The High Cost of Low Price - Case Study Example

of the of the Wal-Mart: The High Cost of Low Price Company Overview Wal-Mart Stores (Wal-Mart), the largest retail chain in the world, operates retail stores in various formats, including supercenters, discount stores and neighborhood markets. Wal-Mart operates over 6,000 stores in the US and 13 international markets including the UK, Canada, Japan, Mexico, Brazil and China. It also retails products through its online site. The company is headquartered in Bentonville, Arkansas and employs 1,800,000 people. The company recorded revenues of $315,654 million during the fiscal year ended January 2006, an increase of 9.6% over 2005. The operating profit of the company was $18,530 million during fiscal year 2006, an increase of 8.4% over 2005. The net profit was $11,231 million in fiscal year 2006, an increase of 9.4% over 2005. Business Description Wal-Mart Stores (Wal-Mart) is the world's largest retailer. The company operates retail stores in various formats. It operates more than 6,000 stores in the US and 13 international markets including the UK, Canada, Japan, Mexico, Brazil and China. The company retails a broad range of merchandise and services at low prices. Neighborhood Markets offer a full-line supermarket and a limited assortment of general merchandise. The company has 100 neighborhood markets in about 15 US states, offering a variety of products, including fresh produce, deli foods, fresh meat and dairy items, health and beauty aids, one-hour photo and traditional photo developing services, drive-through pharmacies, stationery and paper goods, pet supplies, and household chemicals. Neighborhood markets average 42,000 square feet in size, employ 95 associates on average and offer about 29,000 items. The company operates more than 550 Sam's Club in 48 US states. Sam's Club is a membership warehouse club, serving both individuals and businesses. Individuals, other than business owners, can become Advantage members. The annual membership fee for an individual Advantage member is $40 for the primary membership card, with a spouse card available at no additional cost. The annual membership fee for business members is $35 for the primary membership card with a spouse card available at no additional cost. In addition, business members can add up to eight business associates for $35 each. The annual membership fee for a Plus member is $100. Sam's Club offers bulk displays of brand name merchandise, including hard goods, some soft goods, institutional-size grocery items, and selected private-label items under the Member's Mark, Bakers & Chefs and Sam's Club brands. Most Sam's Club warehouses have fresh departments, which include bakery, meat, produce, floral and Sam's Cafe. Additionally, a significant number of Sam's Club offers photo processing, pharmaceuticals, optical departments and gasoline stations. Sam's Club warehouses average 129,000 square feet in size (Gondziola, 11). Sam Walton's Legacy Wal-Mart became the country's largest company with 3,500 stores and $220 billion in annual revenues through a combination of hardheaded negotiation, brilliant use of information technology, and a simple marketing scheme: "Every day low prices." Walton's deal promised that cost-cutting could coexist with a moral center--that Wal-Mart could be both the cheapest place to shop and the best place to work. But there are some unsettling indications that the deal that Walton and his successors made with their employees is fraying. A coalition of law firms and advocacy groups bringing a sex-discrimination suit is trying to force Wal-Mart to explain why women make up more than two-thirds of its rank-and-file employees but only a third of its managers. (Bhatnagar, 247) Labor unions have renewed efforts to organize stores, most prominently in Texas and Nevada. Washington State, acting on evidence that Wal-Mart skimps on paying workers' compensation, finally forced the company to get an outside manager to handle its claims. Individually, these might be dismissed as isolated problems that you'd expect at the nation's largest private employer. But collectively, and combined with extensive interviews with dozens of current and former Wal-Mart associates and managers around the country, they point to signs that this foursquare American deal no longer means what it once did. This scheduling process is perhaps the defining fact of life in the round-the-clock economy. Some 1,400 Wal-Mart stores are now open 24 hours a day, up from no more than 300 six years ago. Careful managers, with the aid of computer tracking, make sure that at any hour of the day a Wal-Mart has no more staff than is absolutely needed. Daytime shifts--generally running from about 7 a.m. to 4 p.m.