I think everyone has complicated feelings about Wal-Mart. They are a capitalist success story, but at the lowest common denominator of what such a success story might mean. Costco is in the same business with Wal-Mart, and they are absolutely a classier organization (I don’t say this because Costco is headquartered in Seattle, not Bentonville :-)). Crappy companies can succeed admirably in the marketplace, and even bring enormous gains in consumer welfare. Microsoft (another Seattle company) is also a crappy company (for different reasons) that has brought incalculable gains to the consumer. So it is quite possible to dislike a successful business (schadenfreude?) and still believe they have the right (within the boundaries of the law) to practice business as they wish. It is important to separate political from economic rhetoric. On the other hand, Wal-Mart’s catch-me-if-you-can limit-testing on employement law is a bit appalling.

Those interested in the discussion might find this discussion from Wikipedia useful:

“In 1962, Walton opened the first Wal-Mart store, Wal-Mart Discount City, in Rogers, Arkansas. Within five years the company expanded to 24 stores across the state of Arkansas and reached $12.6 million in sales. In 1968 the company opened its first stores outside of Arkansas in Sikeston, Missouri and Claremore, Oklahoma.

The company was incorporated as Wal-Mart Stores, Inc. on October 31, 1969, and in 1970, opened its home office in Bentonville, Arkansas, as well as its first distribution center. There were now 38 stores operating with 1,500 employees and sales of $44.2 million. The company began trading stock at this time as a publicly held company on October 1, 1972, and was listed on the New York Stock Exchange shortly thereafter. The first stock split occurred at a market price of $47. By this time, Wal-Mart was operating in five states: Arkansas, Kansas, Louisiana, Missouri and Oklahoma, and entered Tennessee in 1973, and Kentucky and Mississippi in 1974. As the company moved into Texas in 1975, there were 125 stores with 7,500 employees, and total sales of $340.3 million.”

Once WM was a public company, it very skillfully picked on targets that it could easily defeat and was immensely successful at such. Sam Walton found a battle that he could win and such was immensely profitable to him. He found a weakness in the system and fully exploited such.

As for workers accepting low paying jobs, the same is true of owners of capital, who often accept low returns, having no better alternative. However, when owners of capital combine to gain economic power no one raises an eye brow. Thus, merely because workers for WM are willing to accept a job on WM’s terms at the outset has nothing to do with their right, afterwards, to organize for even better wages and working conditions.

As for the other criticisms of WM, the fact that WM treats suppliers poorly is very well known, its switch from Made in the USA to Made in China is such common knowledge that everyone gets Leno’s joke, and its unfair labor practices, today, are fairly well understood.

To be balanced about WM, I should point out that unlike many many any other companies, it does have very honest book keeping and reporting of financial results, which is a big plus for its present management.

All of this leads me back to my original point. Why is defense of WM such an article of faith? The company is a human institution, with strengths and weaknesses. What is there about the company that requires “academics” to give up objectivity and choose sides?

If you critique simply comes down to what constitutes a “fair fight,” then let me at least comment on that, especially in light of your assumption that I don’t know how Wal-Mart grew.

My mother-in-law began working for Sam Walton in in Store #17 southern Missouri. By her account, and all accounts written about Wal-Mart’s early years, Sam and his managers worked harder in figuring out what would sell, in finding the right products, and in pushing for the best deal they could get for them. He pioneered the use of computer tracking of inventory. He introduced a generous profit sharing for his store managers and gave all his employees the ability to buy his shares cheaply. (One of the attitudes that most peeves my normally unflappable mother-in-law is the accustation that Wal-Mart is “anti-worker.” She points out that not a single worker was compelled at the point of a gun to work for them, yet they never had any problem filling openings, including among the friends and families of all those “ruined” competitors.)

You turn the idea of a “political” response on its head. Against some utopian fantasy of how a company is supposed to behave, I’m sure Wal-Mart falls short, but I don’t see how an assertion that Walton and his team worked harder and smarter than the next guy is a “political” statement. What strikes me as “political” is criticizing their success in language of “abusing suppliers,” “breached trust,” and “unfair labor practices.”

Someone needs to go read a little of Peter Drucker, for there are a lot of assumptions being passed off that may not fit the reality.

My two cents about WM is that: (1) it did not face serious competition as it grew in size–WM went started where it faced little competition–small town mid and south USA; (2) WM has a long track history of abusing its American suppliers; (3) WM breached considerable trust with its customers when it switched from “made in America” to “made in China” (Did anyone catch Leno’s joke on this point this week?); and (4) WM is openly anti-worker and a notorious free rider on health care (in my state taxpayers are funding more health care for WM employees that WM).

COSTCO is a far better run company, in much of the same space.

Having said that about WM, does not mean that it should be excluded from opening new stories, etc. It merely means, be honest about the company.

As for the comments on price and earnings,perhaps they reflect a successful attempt by WM to implement one of Drucker’s points, “The only sound way to price is to start out with what the market is willing to pay—and thus, it must be assumed, what the competition will charge–and design to that price specification.”

Viewed in this light, that WM’s return on capital has averaged about 8%, which is not out of line for successful retailers and their profit margins of about 3%” really don’t tell us anything.

As for M. Hodak’s comments, he needs to become familiar with how WM grew. It did not go to America’s urban centers, opening in direct competition with public, well financed companies.

Instead, WM went where there was no competition–small towns serviced by local “small box” stores, with limited managerial skills, no equity financing, and limited access to debt financing. It used this model, over and over, repeatedly putting local hardware, pharmacies, clothiers, etc., out of business. It was absolutely true that WM was selling for less than these companies could buy the same product. This has absolutely nothing to do with antitrust law as best I can tell, but everything thing to do with why a lot of people don’t like WM–they and their friends and families lost what were often the investment of several lifetimes. Consumers as a whole may have benefited but capitalism creates loosers and those that have lost don’t have to like it, especially when they are astute enough to know they lost what wasn’t necessarily a fair fight.

Without adjusting for their scale, Wal-Mart of course has a huge profit, but that doesn’t account for the investment, which only makes sense if you don’t care about the investors. Wal-Mart’s return on capital has averaged about 8%, which is not out of line for successful retailers. Their profit margins of about 3% are not much different Target, Dollar General, or other discount retailers, and were historically lower than K-Mart’s, no doubt from their “lower price” policy. Wal-Mart historically created value through its superior management of inventory levels and inventory turns. In other words, they were just better retailers, able to grow their low-margin, high-turnover model to a very large scale. To call this model “making a large profit” and focusing on their overall profit is, I think, disingenuous.

Montgomery, I agree with you that this question lends itself well to empirical testing, a la Staples/ Office Depot. From what I have seen, e.g. Hausman’s study linked to in the previous post, the empirics demonstrate that WM substantially increases consumer welfare.

As for the substance of the question, it certainly lends itself well to numerical analysis. I suspect that there are some communities in which Wal*Mart is one of the largest employers. It would be worth analyzing how Wal*Mart’s average wages vary from store to store, controlling for geography/cost of living, Wal*Mart’s share of the big-box retail market, and its share of the labor pool.

Unfortunately, this is not the kind of question that lends itself well to speculation. As we saw with prices in Staples/Office Depot, these kinds of store-by-store comparisons can sometimes yield interesting and surprising results.