Tuesday, June 08, 2010

What Illinois Can Learn from Texas About Wal-Mart

After opening its first Chicago store on the city's west side in 2006, Wal-Mart has unsuccessfuly attempted to open a second store on Chicago's south side in one of two locations - Pullman and Chathman - which would bring groceries, clothing, retail merchandise, and jobs to a part of the city that is desperate for all of those.  What's standing in the way of economic development, life, hope and jobs for the south side neighborhoods of Chicago?  Organized labor and their political Democratic enablers. 

A recent study reportedly shows that the west side Chicago Wal-Mart created about 300 jobs, but contibuted to a job loss of about 300 from businesses on the west side that closed after Wal-Mart opened in 2006.  But the Chicago Sun-Times presents some pretty devastating criticism in an editoral titled "Anti-Wal-Mart study just doesn't add up":

"Too bad the researchers didn't count the jobs at the new businesses that opened after Wal-Mart's arrival on the West Side. There are roughly 22, according to the local alderman, Emma Mitts, including Menards, Food 4 Less, Aldi, two bank branches, CVS and Burlington Coat Factory. That information wasn't available, the researchers say.

Too bad they also didn't factor in other reasons, unrelated to Wal-Mart, nearby businesses closed. Nor did they compare West Side business closure rates with rates in other similar communities. Again, that information wasn't available. Without this key data, this research is only a starting point -- and nothing close to a definite statement about Wal-Mart's economic impact."

It's worth noting that those lost [approximately 300] jobs paid low wages, an average of $9.02 an hour in 2008, according to the study. That compares with the Chicago Wal-Mart's reported full-time average wage of $11.77."

MP: Even if there was no net gain in jobs from the Chicago Wal-Mart, the cost savings to area shoppers could have been significant from having access to Wal-Mart - an estimated $2,500 annual savings per household in 2006 according to this study.  Additionaly, the state of Illinois experienced significant job losses in general in the three years following the opening of the Chicago Wal-Mart in 2006 (see chart above).  In fact, the number of jobs in Illinois was the same in January of this year as in January of 100, so it's hard to blame Illinois's (and presumably Chicago's) stagnant economy on Wal-Mart.    

And it could certainly be correlation and not causality, but it's interesting to note that one of the states that has seen the most robust job growth over the last decade or more - Texas (see chart above) - has also been one of the states where Wal-Mart has expanded the most, suggesting that more Wal-Mart stores can be consistent with more, not fewer, jobs.  Especially in "right-to-work" states like Texas, where organized labor has less political clout to stop new Wal-Marts, like they do in Illinois.   

See this Dallas News article about Wal-Mart in Texas, where it employs 144,470 workers and had $35 billion of sales in 2009 - to put that amount in perspective, it's more than the Gross State Product of entire states like Vermont, Wyoming, North Dakota, Montana, Alaska, or South Dakota.

24 Comments:

At 6/08/2010 10:02 PM, Blogger Jason said...

When it comes to Wal-Mart vs. Unions, I hope for injuries.

Why so many people stand up and support WM when it is very clear they are forcing the lifestyles and earning potentials of their customers (the minimum wage set) onto the WM supply base (usually making more than minimum wage).

By the way for you laboratory economists out there, this is not just about "efficiencies and waste." I want to vomit everytime I hear that. This is about a philosophical buisness model, where Wal-Mart sets the target price where it believes it's customers can, or will, purchase the product in question. The actual cost of the product (i.e. raw materials, manufactured added value, and most importantly DEVELOPMENT) has little to do the price target. Again, it's about who's buying, what do they have in their wallets, how much stuff should they get with that amount of money.

Every supplier has folded to WM pressure and this is ANTI-COMPETITIVE. It's as if the "unwashed masses" had a buyers union and will strike if Procter & Gamble dare make an additional $0.05 on a tube of toothpaste.

My post will get flamed, but I've seen what the incredible purchasing leverage, and it's supreme power, have done to the autmotive industry (not just people in Detroit, the entire industry). Here's a hint: It wasn't good.

 
At 6/08/2010 10:29 PM, Blogger fboness said...

How can a company price products beyond what people can afford? Either prices change or people don't buy the product.

Gee, it would be nice of everyone could afford a Rolls Royce and even better if they were willing to pay Rolls Royce prices for a Chrysler. The world doesn't work that way - for long.

