The Wal*Mart Effect on the US Economy

Wal*Mart is the Retail Juggernaut in the US. It has spread its arms very rapidly across the 50 states of the USA. It has built its brand name so well, that 8-9 out of 10 citizens shop from Walmart for the simple reason that it helps people save money. The effect is compounded especially during recessionary times when people have seen a drastic reduction in their income levels or people have been laid off from their jobs and so on. Wal*Mart as a retail deep discount store, has benefited the US consumers in a big way. Even the poor can afford goods which a middle class Indian can when the same goods are bought from India. Its because the luxury tax and other duties on imported goods sold in India are far higher than that of the US. Why do people tend to buy certain goods from countries like US, UAE etc? Its because of the cost advantage of goods in those countries. Wal*Mart has had positive as well as negative effects on the US Economy. 1. Low Inflation(Necessity Goods) Since Wal*Mart consistently maintains its prices lower than other discount stores and 90 % of the buyers shop at Wal*Mart. The buyers have not really experienced the pinch, in case of price hikes. Price Hikes have rarely taken place. As per sources, Wal*Mart has somewhat contributed to Low Food Prices Inflation or inflation related to Non Food items which are essential in nature. 2. Improved Standard of Living The standard of living of US consumers has seen a phenomenal change ever since Wal*Mart stepped in as the major Retail Giant. People are being offered a lot more value than what it is actually. Wal*Mart has artificially set the prices low ensuring that its the lowest of all stores at a given day. The conditions of the Low Income section in the US have improved drastically. Theyre able to afford things which they used to dream of having once upon a time. 3. Induced the habit of Spending Though Wal*Mart proclaims that it helps people save money. It effectively doesnt. Its just our human tendency or psychology of being tempted or drawn towards things which are available at cheaper prices. Agreed that, Walmart is offering more out of every penny spent by the consumer, but it also induces the consumer to spend more thinking that goods are sold at a very low price as compared to other discount stores. It has encouraged people to spend and live LIFE king size. People in the US are infamous for living beyond their means. They live a lavish life at the expense of others. 4. Rise in Consumption Levels

Sales growth every year at exponential levels before 2008 was a clear indication of the rising consumption levels in the US. The markets were rising abnormally high, The economy was roaring with full form. People were making money than never before and the prices at Wal-Mart were always low. Hence an increase in purchasing power leads to consumption of luxurious products which are often sold at reasonable prices and at lucrative credit terms at Wal-Mart. The consumption levels slowed down as the markets collapsed in 2008. 5. Eliminated Competition Quick Exit & No Entry regime It destroyed the health of the local economy of places wherever it went. It eliminated competition and created a monopolistic environment where people were left with no other choice but WalMart. People actually didnt mind that since Walmart was serving their interests of saving. The existing players either planned on winding up and moving to places where Walmart is less likely to enter or they ran out of business, some have gone bankrupt and so on. The fear of Walmart entering a particular local market or district itself sends tremors across the business community that its time pack your bags. Hence Quick Exit. A market is not attracgtive for a New player where a Walmart has already made its impact. Hence,No Entry. When I say No Entry, the local players themselves understand that its not wise to be competing with WalMart, since you would be eaten up alive if you do so. 6. Lowered Property Values The real estate prices of localities have crashed or dropped to a certain low because of WalMart wanting to set up its shop there. As discussed earlier, business communities would tend to move away from places where Walmarts exist. And since there are not substantial number of buyers in the market for property buying, the prices would crash. Once the prices crash, Walmart then goes for a property deal with brokers. WalMart literally is a blessing for the consumer community and an evil for the business community and local govt. authorities. 7. Burden on Local Authorities The Local authorities which has the power and obligations to govern their respective localities, cities or districts has not ever benefited by WalMarts presence. Since Walmart is not entitled to pay heft Sales Taxes on the Sales that it makes. Infact, it reduces the revenues made by these authorities by letting the local players go out of business. The local economy actually suffers when a Walmart barges in. You will never find a WalMart in and around cities like New York and Boston, due to the same reason. WalMart is one juggernaut which is unstoppable while and after it has made its impact. Steps have been taken by Local Govt. bodies and Business groups to stop WalMart from entering more and more markets. 8. Diminishing Margins of Suppliers:

The key reason why WalMart has been able to sell goods at such low prices is because of the bargaining power it has on its suppliers. Walmart has put relentless pressure on its suppliers to supply goods at a much lower rate which shall attract increasingly high volumes from the retail consumers. So it goes to say that Walmart has acted as a mediator for distributing food and non food items at low prices. Its like every good has to pass thru Walmat to get itself low priced. WalMart has successfully achieved ever green sales at the expense of its suppliers. 9. Poverty Line Wages and Insufficient Employee Benefits The wages and other benefits that an average Walmart worker receives is not sufficient for meeting their ends. Infact, employees were exploited to an extent where employees were made to work long hours beyond their shifts and still not get paid their overtime allowance. Walmart never took the obligation of providing basic healthcare benefits to its workers. It encouraged workers to avail of the Public Healthcare services thereby overburdening the local authorities. As discussed in the above points, Wal*Mart has more ill effects on the economy than the benefits it comes with primarily for consumers. WalMart is a firm follower of Live and Let Die. It didnt ever care of the local economies when it wanted to enter the markets. It sucked and snatched away billions of dollars of business that the local economies would have made without Wal-Marts presence. Heres an example of a premium pickle brand in the US whom Walmart dealt with. A gallon-sized jar of whole pickles is something to behold. The jar is the size of a small aquarium. The fat green pickles, floating in swampy juice, look reptilian, their shapes exaggerated by the glass. It weighs 12 pounds, too big to carry with one hand. The gallon jar of pickles is a display of abundance and excess; it is entrancing, and also vaguely unsettling. This is the product that Wal-Mart fell in love with: Vlasic's gallon jar of pickles. Wal-Mart priced it at $2.97--a year's supply of pickles for less than $3! "They were using it as a 'statement' item," says Pat Hunn, who calls himself the "mad scientist" of Vlasic's gallon jar. "Wal-Mart was putting it before consumers, saying, This represents what Wal-Mart's about. You can buy a stinkin' gallon of pickles for $2.97. And it's the nation's number-one brand." Therein lies the basic conundrum of doing business with the world's largest retailer. By selling a gallon of kosher dills for less than most grocers sell a quart, Wal-Mart may have provided a ser-vice for its customers. But what did it do for Vlasic?

The pickle maker had spent decades convincing customers that they should pay a premium for its brand. Now Wal-Mart was practically giving them away. And the fevered buying spree distorted every aspect of Vlasic's operations, from farm field to factory to financial statement. Hence the in the minds of the consumers, Walmart has done a stupendous job of offering premium pickles at low prices. This diluted the equity of the brand that it took decades to create.