Wal-Mart Sam Walton Owned Fifteen

Wal-Mart Sam Walton owned fifteen Ben Franklin variety store franchises, but when the chains owners turned down his request to open stores in smaller towns, he struck out on his own. Wal-Mart has since become a global retail phenomenon. The business strategies Walton employed at his Ben Franklin stores, such as volume buying, long opening hours and deep discounting, have been applied on a grand scale. This has resulted in Wal-Mart becoming the largest retailer in the world, but it has also resulted in significant controversy.

While many Americans appreciate the benefits of Wal-Mart's low prices, those prices come at a cost to America. The endless quest for low prices has led Wal-Mart to shift their buying patterns towards overseas suppliers, to the detriment of American companies and workers. Wal-Mart is bad for America because it shifts American jobs overseas. Wal-Mart's strategy has always been to undercut their competitors. In their early years, they were a regional chain, and found that they could not compete on domestic buying power with national chains.

This sent them to suppliers overseas. This began a trend that today has resulted in Wal-Mart being the largest customer of the Port of Long Beach, where most of their Chinese goods enter the U.S. This shift towards overseas production has directly reduced the American manufacturing workforce. There are several cases to support this claim. Rubbermaid was a Wal-Mart supplier until the cost of resin - an essential input - rose. Wal-Mart refused to take a price increase, and removed several Rubbermaid products from their stores.

This caused financial hardship to Rubbermaid, and ultimately the company was forced to auction their plant in Wooster, Ohio, throwing 1000 people out of work. Moreover, Rubbermaid was compelled to enter into a merger with Newell Company. The experience with Wal-Mart had hammered home the need for manufacturers to increase in size, so that they may improve their negotiating power with big box stores. The Newell-Rubbermaid merger was a disaster. Shareholders of both companies saw a significant erosion of their wealth as a result.

The need for improved negotiating power represents one of Wal-Mart's most significant impacts on American business. Traditionally, retailers had a limited amount of bargaining power with manufacturers. However, as Wal-Mart grew larger and developed more significant information systems, they were able to increase their buying power to the point where they now dictate all the terms to their suppliers. For many suppliers, Wal-Mart is their largest customer and they would have difficulty maintaining their profitability without Wal-Mart.

Without any negotiating power, companies are forced to sell to Wal-Mart at ever-lower prices. Those who do not comply, lose the Wal-Mart account. This results in business failures and plant closures. The RCA plant in Circleville, Ohio, closed in 2003 after losing their Wal-Mart business, putting 1000 people out of work. The shift in buying power towards the big box retailers was started by Wal-Mart, but has been extended throughout the retail industry.

Target, Costco, K-Mart and other discount and warehouse-style retailers all use Wal-Mart's basic model to leverage their size against suppliers. Wal-Mart's business practices made it the largest retailer in the U.S., and forced the other retailers to adopt those practices in order to compete. This means that the damage Wal-Mart does to America is amplified, because not only Wal-Mart but all of their competitors are contributing to the harm. The result is that goods formerly produced in America are now produced overseas.

For Wal-Mart, cost is the sole determinant of their purchasing policy. In terms of production costs, other countries have a competitive advantage over the United States. China, for example, has a technology level almost equivalent to the United States, which enables it to produce reasonable-quality goods. Their advantage, however, lies in labor costs. The average Chinese worker makes $100 per month. American factories simply cannot compete with that in terms of price. Those wages work in China, where a person can live comfortably on two dollars a day.

That is not possible in the United States. We have built an economic model not on low cost, but on high quality of life. This used to drive our manufacturing sector. Firms such as Rubbermaid used to compete on quality, but Wal-Mart and other large discount chains have made cost a more important determinant in their purchasing practices. The shift towards low-cost production has other implications as well. Wal-Mart does upwards of $30 billion per year in business with China.

Between Wal-Mart and the big box stores that imitate them, this makes a significant contribution to America's trade deficit. The United States had a trade deficit with China of $256 billion last year. This contributes to weakness in the American dollar, reduced international purchasing power, and represents a real transfer of wealth from the United States to China. If the trend continues, it will erode our status as the largest economy, and as the most powerful nation. Proponents of Wal-Mart's economic model point to the benefits of lower prices.

Yet, those prices are often of inferior quality. Wal-Mart's inflexibility with their suppliers means that suppliers must find corners to cut in order to meet the retailer's demands. This reduces the quality level of the goods. Lower prices are only of benefit if the quality of the goods in maintained. Lower quality goods at lower prices is the same value proposition as higher quality goods at higher.