Cheap: High Cost of the Discount Culture

Cheap: High Cost of the Discount Culture

The Effects of the Discount Culture on American Workers

The discount culture has created many concerns that giant retail stores are conducting business unfairly and taking advantage of American workers. For example Wal-Mart, thanks to its size and power, can purchase goods at a deep discount and because of its business model and employment policies can sell more cheaply than most other outlets. The effect of this is to lower prices at other nearby stores. However, despite this advantage Wal-Mart does not lower prices on everything, and in fact actually has higher prices than average on about one-third of the stock it carries (Ruppel 153). Discounters lower the price of the average shopping outing by lowering the prices on the things consumers by most frequently. Low-priced high volume items are positioned in the store in high visibility areas not only to encourage the customer to purchase them, but to give the impression that everything else in the store is cheap.

Discussion

Ellen Ruppel Shell, in her book Cheap: The high Cost of the Discount Culture, talks about the high cost of discount shopping to the American consumer in Chapter 7 of her book "Discounting and its Discounts." Shell explores the detrimental effect lower priced retail stores have on the economic well-being of individuals and business in general. Shell contends that prices of essential goods that are critical for daily life, that is one in which changes in price result in no relatively modest demand are inelastic, whereas goods and services that are readily available, interchangeable with other goods and services, and not critical for daily life are elastic, that is the price will vary with the demand. Shell's contention is that discount stores use this disparity to manipulate the buying habits of the general public.

Background

In order to manage inflation the Federal Reserve Bank manipulated interest rates to increase unemployment (Ruppel 154-155). The government reasoned that too great a demand for workers would lead to an increase in wages, hence when the unemployment rate fell, the Fed raised interest rates to inhibit economic growth and by extension hiring. A large pool of unemployed workers lessens the demand for higher wages and benefits and undermines the power of labor. As wages flattened out workers who wanted to buy more had to borrow, often in the form of credit cards. This has increased the demand for discount stores. In the mean time the cost for other services, such as healthcare, mortgages and taxes continued to rise, leaving many with less disposable income.

Analysis

Jennifer Steinhauer in her article When the Jones Wear Jeans notes that Americans love to have stuff. She contends that in the last thirty years people have become increasingly isolated from their neighbors however a constant inundation of magazines and television has created a desire for people to live beyond their means, coveting the goods of the rich and powerful (137). This penchant for more has been fueled by the growing credit industry. In the last twenty years the credit industry has become increasingly relaxed about to whom it is willing to extend loans, more sophisticated about assessing credit risks, and increasingly generous in how much money it would let people borrow as long as those customers were willing to pay high fees and risk living in debt.

In another vain, at one time class was clearly defined by what one could or could not afford. Many believe the extension of credit has had a positive effect on the economy, and the fact that many families that never had access to credit are now able to borrow in order to obtain the goods they want is a good thing. However the aggressive marketing to individuals and families living marginally to begin with harbors many implications and unintentional consequences. It also contributes to the discount culture.

Dan Halpern in his article Citizen Walmart discusses the store's foray into the supermarket business. It is well documented that many of the goods sold by the chain are produced overseas by workers making minuscule wages. In order address this issue Wal-Mart began an initiative to double the amount of local produce the company sells in the United States. This effort is explained by company executives as an effort to bring customers the best value (42).

Halpern insinuates that this altruistic sentiment is grounded in selfish desires. Buying produce locally would improve efficiency and hence increase profits. This would also improve the company's image and as a consequence improve profits. It would also promote growth, and growth translates into profits (42).

The danger for the farmers is that as they invest in their operations in order to meet the demands of the retailer they become vulnerable should the company decide one day that buying locally is too expensive. The question Halpern poses is does the company have an ethical obligation to these farmers or is their vulnerable position not the company's responsibility. Ultimately, the company has an obligation to its shareholders to make a profit any legal way it can (42).

The upshot of all of this is that many families insist on low-priced consumer goods and continue to shop at discount stores. The dilemma is that cheap goods cannot be had without cheap help, thus we now have a large number of people working for low wages distributing cheap good made by even cheaper help working out of site in other countries. The paradox is that discounters profit while an increasing number of Americans do not.

There is growing speculation that even though discount stores are aware of this paradox they are actively pursuing a course of business that they claim is helping low income families, but in reality harming them by endeavoring to drive any competition that might offer its employees a decent wage out of business.