 
At 6/09/2010 12:39 AM, Blogger Jet Beagle said...

Jason,

Why do you believe that Walmart customers are "the minimum wage set"? Anyone who has observed where Walmart has been opening stores would know better. Some of the highest revenue Walmarts in North Texas are located in affluent suburbs such as Plano, Flower Mound, and McKinney.

Very few households in this nation could be considered "the minimum wage set". Walmart does not realize $300 billion in revenue each year selling to them.

 
At 6/09/2010 12:48 AM, Blogger Jet Beagle said...

Jason: "Every supplier has folded to WM pressure and this is ANTI-COMPETITIVE."

Right. The major airlines have added numerous flights to Northwest Arkansas Regional Airport because suppliers from across the globe have been rushing to offer their products to Walmart's buyers. Why on earth would suppliers continue their treks to Bentonville if they could not earn a profit by selling to Walmart?

 
At 6/09/2010 1:21 AM, Blogger Ron H. said...

Well, Jason, you haven't been flamed, but several people seem to disagree with you, including me. I shop at Walmart on occasion, and I'm not the "minimum wage set". Walmart has good stuff at low prices. What could be wrong with that?

You mention forcing customers to do something or other - your comment isn't clear - but there is no force involved. Walmart can't force anyone to do anything. All force comes from government.

Try this: Walk past the front door of your local Walmart several times. Now repeat while you wave money in the air as you pass the door. What happened? Nothing, right? (well, you might get some suspicious stares) The largest private corporation in the world can't force you to come in through the door. You , and every Walmart shopper, has free choice.

By the way, Walmart became as large as it is because millions of shoppers CHOOSE to shop there. There's nothing sinister about it.

Walmart suppliers also can choose not to sell to Walmart. No force is involved. They sell to Walmart because they WANT to. Again, free choice. They make money doing it, or they wouldn't.

I didn't understand your last paragraph. Has Walmart harmed the auto industry in some way?

 
At 6/09/2010 2:07 AM, Anonymous Anonymous said...

Mark, I love your work in general but I rate this one of my less favourite posts. Two things: one, the extensive quoting of an article that focuses on jobs crated as a measure of value is at all times risky. Wal Mart's value is not in the number of people it employs - I think it can be reasonably argued that most of those people would otherwise have been in employment. I am always skeptical of jobc count as a measure of anything, because it depends on an unseen counterfactual, and jobs is really a measure of cost not value.

The second one is your comparison of Wal Mart's revenue with GDP, something Martin Wolf labelled an elementary howler in his Why Globalization Works book, when speaking of similar comparisons by the anti-globalization crowd.

Of which Jason appears to be a member. How sad.

 
At 6/09/2010 8:00 AM, Anonymous Hydra said...

Why do you believe that Walmart customers are "the minimum wage set"?

I believe that MJP has previously reported that north of 95% of everyone in the US shopped at a walmart last year.

The WalMart Deli subs are better than those at Subway, and I doubt the wages of those who o prepare them are much different.

 
At 6/09/2010 8:33 AM, Anonymous Anonymous said...

The study by the CURL at Loyola was paid for by The Woods Fund of Chicago. The Woods Fund is a toolshed for progressive policy that doesn't work. The scope of this research tells you all you need to know. They only looked at Wal-Mart and merely shut their eyes at all other capital investment surrounding Wal-Mart.

Pick any subject. Study the Woods grants. Then take the opposite position. You're almost guaranteed to find yourself in the right position.

Illinois and Chicago intentionally wear an economic straight-jacket because they are deathly afraid of free markets.

 
At 6/09/2010 8:42 AM, Anonymous morganovich said...

here's an interesting story of a reporter who went undercover working at wal-mart and discovered that (gasp) they are actually a pretty good boss.

http://www.nypost.com/p/news/opinion/opedcolumnists/item_K8hD47GcZBkh1v3SjNYldI;jsessionid=5738859C0E22B554C13EF592C48F3920

 
At 6/09/2010 11:49 AM, Blogger Ron H. said...

morganovich, thanks for the link. That's a fascinating story. I just started reading the Sam Walton story, "Made In America".

 
At 6/09/2010 12:12 PM, Blogger sethstorm said...

You're trying to tie two things that aren't completely related to each other.

