BOOK REVIEW Supply and
demand: Doing it the Wal-Mart way The Wal-Mart Effect by Charles Fishman
Reviewed by Benjamin A Shobert
Much of the current dialogue concerning Wal-Mart's impact on the economy seems
one dimensional: the pro-Wal-Mart side wants to claim the retailer represents a
business renaissance the likes of which the world has not seen since the
Industrial Revolution. The anti-Wal-Mart side desires to place at Wal-Mart's
feet every ill encountered by American society, the current-day woes of
American manufacturers in particular.
Both skim the surface of deeper questions, which Charles Fishman, in his book The
Wal-Mart Effect, manages to avoid. Instead of falling into these
ideological traps, Fishman explores questions of partnership and what it might
mean for Wal-Mart to
benefit one geo-political class or region while negatively impacting another.
In a word, his analysis is holistic as opposed to brittle and shrill.
The last twelve months have yielded a host of new books and documentaries on
Wal-Mart. Very few manage to avoid portraying Wal-Mart in a stereotype that
aligns with their respective ideology - little nuance can be found on the topic
of Wal-Mart.
The
always present force of American political populism plays a particularly
significant role in most deconstruction of the impact Wal-Mart has on the
economy and local communities.
As unemployment fluctuates and well-known American manufacturers close shop and
move to lower-cost manufacturing parts of the world, those left to cope in a
new economy whose job potentials require training they do not have or
compensation that would negatively alter their lifestyle, Wal-Mart becomes a
convenient target for their accumulating wrath.
Enter Fishman and his superb The Wal-Mart Effect to counter this.
Gone are the vain platitudes about small-town America that Wal-Mart has
decimated; but also gone is the equally incestuous analysis of Wal-Mart's
impact on business strategy, which states that Wal-Mart's impact is only
healthy - a logical extension of the invisible hand of the market made more
efficient by the logistics' technology of the computer age.
If there is a weakness to Fishman's book, it is his inability to directly
access how large manufacturers really view Wal-Mart. This is certainly not
Fishman's error as few chief executive officers whose business futures are
inexorably tied to Wal-Mart remaining a customer would be willing to speak with
the candor Fishman's analysis demands.
Two of Fishman's primary CEO interviews are with the founder and president of
Makin Bacon, Jonathan Fleck, and Jim Wier, of Simplicity - the owners of
Snapper lawn mowers. The Makin Bacon information is interesting and is a way
for Fishman to draw out the good within Wal-Mart: namely, that its retail
leadership position can capitalize a new business and pull an idea out of
obscurity into the marketplace. This is an important power, and if properly
managed, could make Wal-Mart a force for innovation. But Fishman is careful to
place a bookend against the idea that Wal-Mart is a force for innovation in his
series of discussions with Wier.
Wier's company made the loaded decision not to do business with Wal-Mart
because Snapper understood their customers bought with a particular emphasis on
product quality, customer service and local service and repair, which doing
business with Wal-Mart would not support. Wal-Mart's volume would certainly
have been meaningful to Snapper - as long as the primary metric used was sales'
revenue. If the evaluating metric was profitability, then the Wal-Mart proposal
became decidedly different from Snapper's perspective.
Wier knew that fluctuations in his raw material prices could make the Wal-Mart
supply contracts drive his product line to a break-even proposition. Perhaps
most importantly, he knew that a move to do business via Wal-Mart would
circumnavigate Snapper's existing resellers, a critical part of his channel to
market that competitors could pounce on, and disquieted consumers once used to
local support would not appreciate.
Few companies have their own distribution channels as Snapper does; however, in
his own thoughtful way, Fishman is suggesting that if manufacturers want to
preserve their margin, they must do something that more closely positions their
product, service or technology to the consumer. As long as Wal-Mart does the
work of the manufacturer for them, there is little the manufacturer can
complain about.
Fishman's quietly made point is well said: do business with Wal-Mart if you
will, but do not complain about the position they consequently put you in. If
you want another outcome, develop an alternative business model.
