shopping at walmart

[DarkWing6]

"But what should concern us today even more is a mirror image of monopoly called “monopsony.” Monopsony arises when a firm captures the ability to dictate price to its suppliers, because the suppliers have no real choice other than to deal with that buyer"

"The idea that Wal-Mart's power actually subverts the functioning of the free market will seem shocking to some. ... One of the basic premises of the free-market system is that actors are free to buy from or sell to a variety of other actors. In the case of Wal-Mart, no one can deny that every single firm that supplies the retailer is, technically, free not to do so. But is this true in the real world? After all, once a firm comes to depend on selling through Wal-Mart's system, just how conceivable is the idea of walking away? Producers own and maintain machines, employ skilled workers, lease land and buildings. Even with careful planning, most would find the sudden surrender of 20 percent or more of their revenue to be extremely disruptive, if not suicidal."

I really hoped you weren't going to go here with your explination.

Is it Wal-Mart's fault that a vendor changes everything to supply them?

This isn't a real story, but this is the idea of what is going on.

Let's say JimBob Inc builds widgets. Right now they are a small firm manufacturing and selling to smaller stores a few thousand widgets per year. All of the sudden Wal-Mart comes in and asks JimBob if he would like to build widgets for them for the next 3 years. They would like him to make 10x the amount of widgets he is now. JimBob sees this as a great oportunity, signs a contract for the next 3 years, and changes the way the company works, factories, workers, etc to supply Wal-Mart with these new larger quantities. This is obviously a large investment for JimBob. After those 3 years are up Wal-Mart comes back to JimBob and says we would like to continue this relationship, but we are going to need them for $X price. JimBob cannot afford to supply them at this cost because he would be losing money. He also cannot simply go back to making a few thousand becasue of all of the money he invested to supply Wal-Mart with 10x what he was manufacturing. Is this Wal-Mart's fault, or is it JimBob's fault for making a large investment and changing his business completely over a 3 year contract?

Obviously I think it is JimBob's fault for making a poor investment. The same way he changed before he is going need to change now. Find new vendors, take the loss cause you made a bad decision, etc. Why should he expect Wal-Mart to buy from him at a certain price for 10 years when a 3 year contract is signed? If you believe this is Wal-Mart's fault and they are responsible you may as well vote for Obama.

Here is where I see the future though. Wal-Mart is not going to be able to sustain. Manufacturing plants and vendors are going to hear similar stories to JimBob's. People will then stop supplying Wal-Mart the same way they are now. This will cause Wal-Mart's costs to go up or products to be nonexistant. They will then either have to raise prices (leaving their current low cost, low quality strategy), go out of business cause they have no products left to sell, or make some other significant, costly change in their business. That is the way the market works.

[Turf1600]

I really hoped you weren't going to go here with your explination.

Is it Wal-Mart's fault that a vendor changes everything to supply them?

This isn't a real story, but this is the idea of what is going on.

Let's say JimBob Inc builds widgets. Right now they are a small firm manufacturing and selling to smaller stores a few thousand widgets per year. All of the sudden Wal-Mart comes in and asks JimBob if he would like to build widgets for them for the next 3 years. They would like him to make 10x the amount of widgets he is now. JimBob sees this as a great oportunity, signs a contract for the next 3 years, and changes the way the company works, factories, workers, etc to supply Wal-Mart with these new larger quantities. This is obviously a large investment for JimBob. After those 3 years are up Wal-Mart comes back to JimBob and says we would like to continue this relationship, but we are going to need them for $X price. JimBob cannot afford to supply them at this cost because he would be losing money. He also cannot simply go back to making a few thousand becasue of all of the money he invested to supply Wal-Mart with 10x what he was manufacturing. Is this Wal-Mart's fault, or is it JimBob's fault for making a large investment and changing his business completely over a 3 year contract?

Obviously I think it is JimBob's fault for making a poor investment. The same way he changed before he is going need to change now. Find new vendors, take the loss cause you made a bad decision, etc. Why should he expect Wal-Mart to buy from him at a certain price for 10 years when a 3 year contract is signed? If you believe this is Wal-Mart's fault and they are responsible you may as well vote for Obama.

Here is where I see the future though. Wal-Mart is not going to be able to sustain. Manufacturing plants and vendors are going to hear similar stories to JimBob's. People will then stop supplying Wal-Mart the same way they are now. This will cause Wal-Mart's costs to go up or products to be nonexistant. They will then either have to raise prices (leaving their current low cost, low quality strategy), go out of business cause they have no products left to sell, or make some other significant, costly change in their business. That is the way the market works.