When they institute a rollback, they are asking for protection money(via discounts), just like the mob would. The threat is that they can literally kill their business for not going low enough.

South Chicago is merely defending itself from ministers whom were corrupted by Wal-Mart bribes.


here's an interesting story of a reporter who went undercover working at wal-mart and discovered that (gasp) they are actually a pretty good boss.

While one store or manager might be good, that was more from them not wanting to mistreat a reporter.

 
At 6/09/2010 12:14 PM, Blogger sethstorm said...


I just started reading the Sam Walton story, "Made In America".

That represented the good Wal-Mart.

What we have today is the one that has contempt for its own nation, the United States of America.

 
At 6/09/2010 12:35 PM, Anonymous morganovich said...

seth-

if you'd bothered to read the article, you'd see that he was undercover and that the mangers didn't know he was a reporter, nor did all the co workers he quotes.

also: if you think that paying above market wages to employees to get the best ones (and walmart out pays it's peers like kmart, sears etc) and given them better prospects for advancement that their peers while offering low prices and broad selection to customers and growing a huge business as a result is unamerican, what is it that you think america is? handouts for seth?

equating them to the mob is just stupid. walmart has a big distribution base. suppliers are anxious to use it, so they take price cuts. that's just business. where's the extortion? who is being forced to do anyhting? this is the same supply side sets the price thinking that you exhibit complaining about wages. a transaction requires both sides to agree to the price. no one forces nestle to sell to walmart. they can walk away any time if they don't think it's worth it.

 
At 6/09/2010 12:43 PM, Blogger sethstorm said...


where's the extortion?

The regular pattern of someone working with them is where the extortion exists. It occupies a large part of the suppliers' work to meet the discounts, and thus gets to a point where they ask for the impossible.

Since at that point their business would die if they lost that supplier, that is extortion. It happens in a regular enough pattern that not only suppliers to Wal-Mart know it, Wal-Mart knows it.


It's a shame that RICO can't be used on them since it'd be a very damning thing to see those Benedict Arnolds doing the perp walk. But I would love it.

 
At 6/09/2010 2:12 PM, Anonymous Anonymous said...

sesthstorm, I didn't think it was possible but, your posts are becoming more irrational. You aren't going to sway people to your position because you make no sense.

 
At 6/09/2010 3:19 PM, Anonymous morganovich said...

seth-

you need to look up the definition of extortion. you have no idea what you are talking about.

having one customer is not extortion. it's just risky business and a bad balance of power.

it's a voluntary transaction. if you don;t like the price, you don't have to take it. extortion requires coercion.

for walmart to be extorting suppliers, they would need to go to their office and threaten to break their legs if they don't sell to them. no one has to sell to walmart, people WANT to.

by your logic, refusing to buy a house for which you are the only bidder because the price is too high is extortion of the seller.

negotiation is not extortion, but a seller in a bad spot may need to sell for less that he would like. that's business.

 
At 6/09/2010 3:57 PM, Blogger randian said...

Why so many people stand up and support WM when it is very clear they are forcing the lifestyles and earning potentials of their customers onto the WM supply base

I have no idea what this means.

Force? What kind and how is it applied? I've not once felt my lifestyle being "forced" by shopping at Walmart.

 
At 6/09/2010 4:49 PM, Blogger Ron H. said...

"While one store or manager might be good, that was more from them not wanting to mistreat a reporter."

Before you make ignorant comments like this, you should actually READ the article you are commenting on, and as best you can, COMPREHEND it. Then people won't know how incredibly stupid you seem to be.

No one at that location knew he was a reporter. He was UNDERCOVER, get it?

"That represented the good Wal-Mart.

What we have today is the one that has contempt for its own nation, the United States of America."


If you were to actually read the book, you would find that Sam Walton tried very hard to get US suppliers for his business, but none were interested enough in competing with cheaper sources.


"Since at that point their business would die if they lost that supplier, that is extortion. It happens in a regular enough pattern that not only suppliers to Wal-Mart know it, Wal-Mart knows it."

sethstorm, help me understand this: Walmart forces suppliers to sell to them at such low prices that they eventually lose money, but they can't quit or they will die, so they continue supplying Walmart at a loss.

