yes, Wal-Mart plays by the rules, but perhaps the most important part of the Wal-Mart effect is that the rules are antiquated; they are from a different era that didn't anticipate anything like Wal-Mart.

It's a challenge to look at Wal-Mart and other big companies, assess what impact they have on American society, and hold them -- and ourselves -- accountable for the results.

Comments

[drunken monkey]

I'd looked at this book and wondered if it was worth reading; thanks for writing about it. I think I'll pick it up before I go on vacation this month.

For clothes, I think that the reason Wal-Mart can't make inroads in this area is because unlike so many of the other departments, this is one that other retailers can provide better and cheaper. The clothing at Wal-Mart is not the least expensive option in the market, at least not in Canada. I can go to Old Navy and get basics like tshirts and underwear for about the same price. I can go to H&M and get fashion pieces for about the same price (and they do a better job of being on trend; there's always something about Wal-Mart's trendy items that seem off to me). Americans can go to Target and get both of those things, for about the same price. Why go to Wal-Mart, then?

The NYT had an interesting article about how Wal-Mart has gone wrong with their international efforts. I found the bit on the situation in Canada interesting.

http://www.nytimes.com/2006/08/02/business/worldbusiness/02walmart.html?_r=1&ref=world&oref=slogin

[Roger]

Americans are funny that way - they want to shop at Wal-Mart to save money, but they don't want to look like they shop at Wal-Mart. And with Wal-Mart fashions ("there's always something about Wal-Mart's trendy items that seem off to me") you always will. We love our dirty little secrets here.

Our local newspaper ran a piece on Wal-Mart Neighborhood Market (essentially Wal-Mart's grocery chain) a couple of years ago. I remember how interviewees were (bragging? grateful?) that they could save $10 a shopping trip. I guess that's significant for many families, but to me it seems a small premium to pay to help prevent the spread of this behemoth. There are simply too many stories about their shoddy treatment of employees to ignore. I'd rather spend $10 extra today than see the average income in my area drop hundreds of dollars a month - or more - from the Wal-Mart influence.