THE WAL-MART EFFECTHow the World's Most PowerfulCompany Really Works -- and HowIt's Transforming the American EconomyBy Charles FishmanPenguin Press; 294pp; $25.95
The Good An insightful look at the effect, for good and bad, of Wal-Mart's focus on price-cutting.
The Bad Did author Fishman get Wal-Mart's side? Not personally. Company quotes are all from outside sources.
The Bottom Line A successful look at how Wal-Mart works and how it is transforming the U.S. economy.
Fifteen years ago, supermarkets were the place to go for groceries. Today, there's another option: Wal-Mart Stores Inc. (WMT
) The reason people go there isn't better product selection or more convenient locations. It's price. A family of four might cut its $500-a-month food bill by $75 by shopping at Wal-Mart, equal to about seven weeks of groceries a year. A big win for society, right? Not everybody thinks so. In the past decade and a half, 31 grocery chains have gone bankrupt, with 27 of them pointing to Wal-Mart as a cause.
It is, writes author Charles Fishman, a quintessential example of the Wal-Mart effect: neither 100% good nor 100% bad, yet profoundly far-reaching. And it's all due to the retailer's unflagging dtermination to cut prices. The single-mindedness explains how Sam Walton and his skinflint successors turned a small thrift store in rural Arkansas into the world's biggest company outside of today's booming oil sector, with sales approaching $1 billion a day. The behavior also leads Fishman to conclude that Wal-Mart has probably hit its peak, a theory he spells out in the well-written and insightful The Wal-Mart Effect: How the World's Most Powerful Company Really Works -- and How It's Transforming the American Economy.
From the company's opening day in 1962, Fishman recounts, management has been ruthless in pinching pennies. Its excesses, he says, range from paying miserly wages to strong-arming U.S. suppliers to outsource their work to Third World sweatshops. Fishman reports that Wal-Mart even furnishes offices in its Bentonville (Ark.) headquarters with mismatched chairs handed out by suppliers as samples. From the get-go, however, Wal-Mart also has made sure to cut its shoppers in on the bargain. Take groceries: Wal-Mart's supercenters sell fresh salmon from Chile for just $4.84 a pound, year round. No wonder their parking lots are full.
Wal-Mart's price mania is almost beguiling -- except that it has grown into a hulk whose bullying makes even such giants as Procter & Gamble Co. (PG
) and FedEx Corp. (FDX
) fearful. Wal-Mart is so dominant, in fact, that it sells more each year by St. Patrick's Day, in mid-March, than Target Corp. (TGT
), its nearest rival, sells all year. Meanwhile, the ranks of those who feel abused by Wal-Mart -- vendors, employees, politicians, and, increasingly, shoppers tired of poorly stocked stores and shoddy goods -- are growing even faster than the company, Fishman writes.
Wal-Mart can't reduce prices indefinitely, says the author. After decades, it has achieved the most obvious cost cuts. Store managers, for instance, already stand accused of forcing employees to work off the clock to save money. And so many suppliers have decamped to low-wage China that Wal-Mart now accounts for almost 10% of imports from that country. What happens when Wal-Mart insists that vendors or employees take another nickel cut, and they just can't? "The source of Wal-Mart's troubles can be traced not to some evil conspiracy spun out of the home office," Fishman argues, "but to the slogan printed right on every Wal-Mart bag: 'Always low prices. Always."'
Fishman, a senior editor at Fast Company, has done his research. He relates inside stories from retired Wal-Mart executives and suppliers. He gives space to an academic paper that proves that Wal-Mart lowers retail prices when it moves into new markets, and another that proves it kills jobs, too. He takes you up and down the aisles of Wal-Mart's big boxes, alternately marveling at the pallets of cheap lightbulbs and griping about the long waits at the checkout counter. He makes facts and figures easy to grasp -- and puts it all together in a breezy style. Although the folks in Bentonville won't like it, The Wal-Mart Effect is not an anti-Wal-Mart screed.
But there is something missing: Those folks in Bentonville. Although Fishman has written about Wal-Mart before, there's no evidence in his book that he has ever set foot in its headquarters or even driven around the town. He gives Wal-Mart's side of most stories, but the quotes all come from other sources such as newspaper clips or court filings.
Nonetheless, Fishman succeeds in showing how the company works and how it is transforming the economy. Over 40 years, Wal-Mart has taught Americans to love a bargain above anything else. Fishman says it even deserves praise. "No company can claim greater fidelity to its core value," he writes. "No company, in that sense, is more truly trustworthy than Wal-Mart." But even titans fall if they don't adapt. Inevitably, Fishman predicts, a day will come when one or another rival prices its products lower than Wal-Mart's. And that day is closer than its managers probably think.
Corrections and Clarifications
In "Danger: Falling prices" (Books, Jan. 30), reviewer Michael Arndt stated that author Charles Fishman should tell readers whether or not Wal-Mart Stores Inc. had refused to respond to his questions. In fact, Fishman states in his footnotes that Wal-Mart "consistently declined" to "participate in the reporting of the book."
By Michael Arndt