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July 19, 2005

Always Low Prices. Sometimes.

Brad's post on the pro's and cons of Wal-Mart is a good one, not least because he's more balanced than most shrill lefties (read: me) on the subject. One thing I do have to take issue with, though:

The low prices increase wages for other people. (Wal-Mart's entry in an area can drive down grocery prices 15 percent.) For low-income families, groceries are a somewhat big percentage of the budget.

Wal-Mart's low prices are severely overstated. The company's done such a good job of branding itself your checkbook's guardian angel that folks have begun to believe them. It's not so, though. Wal-Mart squeezes pennies on about 1% of a store's merchandise, what are called cost-sensitive items.

How does the number-one retailer maintain an image of low prices? First, by actually making sure its prices are lower than its competitors, at least on key items. These items are called "price-sensitive" items in the industry, and it is commonly believed that the average consumer knows the "going price" of fewer than 100 items. These tend to be commodities that are purchased frequently.

A mid-size Wal-Mart supercenter may offer for sale 100,000 separate items, or stock-keeping units (skus). Wal-Mart and other major retailers believe that the general public knows the going price of only 1 to 2 percent of these items. Therefore, each Wal-Mart store shops for the prices of only about 1,500 items in their competitors' stores. If it is ever found that a competitor has a lower price on one of these items than Wal-Mart, the store manager will immediately lower his or her price to be the lowest in the area.

These items are, of course, given prominent display throughout the store, further tattooing Wal-Mart's low-prices brand into consumer minds. Other pieces of merchandise aren't at such low prices and, in some cases, are surprisingly expensive, but because consumers don't know what they should cost, that goes unnoticed. The point here isn't that Wal-Mart is enormously cheap on many things, but that it's not so cheap on so many that it can justify the labor standards, labor abuses, or hostility to unions. This isn't a competition issue, it's a branding issue. And progressives shouldn't let it be rephrased into a liberal hostility to lower prices.

July 19, 2005 in Big Business | Permalink


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» War on Wal-Mart from Don Singleton
The consumers need to know what things cost, and buy the ones that are the best savings. AFAIK, WalMart does not force people to buy the ones for which it does not provide major savings [Read More]

Tracked on Jul 19, 2005 3:52:19 PM


This reminds me of Kevin Drum's post on how irrational it is that people are prepared to wait in lines around the block to get gas that's a couple of pennies cheaper, even though if they work it out, their time should be worth much more than that.

Posted by: battlepanda | Jul 19, 2005 12:19:54 PM

How many times have you come out of a Wal-Mart feeling like you really got reamed on an item? They actually do pretty well.

The thing that keeps Ezra and others on fire against Wal-Mart is not any of these side issues such as pricing, but it's choice not to engage unions, plain and simple. And in this free nation, they have this choice. If you have some labor laws that you think they have broken, then prosecute.

Posted by: Robert Zimmerman | Jul 19, 2005 12:30:01 PM

"The thing that keeps Ezra and others on fire against Wal-Mart is not any of these side issues such as pricing, but it's choice not to engage unions, plain and simple."

Absolutely true. 100% correct.

Posted by: Ezra | Jul 19, 2005 12:37:16 PM

How many times have you come out of a Wal-Mart feeling like you really got reamed on an item?

Every single time, because their products are cheap shit.

Posted by: Adrock | Jul 19, 2005 12:49:14 PM

What an interesting piece of information that is, re: pricing practices.

Posted by: TJ | Jul 19, 2005 12:49:57 PM

Every single time, because their products are cheap shit.
Then don't go.

Posted by: Robert Zimmerman | Jul 19, 2005 12:51:02 PM

Ezra, you forgot this important part of my quote that adds context.
"And in this free nation, they have this choice."

Posted by: Robert Zimmerman | Jul 19, 2005 12:53:49 PM

So is the 15 percent decline in grocery items statistic incorrect? It seems like they fit in the "price sensitive" items category for commodities that are purchased regularly.

Posted by: Ugh | Jul 19, 2005 12:57:31 PM

They have this choice, Robert, but we also have the choice to boycott them or whatever if we want.

Furthermore, as we live in a mixed economy, we can pass new laws to prevent any particularly abusive behavior that they engage in.