Suppliers all know of this danger, but STILL they flock to Bentonville, like moths to a flame, hoping that they too can be driven out of business, in such large numbers that airlines must provide extra flights to accommodate them all.

sethstorm, you really are getting more & more bizarre in your comments. You need to come out from whatever basement you are in, and get a clue.

 
At 6/09/2010 6:41 PM, Anonymous Mad Jayhawk said...

This is a pretty simple situation.

This is America.

You can shop at Walmart if you want to. You can work at Walmart if you want to.

If you do not like Walmart, do not work or shop there.

If enough people agree with your viewpoints about Walmart they will be out of business in no time. But in meantime do not deny me or anyone else the opportunity to shop or work where I want to to satisfy your elitist-liberal-unionist viewpoints.

Psalm 109:8

 
At 6/09/2010 7:59 PM, Blogger Jason said...

@ Jet read my post again. Wal-mart sets target prices to maximize movement of product, regardless of product cost. This targets prices to the lowest earners, ie the minimum wage earners. To your second post, every supplier believes they can make a profit working with wal-mart. They make the equation work by reducing expenditures related to development and production. That's why so many consumer products are made in China now. And why consumer product innovation is frighteningly poor.

@ Anonymous 1: I am not anti globalization at all. I believe in dynamic markets. However, I equate walmart to a buyers union, as I said. And I believe his is anti-competitive since it moves the entire market.

@Ron: wal-mart by setting market prices moves the wage base of it's supply base to the price point of it's target purchasers. That's the "forcing" I'm talking about. No one is forced to shop at walmart and their is nothing sinister here, I think walmart is well intentioned. Also, I make no claim there is a connection to wall mart and the auto industry. I'm saying that when a large organization levers it's purchasing power in a single minded action to reduce prices, it IS bad for it's suppliers (And there is where the bulk of high wage earner in the wall mart circle of life reside) and consumers. No one will convince me that reducing innovation, which is what happens in this cost save madness, is better for consumers long term.

Whew...

 
At 6/09/2010 10:47 PM, Blogger Ron H. said...

Jason, Thanks for responding. If I may, allow me to point out a few things I believe you have gotten wrong:

"Wal-mart sets target prices to maximize movement of product, regardless of product cost..."

Surely you don't believe that any retailer can sell products at below cost, other than temporarily, no matter how much product they can move.

"They make the equation work by reducing expenditures related to development and production."

Maybe that's the innovation you think is missing.

"I'm saying that when a large organization levers it's purchasing power in a single minded action to reduce prices, it IS bad for it's suppliers..."

Suppliers aren't forced to sell to Walmart, any more than consumers are forced to buy from them. And no one is forced to work for a supplier if they don't like the pay, or any other condition. There is just NO FORCE going on anywhere here. Everything here is CHOICE. Only government can use force.

Keep in mind that there are many other games in town, Walmart is just the biggest. Beating your competitors isn't anti-competitive.

 
At 6/09/2010 10:51 PM, Blogger Ron H. said...

Mad Jayhawk has it exactly right.

 
At 6/10/2010 8:55 AM, Blogger Jet Beagle said...

jason: "And why consumer product innovation is frighteningly poor."

I don't know how long you have been on this planet. I've been around 59 years, which is long enough to observe that the pace of innovation - in not just consumer products, but also in logistics, packaging, point of sale technology, and market research - is much faster today than it has ever been before in my lifetime. You may disagree. But unless you have some facts to back up your belief, please be honest enough to express your opinion as just that. I doubt that many who read here would agree with your assertion about innovation without seeing some support for it.

 
At 6/10/2010 2:45 PM, Blogger Jet Beagle said...

jason: "And why consumer product innovation is frighteningly poor."

WalMart loves and nurtures innovation. Don't take my word for it. Read the short essay Why Wal-Mart is great for innovation by innovation consultant Brad Flatoff. Flatoff has "24 years experience in marketing and new product development, with General Foods, Oscar Mayer, and Sargento Foods, where he was senior vice president of marketing and innovation."

Among the reasons Brad provides:

1. Wal-Mart wants to be first.

2. New product decisions are simple and fast.

3. Wal-Mart doesn't charge slotting fees.

4. Wal-Mart has the space.

5. Wal-Mart is great at executing.

6. Wal-Mart has scale.


If you want to understand why these are important factors, Jason, read the article. Please, don't waste everyone's time by responding before you read the article.

 

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