15 September 2009

Retailing’s Competitive Battlefield

A “greeter” awaits customers entering one of the stores of the chain Wal-Mart, the largest private employer in the United States.

This article is excerpted from the book Outline of the U.S. Economy, published by the Bureau of International Information Programs. View the entire book (PDF, 3.26 MB).

The story of Wal-Mart’s stunning rise within a single generation from a commonplace, low-price variety store in Arkansas to the world’s largest and most powerful retailer illustrates many fundamental shifts taking place in the U.S. economy. Wal-Mart’s fixation on beating competitors’ prices and squeezing its operating costs to the bone year after year has proved to be a potent strategy. By 2006, The Wal-Mart Effect author Charles Fishman reported, more than half of all Americans lived within eight kilometers of a Wal-Mart store.

Although Wal-Mart typically sought out U.S. manufacturers to stock its shelves, as the company grew, Wal-Mart management accelerated their search for lower-cost products and components in overseas markets. Today, Wal-Mart has become the most important single conduit for foreign retail goods entering the U.S. economy.

Wal-Mart’s spread across the American landscape has provoked intense opposition from critics, led by labor organizations fighting what they view as the company’s anti-union policies. Wal-Mart workers make half the wages of factory workers, or less, and have sometimes had wages capped to hold down store costs. Personnel turnover is relatively high, but the company reports it routinely gets 10 applications for every position when a new store opens. The company is using its economic clout to promote energy-efficient products, solar energy installations at its stores, and fuel conservation by its truck fleet, and has urged employees to support its “green” strategies. Its “big box” stores, exceeding 13,000 square meters in size, have been vilified by some for overwhelming nearby small-town merchants.

However, retailing in the United States has always been intensely competitive, with losing technologies and strategies falling by the wayside. The spread of electricity in cities and the invention of the elevator in the 1880s enabled retailing magnate John Wanamaker and imitators to create the first downtown department stores. Then Sears and other catalog stores opened a new retailing front—shopping from home. The movement of Americans who followed the Interstate Highway System to ever more distant suburbs undermined local merchants long before Wal-Mart reached its leviathan size. And Wal-Mart’s recent U.S. growth has slowed, as it and other big retailers face competition from Internet shopping and specialty marketers.

The older, simpler U.S. retail model of a century ago, when community-based merchants sold largely made-in-America products, might have provided a more stable economic base for some communities. But this static model often failed to adapt to new conditions generated by the nation’s dynamic economic, social, and political institutions.