Walmart: The High Cost of Low Prices

Silvis is falling over itself to bring a sprawling Wal-mart to town. It's location is guaranteed to drive out what few small businesses still exist in the east and northern areas outside the Quad Cities, areas that, miraculously, have still managed to hang on to a few small independent businesses.

This piece, "The WalMart you Don't Know" helps put WalMart and it's business practices, and more importantly, it's impact both locally and globally, in perspective.

Wal-Mart is not just the world's largest retailer. It's the world's largest company--bigger than ExxonMobil, General Motors, and General Electric. The scale can be hard to absorb. Wal-Mart sold $244.5 billion worth of goods last year. It sells in three months what number-two retailer Home Depot sells in a year. And in its own category of general merchandise and groceries, Wal-Mart no longer has any real rivals. It does more business than Target, Sears, Kmart, J.C. Penney, Safeway, and Kroger combined.

"Clearly," says Edward Fox, head of Southern Methodist University's J.C. Penney Center for Retailing Excellence, "Wal-Mart is more powerful than any retailer has ever been." It is, in fact, so big and so furtively powerful as to have become an entirely different order of corporate being.

Wal-Mart wields its power for just one purpose: to bring the lowest possible prices to its customers. At Wal-Mart, that goal is never reached. The retailer has a clear policy for suppliers: On basic products that don't change, the price Wal-Mart will pay, and will charge shoppers, must drop year after year. But what almost no one outside the world of Wal-Mart and its 21,000 suppliers knows is the high cost of those low prices. Wal-Mart has the power to squeeze profit-killing concessions from vendors. To survive in the face of its pricing demands, makers of everything from bras to bicycles to blue jeans have had to lay off employees and close U.S. plants in favor of outsourcing products from overseas.

Of course, U.S. companies have been moving jobs offshore for decades, long before Wal-Mart was a retailing power. But there is no question that the chain is helping accelerate the loss of American jobs to low-wage countries such as China. Wal-Mart, which in the late 1980s and early 1990s trumpeted its claim to "Buy American," has doubled its imports from China in the past five years alone, buying some $12 billion in merchandise in 2002. That's nearly 10% of all Chinese exports to the United States.

Here's just a few of the facts many may not be aware of found at "Wake up WalMart":

Your tax dollars pay for Wal-Mart's greed

• The estimated total amount of federal assistance for which Wal-Mart employees were eligible in 2004 was $2.5 billion. [The Hidden Price We All Pay For Wal-Mart, A Report By The Democratic Staff Of The Committee On Education And The Workforce, 2/16/04]
  
  
• One 200-employee Wal-Mart store may cost federal taxpayers $420,750 per year. This cost comes from the following, on average:
  $36,000 a year for free and reduced lunches for just 50 qualifying Wal-Mart families.
  $42,000 a year for low-income housing assistance.
  $125,000 a year for federal tax credits and deductions for low-income families.
  $100,000 a year for the additional expenses for programs for students.
  $108,000 a year for the additional federal health care costs of moving into state children's health insurance programs (S-CHIP)
  $9,750 a year for the additional costs for low income energy assistance.
  [The Hidden Price We All Pay For Wal-Mart, A Report By The Democratic Staff Of The Committee On Education And The Workforce, 2/16/04]
  
  Health care subsidies compared to executive compensation
  
  
• Excluding his salary of $1.2 million, in 2004 Wal-Mart CEO Lee Scott made around $22 million in bonuses, stock awards, and stock options in 2004.
  This $22 million could reimburse taxpayers in 3 states where Wal-Mart topped the list of users of state-sponsored health care programs, covering more than 15,000 Wal-Mart employees and dependents. [Wal-Mart Proxy Statement and News Articles GA, CT, AL].
  
  Your tax dollars subsidize Wal-Mart's growth
  
  
• The first ever national report on Wal-Mart subsidies documented at least $1 billion in subsidies from state and local governments.
  
  
• A Wal-Mart official stated that “it is common” for the company to request subsidies “in about one-third of all [retail] projects.” This would suggest that over a thousand Wal-Mart stores have been subsidized. [“Shopping For Subsidies: How Wal-Mart Uses Taxpayer Money to Finance Its Never-Ending Growth,” Good Job First, May 2004]
  
  Community Impact
  
  Wal-Mart’s growth negatively impact worker’s wages
  
  
• The most comprehensive study of Wal-Mart’s impact showed that the stores reduced earnings per person by 5 percent. This 2005 study by an economist from the National Bureau of Economic Research used Wal-Mart’s own store data and government data for all counties where Wal-Mart has operated for 30 years, It found that the average Wal-Mart store reduces earnings per person by 5 percent in the county in which it operates. [David Neumark, The Effects of Wal-Mart on Local Labor Markets 2005]
  
  The Cost of Wal-Mart’s entry into a community can be significant
  
  
• According to a 2003 estimate, the influx of big-box stores into San Diego would result in an annual decline in wages and benefits which could cost the area up to $221 million [San Diego Taxpayers Association (SDCTA), 2003]
  
  Lower wages mean less money for communities
  
  
• When an employer pays low wages to its employees, the employees have less money to spend on goods and services in the community, which in turn reduces the income and spending of others in the community. In other words a reduction in wages has a multiplier impact in the surrounding area.
  
  
• For instance, in 1999, Southern California municipalities estimated that for every dollar decrease in wages in the southern California economy, $2.08 in spending was lost-- the $1 decrease plus another $1.08 in indirect multiplier impacts. [“The Impact of Big Box Grocers in Southern California” Dr. Marlon Boarnet and Dr. Randall Crane, 1999.]
  
  Wal-Mart hurts other businesses when it comes to town.
  
  
• In Maine, existing businesses lost over 10 percent of their market in 80 percent of the towns where Wal-Mart opened stores. [Georgeanne Artz And James McConnon, The Impact of Wal-Mart on Host Towns and Surrounding Communities in Maine, 2001]
  Food stores in Mississippi lost 17 percent of their sales by the fifth year after a Wal-Mart Supercenter had come into their county, and retail stores lost 9 percent of their sales [Kenneth Stone and Georgeanne Artz, The Economic Impact of a Wal-Mart Supercenter on Existing Businesses in Mississippi, 2002]
  
  
• Over the course of [a few years after Wal-Mart entered a community], retailers' sales of apparel dropped 28% on average, hardware sales fell by 20%, and sales of specialty stores fell by 17%. [Kenneth Stone at Iowa State University, “Impact of the Wal-Mart Phenomenon on Rural Communities,” 1997]
  
  
• In towns without Wal-Marts that are close to towns with Wal-Marts, sales in general merchandise declined immediately after Wal-Mart stores opened. After ten years, sales declined by a cumulative 34%. [Kenneth Stone at Iowa State University, “Impact of the Wal-Mart Phenomenon on Rural Communities,” 1997]