How Wal-Mart wields economic power

PROVIDENCE, R.I. -- The largest retailer in human history shapes the American landscape and experience nearly every minute of every day in some way, through its draw on shoppers, its demands on suppliers, the pressure it exerts on competitors and its push across the country's landscape. "They actually stand outside the rules of capitalism," Charles Fishman told an audience of Johnson & Wales University students here this week. "They make their own rules." Author of "The Wal-Mart Effect: How the World's Most Powerful Company Really Works -- and How it's Transforming the American Economy,'' Fishman spoke at Johnson & Wales about how Wal-Mart has changed the world of business. The Bentonville, Ark., company last year sold $1 billion worth of goods a day, or $42 million every hour, around the clock last year, he said. It sold more electronics than Circuit City, more toys than Toys R Us, more food than any grocery chain and more movies than all the movie tickets sold in the United States. "Wal-Mart shapes the price of the products you buy wherever you buy them," said Fishman, a Fast Company magazine senior writer and award-winning investigative journalist. "Wal-Mart is shaping the experience you're having with that product even if you didn't buy that product at Wal-Mart." Making otherwise unaffordable goods accessible to people of modest means is "how Wal-Mart sees the world." But, Fishman noted, the tradeoff between cost and value is "pernicious." Wal-Mart's size and relentless cost-cutting has squeezed competitors out of business and has sometimes forced suppliers to work against their own financial interests, he said. Its demands on municipalities have sometimes forced elected officials to make "foolish" choices to pay for infrastructure improvements that benefit the giant retailer. He posed three questions to the students, two of which he answered in relative fashion: Should you shop at Wal-Mart? Should you do business with Wal-Mart? Should you allow Wal-Mart to come to your community? Fishman said he shops Wal-Mart "strategically," as a journalist and researcher who should keep abreast of developments within its stores. As for the latter two questions, Fishman said, the decisions are case-by-case scenarios in which suppliers or residents have to decide for themselves whether they will derive a benefit. He offered several examples of the effect of Wal-Mart's decision-making, both good and bad. The first, involving Vlasic pickles, is a familiar one in business circles. Noticing that some competitors sold Vlasic pickles in gallon jars, Wal-Mart asked Vlasic to supply the same size. With Wal-Mart accounting for 30 percent of Vlasic's business at the time, the company complied. In 1998, Wal-Mart began selling the gallon jars for $3.47 and later forced down the price to $2.97 a jar. At one point Wal-Mart was selling 200,000 gallons of pickles a week, nearly outstripping Vlasic's ability to supply them. "It turns out that if you give pickles away, basically free, people will buy them," he said. But, with a profit to Vlasic of just a penny a jar, it nearly killed the pickle company. "They were literally cannibalizing their own business," he said. Vlasic termed it a "devastating success." In 2004, Vlasic declared bankruptcy for unrelated reasons and has since refashioned its business. But there's an "upside" to the pressure Wal-Mart can bring to bear on suppliers, Fishman noted, and does some things that are "dramatically good." Along the way to becoming the nation's largest food seller, Wal-Mart cut grocery prices 15 percent, essentially giving its customers "two weeks of free groceries a year," he said. Its decisions can also have less direct benefits, he noted, as when the company required deodorant suppliers to do away with the boxes in which they once put their products. The move shaved 5 cents off the cost of deodorant, which the company essentially split with its suppliers and customers. "(Consumers) have saved hundreds of millions of dollars," he said. And the initiative created an "incredible cascade" of benefits as the suppliers needed less cardboard, which meant fewer trees were cut down by paper makers and printers used less ink. Born of its desire to attract socially conscious shoppers, the company continues its drive on environmental issues as it works to double the fuel efficiency of its truck fleet and pushes the sale of energy-efficient light bulbs, he said. "I don't think that Wal-Mart is greedy in the way that people think of big corporations," he said.(Contact Paul Grimaldi at pgrimald@projo.com.)(Distributed by Scripps Howard News Service, www.scrippsnews.com.)