Walmart: the Retail Industry - Essay Example

Wal-Mart – a destructive force or a source of good jobs? Table of Contents Introduction 3 2. Low prices contribute towards economic growth 4 3. Labor model and employee compensation 5 4. Corporate Social Responsibility 6 5. Vendor relations 8 6. Strategic management 8 7. Technology and intellectual capital 9 8. Marketing strategy 10 9. Conclusion 12 10. Works Cited 13 Introduction Wal-Mart the brain-child of Sam Walton started in 1962 as a family-owned discount store with an innovative business strategy. Incredibly efficient and focused on the principle of low-prices, Wal-Mart transformed the retail industry. Wal-Mart was grounded in values of respect for workers and community. Over the years politicians and liberals have started alleging that they do not allow their employees to unionize and that they do not provide health insurance for their employees. Wal-Mart has also been accused of eroding social capital, healthy communities and quality jobs. The city council in Chicago has even passed an ordinance disallowing Wal-Mart from opening within city limits. This paper argues whether Wal-Mart is a destructive force or is good for the local economy. Wal-Mart has 3,400 stores in the US and is largest employer in US second only to the Federal Government. It is the largest grocer and plans to open 100 Supercenters in the next five years. It is sheer size, growth and profitability of Wal-Mart that it is in a position to define corporate trends. It is now in a position that it can dictate and perfect the nature of discount stores. Wal-Mart has the image of a friendly, all-American company employing happy workers and smiling greeters who are eager to help and grateful to work at Wal-Mart (Bianchi & Swinney, 2004). As a globalizing force, Wal-Mart exerts influence on the regional, local and national economy. It has restructured the American workforce and consumer behavior (Lavallee & Boyer, 2006). Its basic strategies revolutionized the global retain industry and led Wal-Mart to unprecedented heights. Low prices contribute towards economic growth Wal-Mart never avoids critics. On the contrary they respond actively as they did when the city council of Los Angeles proposed to ban the store from the city. Wal-Mart revealed through a study of the economic impact that average savings per family per ear would be $500 if Wal-Mart opened a store in Los Angeles (Bianchi & Swinney). Apart from this, new jobs would be created which further boosts the local economy as spending power goes up. Wal-Mart counters its critics with two words – low price. Its low price policy helps millions to buy more from their meager pay checks. They can even indulge in minor luxuries. This makes the entire economy more efficient and productive. In the micro level this translates into low prices with better product. At the macro level it means economic growth, more jobs and higher tax revenues. Wal-Mart has helped to hold down inflation in US. A McKinsey & Co. study concluded that Wal-Mart was responsible for about 12% of the economy’s productivity gains in the second half of the 1990s (Fishman, 2003). Doane (2005) reveals through a survey that consumers are more concerned with low price, taste, sell-by-date than ethics and the success of Wal-Mart is based on this very fact. Wal-Mart serves as a huge reservoir for low-wage workers. No doubt Wal-Mart monopolizes labor and retail markets but through this it is able to keep worker compensation and retail prices low (Heyer, 2005). They are able to attract low-income people for profits. Various law-suits have arisen against Wal-Mart but these very people have proved to be the loyal supporters. The poor in fact clamor for Wal-Mart to open new outlets and those who protest are labeled as rich elitists who are against the poor having access to jobs and low-priced goods. Research further suggests that Wal-Mart does not play any significant role in influencing wages for existing employees in the retail sector (Hicks, n.d.). For the new hires, Wal-Mart entrance results in $90 increase in monthly earnings. Wal-Mart affects workforce stability accounting for more than a forty percent reduction in net employment turnover. In nutshell, Wal-Mart has no negative net employment effects. On the other hand there may be a net increase in the retail sector employment. Overall earnings improve by over 6% when Wal-Mart enters a new market. Labor model and employee compensation Human resource management is a stronghold of Wal-Mart as right from the inception they did not believe in allowing or forming a union (Levy & Losch, 2002). They felt it was detrimental to the interest of the company and the union only fed itself from both the management and the labors. They believed in exhorting their own people, motivating them through incentives and awards such as company stocks by which they could also make up for the low wages. A corporate culture was set which encouraged the employees and managers to consider the customer the focus of business. The customer is the king was the policy at Wal-Mart. Wal-Mart employs immigrant workers so labor is cheap. They also take in independent contractors who cannot organize unions under labor law. It is able to control labor costs, hires temps, part-time workers. Wal-Mart is vertically integrated and it employs its own workers for all major operational functional including warehousing. When criticisms have been raised against its high-turnover of employees, Wal-Mart counters that if jobs were bad, why would so many people apply for them in the first place? Wal-Mart clarifies that its associates and employees have full access to management to exchange ideas and concerns freely and hence the need for unions is not felt necessary (Johannson, 2005). In fact other organizations are taking a cue from Wal-Mart and are trying to justify that unions are not necessary. Wal-Mart is not breaking any law to stay unions-free. They