Wal-Mart Economics

Four years ago, Fast Company wrote about Wal-Mart — and the article is still pretty interesting:

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.

A pickle jar example in the article is particularly intriguing — the gallon pickle jar “cannibalized” Vlasic’s sales at other retail locations because Wal-Mart sold it at such a ridiculously low price.

Originally, I thought that if I was making any product with any sort of brand, I would never ever sell at Wal-Mart. But Wal-Mart sells iPods… at the same price you see them everywhere else. And that’s because Apple has it’s own (quite healthy, thank you very much) supply chain.

So while the meeting between Wal-Mart and just about any supplier goes like this…

Wal-Mart: You’ll supply to us at $X per unit.
Supplier: That reduces our profits to essentially nothing.
Wal-Mart: Then we’ll find a supplier with comparable brand recognition at our price.
Supplier: Fine, we’ll do it.

…a meeting between Wal-Mart and Apple goes like this:

Wal-Mart: We want to take $20 off the price of an iPod.
Apple: Categorically: “no.”
Wal-Mart: Then we’ll find a supplier with comparable brand recognition at that price.
Apple: No you won’t.

While Wal-Mart frequently says “put up or shut up,” suppliers can occasionally do the same to them. Regardless of scenarios like this, I think the problem that the article points out — that Americans can’t consume if we don’t have a healthy base of employed workers — is undeniably correct.

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The Wal-Mart Apple conversation made me smile.

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