--are desirable and distributed largely based on seniority. Third shift--nighttime--has slightly higher pay but carries all the usual disadvantages of overnight work. "It's hard to get on first shift," explains Stephanie. "The ones that are on first shift have been there for years." Most new associates start on the second shift, which runs through the middle of the afternoon into evening. Stephanie started on that shift in Wal-Mart's lawn-and-garden department in March 2001 and now works at the customer service desk. Meanwhile, Tony, who had worked in a machine shop making metal parts for 17 years until diabetes weakened his eyesight, started on the night shift as a stocker in September. On most nights Stephanie returns home at 11:30, by which time Tony has left for work. Occasionally they see each other for a few minutes in the store. Stephanie is asleep when Tony returns home and wakes up at about 11 in the morning, shortly before Tony goes to bed ( Bhatnagar, 248). Wal-Mart: An Ethical Organization To white-collar workers and managers who have not had to deal with the vagaries of shift work--or for that matter the obvious problem of simply getting to and from a retail job in Kentucky--those may seem like small accommodations. For critics they may sound inadequate. But from the vantage point of someone trying to do a day's work, these acts of personal consideration are better than what they expect of many employers. The accommodations--the chance for promotion, the annual stakeholder's bonus given to workers in profitable stores (last year full-time associates in Madisonville got $544 each), the possibility of vesting in a retirement plan into which Wal-Mart deposits company stock, and the chance to work in a place that appreciates the importance of family bonds--all represent real payments to associates in a meaningful currency. The Low Price Strategy At Wal-Mart, everyday low prices'' is more than a slogan; it is the fundamental tenet of a cult masquerading as a company. Over the years, Wal-Mart has relentlessly wrung tens of billions of dollars in cost efficiencies out of the retail supply chain, passing the larger part of the savings along to shoppers as bargain prices. New England Consulting estimates that Wal-Mart saved its U.S. customers $20 billion last year alone. Factor in the price cuts other retailers must make to compete, and the total annual savings approach $100 billion. It's no wonder that economists refer to a broad Wal-Mart effect'' that has suppressed inflation and rippled productivity gains through the economy year after year (Bhatnagar, 249). Low Price Business Model However, Wal-Mart's seemingly simple and virtuous business model is fraught with complications and perverse consequences. To cite a particularly noteworthy one, this staunchly anti-union company, America's largest private employer, is widely blamed for the sorry state of retail wages in America. On average, Wal-Mart sales clerks -- associates'' in company parlance -- pulled in $8.23 an hour, or $13,861 a year, in 2001, according to documents filed in a lawsuit pending against the company. At the time, the federal poverty line for a family of three was $14,630. Wal-Mart insists that it pays competitively, citing a privately commissioned survey that found that it meets or exceeds'' the total remuneration paid by rival retailers in 50 U.S. markets. This is a good place to work,'' says Coleman H. Peterson, executive vice-president for personnel, citing an employee turnover rate that has fallen below 45% from 70% in 1999. Critics counter that this is evidence not of improving morale but of a lack of employment alternatives in a slow-growth economy. It's a ticking time bomb,'' says an executive at one big Wal-Mart supplier. At some point, do the people stand up and revolt'' Indeed, the company now faces a revolt of sorts in the form of nearly 40 lawsuits charging it with forcing employees to work overtime without pay and a sex-discrimination case that could rank as the largest civil rights class action ever. On Sept. 24, a federal judge in California began considering a plaintiff's petition to include all women who have worked at Wal-Mart since late 1998 -- 1.6 million all told -- in a suit alleging that Wal-Mart systematically denies women equal pay and opportunities for promotion. Wal-Mart is vigorously contesting all of these suits. Conclusion There is no question that the company has the legal right to sell only what it chooses to sell, even in the case of First Amendment-protected material such as magazines. By most accounts, though, Wal-Mart's cultural gatekeeping has served to narrow the mainstream for entertainment offerings while imparting to it a rightward tilt. At the same time, Wal-Mart will have to cope with intensifying grassroots opposition. The company's hugely ambitious expansion plans hinge on continuing its move out of its stronghold in the rural South and Midwest into urban America. This year, the company opened what it describes as one of its first truly urban stores'' in Los Angeles, not far from Watts. Everyday low prices no doubt appeal to city dwellers no less than to their country cousins. But Wal-Mart's sense of itself as definitively American (Wal-Mart is America,'' boasts one top executive) is likely to be severely tested by the metropolis' high land costs, restrictive zoning codes, and combative labor unions -- not to mention its greater economic and cultural diversity. Works Cited Bhatnagar, Ritu. Dukes v. Wal-Mart as a Catalyst for Social Activism.. Berkeley Women's Law Journal, 2004, Vol. 19 Issue 1, p246-256 Blank, Paul. Wake-up Wal-Mart and Win.. Social Policy, Fall2005, Vol. 36 Issue 1, p45-48 Gondziola, Jason. Wal Mart's culture of control "non-negotiable. Canadian Dimension, May/Jun2005, Vol. 39, Issue 3 McNatt, Robert. Who Says Wal-Mart Is Bad for Cities. Grover, Ronald; Zellner, Wendy. Business Week, 5/10/2004 Issue 3882, p77-78 Read More