Wal-Mart-A Big Bully?
Wal-Mart has grown to gargantuan scale in the last few decades, and has drawn suspicion and outright accusations about their business practices toward suppliers, competitors, employees, and communities.
Backgound
Sam Walton began his career as a management trainee for J.C. Penney in the 1940's, and it's suggested their philosophy of treating employees as "associates" and catering to the needs of smaller towns had a strong influence on him. After serving in WW2, he returned and puirhased a discount store, which slowly grew into a chain, focusing on a discounting strategy and taking aim at smaller communities, which were neglected by many of the existing department store chains.
Through the 1970's, the number of stores grew to over 1,000, then to over 2,000 by 1990. The product line expanded from taditional discount store fare to include groceries, auto service, and other ancillary services, and a separate chain of warehouse stores (Sam's Clubs). Walton died in 1992, and the control of the company fell to his board, which pledged to maintain the practices and values of their founder.
Walton's decentralized management style emphasized individual autonomy over close supervision, and granted employees greater latitude than most retail clerks, and felt a company should be managed bottom-up. This proved to be highly effective.
The small-town strategy was another advantage - he, and the competitors on his tail - provided outlets in small communities, saving residents the need to travel to shopping centers in larger towns to buy a variety goods and/or to get staple goods at low prices.
Cost controls were key to maintaining price leadership, and the company had always been aggressive in negotiations with suppliers in obtaining low wholesale costs, advertising money, prompt delivery, and other advantages. As the firm's market grew, so did it's negotiating power, and it used this to further its advantage. Even in the early years, it was a love-hate relationship with suppliers who sacrificed unitary profit to sell in volume through Wal-Mart stores.
The company also emphasized the concept of "buy American" and the importance of environmentally-firndly products, which was well received by customers but placed additional burdens on suppliers to price competitively against foreign products while taking on the extra costs of being environmentally conscious.
On the dark side of things ...
- The impact on local business was devastating. A small specialty shop, like a hardware store, could not compete with Wal-Mart on price and selection, so many were put out of business. In some communities, Wal-Mart was to blame for the utter devastation of the downtown shopping district.
- Wal-Mart has considerable channel power, which has drawn accusations of unfair trade practices. For many companies, Wal-Mart became their largest customer, and they could not afford to lose their business, and they felt the company was too heavy-handed in its demands and created a parasitic, rather than symbiotic, relationship
- Wal-Mart regularly devastates its competition. In the 1990's, at least 25 grocery chains went out of business, citing Wal-Mart's invasion of heir markets as the prime catalyst. A number of major retailers have suffered greatly for the business they've lost to them, and the company even began to dominate special goods categories, such as toys and recorded music.
- Wal-Mart also turned on its employees as a cost factor to be minimized, pruning their benefits and lowering wages, even employing illegal immigrants to save money on labor.
The criticisms of Wal-Mart tend to fall into the genre of taking smart business practices too far: being too stingy with suppliers and employees, too effective in winning customers away from competitors, and indifferent to their impact on the larger community. It has faced a spate of lawsuits on various facts of its practices, but has emerged largely unscathed.
Lessons Learned
Primarily, that it's important to take care of your employees. It is on this front, more than any other, that the company has drawn the most fire. Its customers are none too sympathetic to the competitors and suppliers whose chief complaint is that Wal-Mart prevents them from charging higher prices for merchandise, but when people and families are treated as a line-item expense, customer support for the retailer wanes.
In some instances, a market that is abandoned by competitors can provide a strategic window of opportunity. Penney's, Sears, Woolworth, and other retailers focused on opening few stores in small cities, with limited merchandise mixes and relatively high prices. Walton's success was in turning each of these concepts on its head . EN: This is more in the lines of effective business, and is ethically neutral.
Investment in technology can pay large dividends. Wal-Mart's logistics system, an area often neglected by retailers as mere inventory and accounting, because a source of competitive advantage. EN: This, too, is not an ethical issue.
Championing popular causes can also pay dividends. Wal-Mart's dedication to buoying domestic goods and insisting on eco-friendliness won the firm a lot of support. EN: This also seems practical rather than ethical, though it could be suggested that it's a positive example in contrast to the firms who ignored both for the sake of profit.
Bigness can be a liability. A large target is more appealing to litigants than a small one, and there's a general perception among the public that big is bad, that a large firm becomes arrogant and inhuman, and this can draw media scrutiny, which can in turn draw the attention of antitrust regulators.