Posted by: Neil the Ethical Werewolf | Jul 19, 2005 1:08:17 PM

I second Ugh's question. Groceries would definitely be in the top 100 things people know the prices of, so it's possible that you and Brad are both right.

Posted by: JerseyExport | Jul 19, 2005 1:16:49 PM

They have this choice, Robert, but we also have the choice to boycott them or whatever if we want.

So that is what this is all about? I haven't seen the word "boycott" in this thread at all, Neil. All I have seen is carping about pricing policies that most every other retailer uses. If boycott is the issue, then it's a losing one. People shop at Wal-Mart because of their economies of scale. Many Democrats who rail against Wal-Mart shop there when it's *their* money their spending.

Posted by: Robert Zimmerman | Jul 19, 2005 1:19:51 PM

The items are 'cost sensitive' because they are what people buy the most often. Even if they are the only items that are cheaper, they fact that they are cheaper at Wal-Mart means that it is a benefit to the poor.

Beyond that, just because Wal-Mart spends a lot more time making sure that these items are cheaper than it's competitors doesn't mean that the other items it sells are not generally cheaper than it's competitors as well. You would have to provide some evidence that only the 'cost sensitive' items are cheaper and that other items are the same price or more expensive than the competitors to prove that assertion. I see no evidence of that in your post.

Posted by: Dave Justus | Jul 19, 2005 1:22:11 PM

They do not, legally, have the choice to bust unions and fire employees for trying to organize, Robert. Even in this free nation.

Posted by: Sam Rosenfeld | Jul 19, 2005 1:24:27 PM

Dave, the evidence was in the linked article from icma:

My barber has offered me a simple example. He sells a nonbreakable pocket comb for 25 cents that he procures from his vendor for eight cents. Wal-Mart sells a lower-quality comb for 98 cents, and one would assume that Wal-Mart pays less for it than the barber does. People keep buying Wal-Mart combs, however, because the average person does not know the going price of a pocket comb, and it is automatically assumed that the Wal-Mart price is the lowest.

Posted by: Neil the Ethical Werewolf | Jul 19, 2005 1:30:33 PM

Dave Justus,

We bought a wheel barrow once at the local hardware store that was significantly cheaper than either Wal-Mart or the Home Depot across the street. (When Home Depot and Wal-Mart are right next to eachother you get 97¢ bags of top soil, because they compete with eachother. Their regular price is over $2.00 At that price you ought to get it delivered.) The two Wal-marts were about 20 miles away from us at the time. So you really should factor in the cost of gas too.

Coke is pretty cheap at Wal-Mart, but a bunch of groceries aren't. I'd be happier if I could compare prices on a wide range of products before I went to the store, and I'd like all the retailers to be under one roof--more like an exchange.

Posted by: bostoniangirl | Jul 19, 2005 1:35:24 PM

One aspect of Wal-Mart pricing, which has been well-documented because it has been the subject of (unsuccessful) litigation, is that they price some items to undermine their potential competitition. For example, they price typical "drugstore" items at levels, which undermine the ability of a traditional drugstore to stay in business in the vicinity of a Wal-Mart.

Wal-Mart is too big and has too large an effect on competing retail business, for their labor practices to not be a political concern. I don't expect Wal-Mart's anti-labor practices -- including the illegal practices -- to attract much scrutiny from a Republican administration. The same Republican leaders, who are trying to phase-out Social Security and overtime pay, are going to cooperate with Wal-Mart in covering up illegal practices and bust any incipient unions.

Wages, incomes, unionization, the cost of health care and prices of pharmaceuticals, etc., are all a political choice. Republicans redistribute income to the very rich. Democrats should do the opposite.

Posted by: Bruce Wilder | Jul 19, 2005 1:57:15 PM

Zimmerman: ". . . it's [sic] choice not to engage unions, plain and simple. And in this free nation, they have this choice."

In a free nation, the workers would have the choice, not Wal-Mart or any other corporation. In a free nation, the choice to unionize or not is the choice of the workers, not the employer.

Posted by: Bruce Wilder | Jul 19, 2005 2:01:22 PM

Robert 'forgets' that Walmart's bad practices are not just low wages and inability to collectively bargain.

Walmart destroys small businesses through predatory practices in classic monopolistic fashion: cut prices until rival quits, then raise prices.

Walmart forces the social costs of their businesses (new roads, schools, etc.) to the community, or they will locate elsewhere. Walmart employees often obtain their health care from Medicaid (making the state/nation pay for their worker's illnesses).

