This paper examines Walmart's low-price business model, exploring how the company sustains everyday low prices through high sales volume, reliance on low-wage foreign manufacturing, and minimal employee benefits domestically. It discusses how Walmart's average employee earns under $14,000 annually and how the company directs workers toward government assistance programs. The paper then contrasts Walmart with Costco, a competitor that also offers competitively priced goods but maintains higher wages and better employee benefits through a membership-fee model. Ultimately, the paper argues that consumers and workers face a trade-off between affordability and ethical labor practices when choosing between these two retail models.
Walmart advertises itself as a company that provides the lowest prices at all times, in comparison to both generic and specialty-store competitors. It is able to deploy this low-price model successfully by selling at high volume. The company is also dependent upon cheaper, and often exploited, labor in foreign nations where many of its products are manufactured. For example, employees in China not only receive low wages but are "housed in dismal dormitories; they may choose to live elsewhere, but still have to pay the dorm rent. In Bangladesh…working hours are 8 a.m. to 10 p.m., seven days a week, for 13 to 17 cents an hour" (Gates, 2005).
By limiting the benefits of all of its employees — in the United States as well as abroad — and depending upon a relatively low-wage, part-time workforce, Walmart is able to keep its costs low. The average Walmart employee's annual income is under $14,000, and the health insurance available to workers is so expensive that most cannot afford to participate in the program. According to the documentary Wal-Mart: The High Cost of Low Price, company representatives openly recommend that Walmart employees make use of government assistance programs such as Medicaid or food stamps to compensate for inadequate wages and benefits.
Instead of offering sales and discounts on specific goods, Walmart advertises that it offers the lowest prices all of the time, allowing consumers to engage in one-stop shopping. The company has alleged to its critics that changing its business model to offer more competitive wages would require a higher-cost structure — in other words, that ethics comes at a price. The consistency of its brand is one reason the company has proved so successful: "developing a successful business model without strong control mechanisms will only generate temporary profits. The purpose of control mechanisms in business models is to protect the created values and profit streams from being reduced by competitors, partners, or strong customers" (Sundelin, 2009).
"Costco's higher wages and membership-based retail model"
Clearly it is cheaper to shop at Walmart because of its price controls, and more expensive to shop at Costco because of its fee-for-service model, but working conditions are far better for employees at the latter organization. Consumers and workers — provided they have a choice — must make a personal trade-off between the two organizations, weighing the social costs of having the cheapest goods against the broader value of higher wages and more equitable labor practices, even when those wages come alongside more limited access to relatively lower-priced products.
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