Economics and Wal-Mart
Wal-Mart is one of the most successful businesses ever established. It has created jobs to thousands of people and made a lot of goods affordable even to those who are in the lowest income bracket. However, a lot of cities in America have limited Wal-Marts growth in their city by implementing strict zoning regulations.
What could be their reasons
Many of those cities small retail store owners have lost their businesses after Wal-Mart moved into town. According to former Secretary of Labour Robert B. Reich, Wal-Mart sucked away small businesses and has therefore caused the emptiness of most downtowns in America. The Wal-Mart Watch claimed that the corporations expansion in Iowa caused the closing of 555 grocery stores, 298 hardware stores 158 womens stores, among others. This is because since Wal-Mart is a giant one-stop-shop store which sells most of its item in a price range way below than what other small local retail shop can afford, customers would rather go to them that the more pricey local stores.
At first glance, this competition is good and is beneficial to most consumers. However, in the long run, this could cause economic sabotage in the city. The first effect is that smaller stores closed down. This in turn could cause massive unemployment. Since there are more people looking for job than the latters availability, the price of labour would then depreciate.
This is just one side of it. Being a retail giant, Wal-Marts buying power can push down the wholesale prices of its suppliers. It can bargain to lower the wholesale price by a margin of 5-15 thus causing business failures among the producers of consumer goods.
Because of this, local governments have tried to regulate the growth and expansion of Wal-Mart through zoning regulations. This is also the reason why in 2003, the city council of West Covina denied the sale of land to developers who are planning to construct a Wal-Mart branch on their city. In the same year, the city of Los Angeles also considered the banning of Wal-Mart. A lot others has followed suit.
How can Wal-Mart provide excellent services and afford to drop its prices in a range that would kill its local competitors
Wal-Mart has an undue advantage among its competitors. Their early adaptation of the bar-coding system made it possible for them to easily record day to day inventory and tracking of shipments from its suppliers to its stores. This technological edge made it possible for them to lower shipment time and labour cost. This in turn would lower down operational cost and eventually, will contribute to lower cost per item sold.
Wal-Mart management also plans ahead. Stores and distribution centres are strategically located to minimize additional cost. The distribution centres of Wal-Mart are located within close proximity for easier delivery. According to Thomas Holmes, if a retail store is located near a distribution centre, operational profit immediately increases by at least 220,000. And this figure was in 2005. (Holmes, 2006) This was further made possible when due to the buying power of Wal-Mart its major suppliers were encouraged to have their offices situated near Wal-Marts headquarters.
Lastly, as earlier mentioned, this purchasing power gave Wal-Mart a bargaining hand that gives them the ability to control the wholesale ceiling prices of merchandise. Since they can haggle for prices, and since they buy in bulk, they tend to get the lowest price possible for an item. This discount is not usually given to other retailers who buy in a significantly lower number.
All of these combined made it possible for Wal-Mart to sell an item to a price range margin of 8-27, a figure that almost no one else can afford. Consequently, the closing of other retail shops particularly the smaller ones.