The first time I ever saw a Wal-Mart I was a grad student getting my MBA down in Tallahassee, FL. One opened up down the road from my apartment and I was immediately taken by the big bright stores with lots of stuff and what seemed to be pretty low prices. In class I learned the secrets to Wal-Mart’s success in its niche of “Always low prices”. It demanded efficiencies from its suppliers. It became fanatical about using information technology to optimize its sourcing and distribution channels. It paid its employees the community average or sometimes slightly more, but never significantly so. And of course the company benefited tremendously from scale. At the end of the day Wal-Mart became a spectacular success because it provided the goods people wanted at the lowest prices possible.
Thus began a two decade long love affair with Wal-Mart. For most of the last twenty years I’ve spent most of my shopping dollars, particularly food, but other items as well, at Wal-Mart. It helped that, as I hate to shop, I could go there and get pretty much everything I needed in one place, from apple juice to socks to those little trees you put in your car to make it smell good.
I remember around 2003 when a friend of mine got married in Key West. I went to Wal-Mart and purchased a pair of those mesh shoes with the rubber sole that you could wear in the ocean. They cost about $7.95. I remember how amazed I was that they could manufacture that pair of shoes in China, label them, ship them across the ocean, transport them to my store where people would receive them, inventory them, display them and eventually charge me for them, and do so at a profit! Even if they paid their workers in China a penny a day I still didn’t see how they could do all of those things and still make a profit.
When my love affair with Wal-Mart began the company had 1,500 stores mostly serving rural communities across the country and generated about $25 billion a year in sales. Today they have 10,000 stores around the world and generate half a trillion dollars in revenue annually.
Like it or not, Wal-Mart has changed the face of American retail. By using the best of the free market the company has saved Americans hundreds of billions of dollars over its lifetime, savings that they might have used to can use to provide more food to their children, to give to charity to buy their kid a computer for college, or just buy another flat screen TV. By any definition Wal-Mart is an American success story.
Unfortunately however, my love affair with Wal-Mart is fading… and fast. The first injury to the relationship was when the company supported ObamaCare in an effort to increase pressure on its smaller competitors. The second was when they supported the taxing of online sales. Since those two events I’ve reduced the money I spend in Wal-Mart by well over 50%. Now I’m beginning to wonder if I need to redirect most of what’s left. According to Bloomberg, the company is considering supporting the Obama administration’s move to raise the minimum wage. While Wal-Mart knows that it would incur higher wage costs, it also knows that because of its size and efficiency it can better weather the increase than most of its competitors.
And that’s the problem. If Wal-Mart wants to raise the wages of its employees, it has every right to do so and most people would applaud it in the process. Indeed that is the route the Gap and Costco have chosen. But alas, that is not the route Wal-Mart seems to be taking. (They supported an increase back in 2007 as well.) Instead the company is seeking to use to use the power of government to tilt the marketplace in its favor. It wants to use the government to force higher costs on its smaller, less efficient competitors. Essentially it wants the government to put its competitors at a competitive disadvantage.
This is the worst of capitalism – crony capitalism – when businesses use government to harm competitors or keep them at bay. Whether it’s Obamacare or a minimum wage increase or restaurants seeking to keep food trucks off the streets, it’s not only the competitors who lose, it’s the consumers and the market itself. Had Sears or K-Mart used the power of government to strangle baby Wal-Mart in its crib the company would not today be the largest retailer in the world. If AT&T had succeed in defending its government sanctioned monopoly and keeping MCI and other startup telephone companies at bay for another 100 years do you think we’d have iPhones, Netflix, or fixed price wireless plans? No. Of course not. The marketplace survives and thrives the less government intervenes. Wal-Mart of all companies should understand this.
By getting into bed with government Wal-Mart is repudiating the very thing that allowed it to prosper in the first place – the free market. Now that the company has used that free market to become the 800 lb gorilla in the retail marketplace it has repeatedly sought to harness the power of government to keep potential rivals from enjoying the same opportunity. Crony capitalism is the most despicable form of capitalism because it hides behind the mask of free markets. Thankfully however crony capitalism usually fails because the propped up company often becomes fat and lazy and forgets how to compete. If Wal-Mart wants to betray free markets, so be it, I just hope it’s not too long before the markets decide to strike back.