Business Strategies and Employment Practices of Wal-Mart and other Mass Retailers

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Business Strategies and Employment Practices of
Wal-Mart and other Mass Retailers
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Backdrop

• Economic pressures on employers
• Globalization of capital markets and production
• Advances in information technology
• Changes in financial markets
• Institutional changes
• Deregulation of industries
• Decline in unions
• Decline in minimum wage
• Have resulted in
• Reorganization of work and production
• On net, deterioration of front-line jobs

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Retail trade

• 18 of workforce (23.3 million workers)
• Low wages, few hours, few benefits, little
  training
• Major segments are
• Hard goods department stores, specialty stores,
  mass discounters
• Food supermarkets, upscale grocers, mass
  discounters

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Upheaval in the industry

• Strong increase in competition has led to an
  intense focus on cost-reduction
• Industry maturation the overstoring of
  America
• Two new market entrants category killers
  (Toys-R-US) and mass discounters (Wal-Mart)
• Rapid consolidation of the industry no more
  mom-and-pop stores
• Increased power of shareholders in the stock
  market

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The Wal-Mart model

• Immense coordination problem
• Tens of thousands of products
• Shipped to more than 3,000 stores via 103
  distribution centers
• Stores manned by a million workers serving more
  than 100 million customers weekly (domestic)
• The answer Just-in-time linking of
• buying products from manufacturers
• distributing them to the retail stores
• selling them to customers

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Three keys to success

• Technology Integrated inventory management
• Barcode at cash register
• Real time inventory updates
• Linked back to warehouses and suppliers
• Automatic replenishment
• Relationship with suppliers
• Focus on core set of manufacturers
• Cut out middle men
• Relentless pressure for bigger discounts
• Require help in delivery and stocking products
• Require integration into Wal-Marts IT systems

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Keys to success, continued.

• 3) No investment in front-line workers
• Starting wages 6-7 per hour yearly raises 25
  to 30 cents an hour
• Even department heads start at only 8/9 an hour
• Chronic understaffing
• Full-time is defined as 28 hours/week allows
  Wal-Mart to increase the hours without hitting up
  against the mandatory over-time limit
• Health benefits workers must contribute 40
• There is no pension plan stock options plan
  hollow
• Virulently anti-union growing evidence of wage
  hour and labor law violations

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Upshot

• Wal-Mart emphasizes reengineering process, not
  the workplace
• The model is extremely efficient, productive,
  profitable
• Wal-Mart outperforms other retailers on almost
  every measure of productivity, sales, and profits
• Has had profound impact on industry practice,
  throughout the supplier chain
• Now the biggest private employer in the country
• Near monopoly status in hard goods

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How Wal-Marts First Mover Advantage Pays Off
Wal-Mart is first to locate discount stores in
cities with less than 50,000 population.
Wal-Mart targets greater than 25 percent of all
retail purchases in those cities.
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In 1987, 33 of Wal-Marts stores are in single
store towns with no direct competitors compared
to 12 for the industry. In 1993, W-Mart has 22
of stores without competition from either K-Mart
or Target K-Mart Target do not compete with
W-Mart in only 18 and 15 of markets,
respectively.
2
Wal-Marts store prices are 6 percent higher in
no competition markets than in markets with
direct competitors (for every 10 percent more
stores without competition, W-M makes .06 higher
overall profits, or .10 x .06) In 1987, 1.3 of
W-Marts higher profits .21x.06 are due to no
competition.
3
Wal-Mart incurs lower advertising costs, wages,
and rents by locating in small town markets.
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All That Data Is Mined!- Doing it since 1990
Analysis of its 90 million shopping cart
transactions per week - To see how the
purchases of the different items are related. -
Company can then better identify items to market
together. Obvious examples -
Charcoal and tongs go alongside the barbecue
grills - Tiny baggies next to the pretzel boxes
so Mom can pack snacks for the kids A not so
obvious example! - Customers who buy Barbie
dolls (it sells one every 20 seconds) have a 60
likelihood of buying one of three types of candy
bars Source Forbes, Sep 5, 1997
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Bentonville, Arkansas, Does Not Come to the
World- The World Comes to Bentonville!
It Buys the Most It Buys the Most
Company of its total sales to Wal-Mart
Tandy Brands Accessories 39
Clorox 23
Revlon 20
PJR Tobacco 20
Procter Gamble 17
It Sells the Most Products It Sells the Most Products
Company Wal-Marts U.S. market share
Dog Food 36
Disposable diapers 32
Photographic film 30
Toothpaste 26
Pain remedies 21
Source One Nation Under Wal-Mart Fortune, Feb.
18, 2003
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Can quality service help?

•   
• High quality customer service requires skilled
  workers (Nordstroms, Home Depot)
• But there is also growing demand for fast,
  no-frills service and cheap products (McDonalds,
  Wal-Mart)
• These two definitions of good service have led
  to segmentation of industry and job quality and
  this is unlikely to change

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Can new technology help?

• Technology has had a major impact on industry
• But effect has primarily been on back-end of
  retail operation
• Has not affected the actual work that sales
  workers do, has not increased demand for skill
• Store workers still ring up sales, stock and
  neaten shelves, and handle lay-aways

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The Price of Becoming a Behemoth- A Rash
of Lawsuits Negative Publicity

• Its Giant Stores Symbols of Big Retail
• Blamed for the destruction of entire communities
• Eliminates jobs when it moves into a new
  community
• Drives down retail wages in that community since
  Wal-Marts low price forces other businesses to
  lower their prices and hence their wages.
• Companys Pursuit of Low Prices
• Crushes Kmarts and mom-and-pops alike
• Decline in U.S. manufacturing jobs as both
  Wal-Mart its Vendors turn to cheaper overseas
  sources
• Class Action Suit for Sex-Discrimination
• 6 women filed a suit in 2001 alleging that
  Wal-Mart doesnt fairly pay promote women
• Federal judge ruled in 2004 that the suit could
  proceed as a class action covering 1.6M current
  and former female employees