By constructing his book through carefully chosen examples, Fishman is able to
draw out what Wal-Mart does well at the same time he points at the downside
risk of doing business with them.
Fishman does not shy away from stressing the enormous efficiencies Wal-Mart has
created for consumers and manufacturers. Makin Bacon serves as a good example
of how a small business, through Wal-Mart's expansive distribution
infrastructure and easy-to-use information systems, can create a multi-million
dollar business.
The segue Fishman manages to make on this topic is brilliant: these enormous
efficiency gains in distribution technology and the resulting lower cost to the
consumer are actually making American consumers more inefficient.
One example Fishman uses to illustrate his point is the ubiquitous American
refrigerator item of packaged pickles. Because Wal-Mart is so successful at
distribution and has forced substantial price concessions from pickle
producers, the American consumer buys too many pickles. The pickles are bought
knowing full well they will never all be used, but since the price is so low,
few people care.
The point is a subtle one, but bears wrestling with: can pressure on efficiency
gains become inefficient if it is not actually created by the market? This is a
part of Fishman's overarching Wal-Mart effect - that the company has become a
force augmenting the market itself and, in many cases, doing to a particular
good what the market does not need done. In the case of pickles, the consumer
did not want more pickles, but Wal-Mart's underlying business model (everyday
low prices) begets an unrelenting pressure on every product sitting on every
shelf. The unprecedented result is an artificial market force that
over-stimulates the pricing portion of the consumer's purchasing decision.
This unrelenting pressure on price appeases an obvious consumer need - low
prices. But low prices are in and of themselves only part of the delicate dance
between the retailer and the consumer. While low prices are important,
consumers also want their shopping experience to be enjoyable. The unrelenting
and singular pressure on price upon which Wal-Mart has built its reputation and
multi-billion dollar business has an impact on the environment and culture of
the stores, and the company itself.
Fishman manages to comment tactfully on the Wal-Mart offices in Bentonville,
Arkansas, which are filled with manufacturer samples of plastic lawn chairs
instead of the prototypical American office furnishings.
Successfully managing to avoid being mean-spirited, Fishman is working to point
out that the almost evangelical zeal Wal-Mart has on price impacts more than
just price - it diminishes the intangible joy of being a partner with, an
employee of and a customer within the Wal-Mart system.
Wal-Mart has little intangible allure to the consumer. It is a meat-market, an
oil-change, which means it does not capture the part of the American consumer
where lasting loyalty resides. It is as if Fishman, while writing this book,
foresaw the changes Wal-Mart has recently been attempting to make in its
marketing. Deemphasized in this most recent advertising is the "Everyday Low
Prices" slogan with the swashbuckling smiley face (the smiling yellow button).
Now, well-crafted two-page print advertisements show on one side the commodity
the consumer wants at a low price, on the other side a well adorned kitchen,
living room or dining room whose accoutrements were unexpectedly found while
shopping at Wal-Mart.
Will Wal-Mart make this transition? Fishman stops short of predictions, seeming
to be comfortable that his contribution to the public dialogue over Wal-Mart
will be to draw out the deeper questions and issues that are too easily glossed
over by those using Wal-Mart for a vehicle to their own political aspirations
and ideologies.
The Wal-Mart effect is essential for those doing business with Wal-Mart, those
seeking to understand the role price plays to North American consumers and
individuals who seek to understand how Wal-Mart is impacting the global
economy. Few readers will set this book down without profit.
The Wal-Mart Effect by Charles Fishman. Penguin Press HC, The (January
19, 2006). ISBN: 1594200769. 304 pages. Prce: US$25.95.
Benjamin Shobert is the managing director of Teleos Inc
(www.teleos-inc.com), a consulting firm dedicated to helping Asian businesses
bring innovative technologies into the North American market.
(Copyright 2006 Benjamin Shobert. Used by permission.)
The
always present force of American political populism plays a particularly
significant role in most deconstruction of the impact Wal-Mart has on the
economy and local communities.