have a open door policy where workers can comfortably relate with the managers. National Right to Work Committee and Foundation also discourages workers from joining a union. Wal-Mart has a systematic method of tracking employee grievances and taking immediate action to attend to them in order to prevent them from seeking the help of a union. This amply demonstrates its concern for its workers as well as manages to keep the organization free from unions. Employee wages at Wal-Mart are as much as 31% lower than competitors (Nester, 2006). It pays practically no benefits and very often employees have to work overtime without any additional compensation. It discriminates employees based on gender and disabilities. It pays a wage on which people cannot survive. Despite this, Wal-Mart manages to get people for its stores. Its sheer size makes its impossible for people to ignore it. Whatever it does is on a massive scale and cannot escape public attention. Corporate Social Responsibility Papasolomou-Doukakis, Krambia-Kapardis and Katsioloudes (2006) state that apart from prices competitive advantage depends upon reputation as well. The way in which organizations act, the way they are perceived by their target public and the general public, determines their reputation. Organizations are judged not merely on their achievements but on their behavior too. They further contend that a positive corporate image does not depend on a few advertisements but on good corporate citizenship as well. According to survey conducted by Cone/Roper, Wal-Mart is ranked as number one regarding America’s leading socially responsible company. Eighty percent of the consumers say that they have a more positive impression of companies that support a cause. Another study conducted by Harris Interactive Inc. and the Reputation Institute on “The best corporate reputations in America” also ranked Wal-Mart amongst the top 30 companies in America. This study was on how public perceived companies based on twenty attributes. This amply reveals the image of Wal-Mart which is based on social responsibility. Wal-Mart responded to the need of the society and the nation in the wake of Hurricane Katrina. Wal-Mart provided the rescue workers with the items that victims needed in the right quantity at their everyday low prices and sometimes even for free (Sobel & Leeson, 2006). Wal-Mart’s own fleet of truck and its hundred distribution centers across the country helped it to deliver the necessary supplies to the affected areas. One hurricane victim even commented, Wal-Mart “was the only place we could find water in those first days…. It’s hard to say, but you get more justice at Wal-Mart.” Wal-Mart’s capacity and promptness in responding to the situation made even its staunchest critics praise the company. How then can they be against the society and the economy? Vendor relations Wal-Mart squeezes profits at each point in its supply chain and uses these to negotiate deals with the vendors. Wal-Mart kept a tight rein on finances right from the beginning and its managers too knew that they were working on low margins. They also sourced their purchases at very competitive rates. Because of bulk purchases they were in a position to dictate terms to the suppliers. They also sourced their purchases globally, picking up goods from countries with low-cost labor. Pressurizing for low prices has caused many vendors to outsource supplies from cheaper markets. This too has its own advantage. Wal-Mart serves as a vast pipe-line that give non-US companies direct access to the American market. According to Paul Krugman, the Princeton University economist, "Wal-Mart is so big and so centralized that it can all at once hook Chinese and other suppliers into its digital system” (Fishman, 2003). Vendors have now come to accept that Wal-Mart transforms the companies it does business with. They become more efficient, leaner, focused and faster. It establishes collaborative and mutually beneficial relationships with its suppliers. Vendors admit that the entire approach to business undergoes a change in dealing with Wal-Mart. Strategic management Strategic planning is the key to success for any company. It is usually performed by the CEO and the policies and objectives formulated gives direction to the company. This involves a situation analysis and based on this assessment the objectives are set. Wal-Mart right from the inception adopted this strategy. The geographical locations of Wal-Mart stores helped in keeping its capital investment low in terms of real estate, taxes and utilities. Low capital investment with high turnovers gave it a smooth success. Even with success all through Wal-Mart does not venture into high end stores in suburbs or the urban areas which clearly shows its effective cost management policies. Technology and intellectual capital Intellectual capital is the most important wealth creator. Knowledge differs from tangible assets and intellectual capital demonstrates a sustainable effect on company’s earnings. Wal-Mart’s computerized supply chain is evidence (Karp, 2003). To maximize benefits from information systems, the company must align the system with its key decision. This can help the company improve its decisions. Wal-Mart was struggling to increase its sales in mass-market discount stores (Forsyth, Galante & Guild, 2006). Market research could not identify the reason or the problem. The managers then integrated point-of-sale date with an online survey on shopping behavior in stores and general customer interests. This revealed that a large number of people who purchased TV from Wal-Mart were interested in watching sports. This information was effectively used by the organization and they immediately introduced features which sports-minded people enjoy - picture-in-picture capabilities, digital connections, and plenty of audiovisual ports. This demonstrates the customer focused approach of Wal-Mart and they