Walmart is the best modern example of a corporation with no sense of social responsibility - to their workers, to the community, and to the country (high product content from low wages foreign countries). That is why liberals and many moderates are largely opposed to having Walmart in their communities.

Posted by: JimPortlandOR | Jul 19, 2005 2:11:28 PM

Hey....we measure labor laws and business rules buy the pound in the United States. If Wal-Mart has broken these laws, the prosecute.
I suspect that because they have generally played by the rules, you don't mention this remedy.

Posted by: Robert Zimmerman | Jul 19, 2005 2:26:33 PM

We do a lot of comparison shopping and Walmart consistently has the best price on a range of items. But you have to be careful because not all items are the same. A particular item priced lower at Walmart may very well be something created by the manufacturer for Walmart and doesn't directly compare with the similar model at other stores.

We recently shopped for a new vac - priced a Dirt Devil unit - Walmart beat the competition by about 15%. But the Walmart model had a plastic handle whereas the competition had a metal handle. Not so obvious looking at the package.

So I dunno. They've got consistently good prices on groceries and that's about all we get there. I generally hate going in because it has grown so oppressive and crowded and it's hard to keep the stores looking fresh when they're open 24/7.

Go back 10 years or so and it seemed a totally different experience. I wonder how much the death of Sam Walton and the passing down of the company leadership has led to the current state of affairs.

I'm just celebrating that we've moved close to a Costco and I'll never have to go into a Sam's again...thekeez

Posted by: Jeff Keezel | Jul 19, 2005 2:44:56 PM

I have to side with Zimmerman on this one: this is a free country. Personally, I don't like Wal-Mart and have rarely shopped there. People in a community gripe when Wal-Mart moves in but they're the ones who stop going to the mom and pop stores and on to Wal-Mart for cheaper prices and inferior goods. Its REALLY easy to put a Wal-Mart out of business--stop shopping there.
Not that mom and pop stores had union employees anyway....

Posted by: Steve Mudge | Jul 19, 2005 3:04:52 PM

first off, thanks for writing this ezra. this is a pet peeve of mine that i have tried to express by pressuring my roommates not to buy at walmart.

i have to say that if you shop around, you can usually find a better value for money than the shit products that walmart sells. if your suggestion is to tell me to shop elsewhere, thanks but i kinda figured that one out already. i shop at kroger, which may be just as evil, but is at least unionized.

one thing i have noticed, and this is the thing that really gets me going, is what i have termed wal-mart syndrome. you go there to buy groceries, fine. but then thanks to (what i believe is subliminal) advertising, you end up buying twice what you wanted. and you spend 40 bucks everytime and end up with shite in your shopping cart.

and steve i call bullshit. since the walmart moved in to athens,ohio about 2 years ago, we lost jc penneys, big bear, big kmart, jo-ann fabrics, payless, and a bunch of mom-n-pop stores. so now most people have no option but to shop at walmart for their supposedly cheap stuff. and walmart here will always survive because there are about 15K college students that think the cheapest stuff is there, although we have a save-a-lot and a biglots/odd lots that have much better deal than walmart for the marginal buyer.

and while mom-n-pop stores dont have union employees, that is usually because the union consists of mom, pop, junior, ray ray, susanna and brittany.

Posted by: almostinfamous | Jul 19, 2005 3:26:35 PM

There is one other way to get rid of Wall Mart, simply certify a union and they will close the store and walk away, just like in Quebec.


Naked Ape

Posted by: Naked Ape | Jul 19, 2005 3:43:44 PM

"So is the 15 percent decline in grocery items statistic incorrect?"

- Ugh

This brings up a larger point: Walmart's low prices could have caused its competitors to lower their prices too. If there has been a general decline in prices spured by Walmart (such as the 15% decline in grocery prices cited in Brad's post), you would expect NOT to find much difference if you compared Walmart's prices to those of the nearest competitor.

Posted by: A-ro | Jul 19, 2005 4:20:15 PM

Robert: By your logic, businesses are also free to keep out people based on their religious affiliation, race, or cultural background?

Why does the employer get to choose an employees' affiliations? Shouldn't the choice to go union be the workers?

Posted by: jim | Jul 19, 2005 4:33:22 PM

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