My rapidly fading love affair with Wal-Mart

The first time I ever saw a Wal-Mart I was a grad student getting my MBA down in Tallahassee, FL. One opened up down the road from my apartment and I was immediately taken by the big bright stores with lots of stuff and what seemed to be pretty low prices. In class I learned the secrets to Wal-Mart’s success in its niche of “Always low prices”.   It demanded efficiencies from its suppliers. It became fanatical about using information technology to optimize its sourcing and distribution channels. It paid its employees the community average or sometimes slightly more, but never significantly so. And of course the company benefited tremendously from scale. At the end of the day Wal-Mart became a spectacular success because it provided the goods people wanted at the lowest prices possible.

Thus began a two decade long love affair with Wal-Mart. For most of the last twenty years I’ve spent most of my shopping dollars, particularly food, but other items as well, at Wal-Mart. It helped that, as I hate to shop, I could go there and get pretty much everything I needed in one place, from apple juice to socks to those little trees you put in your car to make it smell good.

I remember around 2003 when a friend of mine got married in Key West. I went to Wal-Mart and purchased a pair of those mesh shoes with the rubber sole that you could wear in the ocean. They cost about $7.95. I remember how amazed I was that they could manufacture that pair of shoes in China, label them, ship them across the ocean, transport them to my store where people would receive them, inventory them, display them and eventually charge me for them, and do so at a profit! Even if they paid their workers in China a penny a day I still didn’t see how they could do all of those things and still make a profit.

When my love affair with Wal-Mart began the company had 1,500 stores mostly serving rural communities across the country and generated about $25 billion a year in sales. Today they have 10,000 stores around the world and generate half a trillion dollars in revenue annually.

Like it or not, Wal-Mart has changed the face of American retail. By using the best of the free market the company has saved Americans hundreds of billions of dollars over its lifetime, savings that they might have used to can use to provide more food to their children, to give to charity to buy their kid a computer for college, or just buy another flat screen TV. By any definition Wal-Mart is an American success story.

Unfortunately however, my love affair with Wal-Mart is fading… and fast. The first injury to the relationship was when the company supported ObamaCare in an effort to increase pressure on its smaller competitors. The second was when they supported the taxing of online sales. Since those two events I’ve reduced the money I spend in Wal-Mart by well over 50%. Now I’m beginning to wonder if I need to redirect most of what’s left. According to Bloomberg, the company is considering supporting the Obama administration’s move to raise the minimum wage. While Wal-Mart knows that it would incur higher wage costs, it also knows that because of its size and efficiency it can better weather the increase than most of its competitors.

And that’s the problem. If Wal-Mart wants to raise the wages of its employees, it has every right to do so and most people would applaud it in the process. Indeed that is the route the Gap and Costco have chosen. But alas, that is not the route Wal-Mart seems to be taking. (They supported an increase back in 2007 as well.) Instead the company is seeking to use to use the power of government to tilt the marketplace in its favor. It wants to use the government to force higher costs on its smaller, less efficient competitors. Essentially it wants the government to put its competitors at a competitive disadvantage.

This is the worst of capitalism – crony capitalism – when businesses use government to harm competitors or keep them at bay. Whether it’s Obamacare or a minimum wage increase or restaurants seeking to keep food trucks off the streets, it’s not only the competitors who lose, it’s the consumers and the market itself. Had Sears or K-Mart used the power of government to strangle baby Wal-Mart in its crib the company would not today be the largest retailer in the world. If AT&T had succeed in defending its government sanctioned monopoly and keeping MCI and other startup telephone companies at bay for another 100 years do you think we’d have iPhones, Netflix, or fixed price wireless plans? No. Of course not. The marketplace survives and thrives the less government intervenes. Wal-Mart of all companies should understand this.

By getting into bed with government Wal-Mart is repudiating the very thing that allowed it to prosper in the first place – the free market. Now that the company has used that free market to become the 800 lb gorilla in the retail marketplace it has repeatedly sought to harness the power of government to keep potential rivals from enjoying the same opportunity. Crony capitalism is the most despicable form of capitalism because it hides behind the mask of free markets.  Thankfully however crony capitalism usually fails because the propped up company often becomes fat and lazy and forgets how to compete. If Wal-Mart wants to betray free markets, so be it, I just hope it’s not too long before the markets decide to strike back.