utilize technology towards this end. Wal-Mart has also applied the Radio Frequency Identification (RFID) technology. RFID tags when attached to the product, tool, and material handling equipment would give the manufacturers demand signals from the customers and the market. Small electronic tags transmit data via a radio signal to RFID readers and related hardware and software infrastructure. When the information on the tags passes by a reader, the movement is captured and managed by the infrastructure. Without any human interaction, the organizations can link the physical world to the digital world. Wal-Mart has adopted this technology and it is estimated that they could save $8.35 billion annually (AME, 2005). It helps the company to track what shipments are arriving at the store and what sales are leaving the door. It knows what inventory it has in each store and without RFID they are unable to find out what is in the back room and what is in the front. This technology helped them to reduce thefts of their products, apart from obtaining proof-of-delivery, inventory reduction, and promotional performance. Marketing strategy The current public image of Wal-Mart in itself presents the greatest opportunity to turn around its image with public relations. Their advertisements do not highlight the low prices as much as focusing on its charitable contributions towards the society (Nester). It forces one to recognize that Wal-Mart is not a faceless corporation but an embodiment of millions of people just like you. Wal-Mart’s public relations campaigns make focus on low prices, substantial job creation and the practical value to the customer (Heyer, 2005). It is successful in creating an image that can be bought simply by shopping at Wal-Mart. Wal-Mart now focuses on embedding desirable connotations in their corporate name, in their retail stores, the products they sell and in those who shop and work there. They flatter their consumers in their advertisements and claim that the consumers shop at Wal-Mart because they value the low prices, their selection and their community outreaching. It is thus able to project an image that it is altruistic, honest, friend and supporter of the common people. This marketing strategy has fetched them a huge consumer support as consumers feel they possess desirable attributes like intelligence, individuality, and moral virtue. This implies that those who support Wal-Mart have these attributes while others do not. This marketing strategy may be a subject of criticism but then this is the primary type of mass marketing taking place today. Wal-Mart has been able to capitalize on the existent wants and desires of the general public. They have been able to win the hearts and minds of the public, which is the prime reason for its success. Conclusion Anyone that comes into limelight also is placed under the microscope and this is what has happened with Wal-Mart. Every employee, every business aims to reduce cost, maximize profits and deliver products to the end consumer at the cheapest possible price. This is exactly what Wal-Mart is doing. Despite a low image of the company, customers are shopping at Wal-Mart, which is why it continues to not just exist but thrive. Its low overhead, bulk purchasing, and computerization are responsible for competitive prices. Quick decisions, strategic vision, supplier base, negotiating advantage, the RFID technology and the culture have given it the phenomenal growth. It has demonstrated its social responsibility in various ways especially during the Hurricane Katrina. Not allowing its associates to unionize speaks of its capabilities to handle issue directly. It implies that employee concerns are addressed promptly. Wal-Mart has undoubtedly brought about globalization and restructured the workforce in America. It has changed the way suppliers work. Its intellectual capital, its vendor relations, its determination not to allow unionization, its strategic planning, and its marketing campaigns - all demonstrate its internal strength. It can by no means be labeled a destructive force. Wal-Mart is a powerhouse and will continue to be so for many years to come. Works Cited AME (2005), How RFID can help optimise supply chain management, 24 Nov 2006 Bianchi, D., & Swinney, D., (2004), Wal-Mart: A Destructive Force for Chicago Communities and Companies, Center for Labor and Community Research, Special Report to The New Chicago School of Community Economic Development, 23 Nov 2006 Doane, D. (2005), The Myth of CSR, Stanford Social Innovation Review, pp. 23-29 Fishman, C. (2003), The Wal-Mart You Dont Know, 24 Nov 2006 Forsyth, J. E. Galante, N. & Guild, T. (2006), Capitalizing on customer insights, The McKinsey Quarterly, 24 Nov 2006 Johannson, E. (2005), WAL-MART: ROLLING BACK WORKERS’ WAGES, RIGHTS, AND THE AMERICAN DREAM, 23 Nov 2006 Heyer, S. F. (2005), Objectivity and Action: Wal-Mart and the Legacy of Marx and Nietzsche, UW-L Journal of Undergraduate Research VIII Hicks, M. J. (n.d.), What Do Quarterly Workforce Dynamics Tell Us About Wal-Mart? Evidence from New Stores in Pennsylvania, 23 Nov 2006 Karp, T. (2003), Is intellectual capitalism the future wealth of organisations? Foresight Vol. 5, No. 4 2003 , pp. 20-27 Lavallee, T. M. & Boyer, M. A. (2006), Globalization and Local Governance: Implications from Wal-Mart’s Expansion, International Studies Perspectives (2006) 7, 254–266 Levy, M. & Losch, P. A. (2002), Top Discount Merchandisers Analyzed via the Value Framework, 24 Nov 2006 Nester, M. (2006), Strengths, Weaknesses, Opportunities, and Threats of Wal-Mart in the United States, 23 Nov 2006 Papasolomou-Doukakis, I., Krambia-Kapardis, M., & Katsioloudes, M. (2006), Corporate social responsibility: the way forward? Maybe not! European Business Review Vol. 17 No. 3, 2005 pp. 263-279 Sobel, R. S. & Leeson, P. T. (2006), Flirting with Disaster The Inherent Problems with FEMA, Policy Analysis, No. 573, July 2006 Read More