Maybe it’s time to drop the picket signs and pick up a copy of The Road to Serfdom

It was with great interest that I watched Facebook catch fire with support of the calls for picketing and sick-outs at Wal-Mart stores across the country on Black Friday. From what I could tell, most of those supporting the calls were liberals who attacked the company with claims that it doesn’t pay “a living wage”, “exploits” its workers, or owes its workers health care. I even saw one fantastical claim that a majority of Wal-Mart employees are on food stamps. The suggestion was that Wal-Mart should be forced (via government itself or indirectly via unions) to change completely how it deals with its employees in terms of salary and benefits.

To set the record straight, according to Business Insider, Wal-Mart pays its workers an average of $11.75 per hour, just slightly below retail’s national average of $12.04 and well above the federal minimum wage of $7.25. The company itself states that the average non-manager employee earns between $10 & $12 per hour.

Those wages are at least sufficient to make Wal-Mart the largest employer in the country, with a current headcount of over 1.4 million employees. And no one forced those employees to take those jobs. One of the beauties of freedom is that employees are free to work at Wal-Mart or they can take their labor and sell it to someone else… or better yet, they could start their own businesses.

I couldn’t help but think back to the nonsensical Occupy Wall Street protests of a year ago. Many of the participants were carrying around signs decrying Wall Street for its profit mongering and the harm big businesses were inflicting on small businesses and the little guy. Of course their solution of choice was more regulation. Naturally.

Both of these instances reveal more about the protesters than it does about the companies being pilloried. The very regulations they seek are one of the reasons big businesses are so successful verses small businesses in the first place.

It’s a simple example of liberals either not knowing or ignoring basic economics. Take economies of scale. One of its benefits is that you can spread fixed costs out over a larger volume. It works for rent as well as for regulations. Let’s imagine there are two widget stores operating next to one another with identical rents of $10,000 per month. With everything else being equal, the store selling 2,000 widgets a month can build a $5 cost per widget into his prices, whereas the store selling only 1,000 widgets per month has to build in a rent cost of $10 per widget. As such, the store selling more widgets will likely be more profitable, successful and eventually may be able to buy out the second widget store and start its journey to becoming a hated big business.

The same holds true for regulations. Frequently large businesses not only influence regulations to their benefit, but they can also absorb the costs of such regulations far more easily than can their smaller brethren, even if they were unable to influence their writing. Take the tax code for example. At 75,000 pages, a five billion dollar company can easily afford to hire a phalanx of lawyers to find ways to reduce its taxes or lobby for changes. Such luxuries are rarely feasible for small businesses.

According to the Small Business Administration, big businesses with more than 500 employees pay about $7,755 per employee to comply with federal rules each year, while small businesses with fewer than 20 employees pay $10,585 per employee. That is almost 50% more that small businesses have to pay per employee than do large businesses. All because of regulation.

This push for regulation is simply another example of the left using the cover of populism to disguise its real agenda: more government control over business. Whether using the fig leaf of environmentalism to further the nonsensical, inflation causing ethanol mandates or the lie of “the rich don’t pay their fair share” to push for higher taxes, the left rarely lets facts get in the way of their pursuit of a socialist, statist agenda.

Which brings us back to the Wal-Mart protests of Black Friday. The real goal of liberals is not to improve the lot of Wal-Mart employees, it’s control of the company via unions and their government enablers. In doing so they would be able to use government regulations to not only take money out of the pockets of Wal-Mart workers, but more ominously, they could harness the power of the NLRB to impose a wide range of costs, controls and dictates on the company.

To put a cherry on top, take Wal-Mart’s misguided and calculating support of Obamacare – calculating that it would impose greater costs on its small competitors – that has now resulted in the company itself dropping healthcare coverage for many employees while drastically raising the premium costs for others. By pushing such utopian, economically illiterate regulations as Obamacare, the Community Reinvestment Act, ethanol mandates and higher taxes for the rich, liberals not only fail in their stated objectives, but they also invite a wide range of unintended consequences, none of which ever seem to be good. Maybe it’s time to drop the picket signs and pick up a copy of The Road to Serfdom.