What seems more likely is they will turn to china for knock offs at a lower price. I'm not sure it would put them out of business - but it may hurt. People don't go there for high quality products. But you're right - they can't keep pushing prices down. That strategy won't fly forever.

[Dave]

I really hoped you weren't going to go here with your explination.

Is it Wal-Mart's fault that a vendor changes everything to supply them?

This isn't a real story, but this is the idea of what is going on.

Let's say JimBob Inc builds widgets. Right now they are a small firm manufacturing and selling to smaller stores a few thousand widgets per year. All of the sudden Wal-Mart comes in and asks JimBob if he would like to build widgets for them for the next 3 years. They would like him to make 10x the amount of widgets he is now. JimBob sees this as a great oportunity, signs a contract for the next 3 years, and changes the way the company works, factories, workers, etc to supply Wal-Mart with these new larger quantities. This is obviously a large investment for JimBob. After those 3 years are up Wal-Mart comes back to JimBob and says we would like to continue this relationship, but we are going to need them for $X price. JimBob cannot afford to supply them at this cost because he would be losing money. He also cannot simply go back to making a few thousand becasue of all of the money he invested to supply Wal-Mart with 10x what he was manufacturing. Is this Wal-Mart's fault, or is it JimBob's fault for making a large investment and changing his business completely over a 3 year contract?

Obviously I think it is JimBob's fault for making a poor investment. The same way he changed before he is going need to change now. Find new vendors, take the loss cause you made a bad decision, etc. Why should he expect Wal-Mart to buy from him at a certain price for 10 years when a 3 year contract is signed? If you believe this is Wal-Mart's fault and they are responsible you may as well vote for Obama.

Here is where I see the future though. Wal-Mart is not going to be able to sustain. Manufacturing plants and vendors are going to hear similar stories to JimBob's. People will then stop supplying Wal-Mart the same way they are now. This will cause Wal-Mart's costs to go up or products to be nonexistant. They will then either have to raise prices (leaving their current low cost, low quality strategy), go out of business cause they have no products left to sell, or make some other significant, costly change in their business. That is the way the market works.

The thing is Derek, WalMart intentionally targets these kinds of vendors and exploits them in this way. Then once they are gone, they go to China. Most of you guys might not be old enough to remember this, but WalMart used to have huge marketing campaigns touting the fact that they sold MADE IN THE USA goods. They even profiled companies that they "saved" by choosing to buy American.

Hell, now even a lot of the food they sell comes form China. Take a look at the label on a bottle of WalMart brand Apple Juice . . . .

WalMart has become a master at externalizing costs. Like the way they train their employees to get government assistance - it avoids the direct cost of employee health coverage.

They have historically done it with real estate as well. Before the Supercenters came around, WalMart would say they were opening up a new store in some rural town and they would not buy the property but would lease it from investors who would build the store. They would negotiate terms based on a 30 amortization to those people, but WalMart had plans to stay only 10 (maybe 15).

Put this into the bigger picture - they would do this in say 4 towns in a 40 mile radius. The Stores would effectively eliminate all of the local clothing/hardware/mom and pop stores.

THEN, Walmart pulls the plug on all four of its stores and builds one, maybe two SUperCenters to serve the same geographic region.

They have wiped out 90% of the other retailers, and now they leave the investors who built their "normal" stores holding the bag on a Big Box that they cannot possible lease for any reasonable amount - I mean, who is going to move in and compete with WalMart? If you go around rural parts of the South, these empty WalMart strips are littered across the landscape.

[Turf1600]

They have wiped out 90% of the other retailers, and now they leave the investors who built their "normal" stores holding the bag on a Big Box that they cannot possible lease for any reasonable amount - I mean, who is going to move in and compete with WalMart? If you go around rural parts of the South, these empty WalMart strips are littered across the landscape.

There's one near me I'm looking to build a skatepark in :)

[DarkWing6]

What seems more likely is they will turn to china for knock offs at a lower price. I'm not sure it would put them out of business - but it may hurt. People don't go there for high quality products. But you're right - they can't keep pushing prices down. That strategy won't fly forever.

I'm not saying it will put them out of business (I would be very surprised if they did) and they already go to China for some of the crap they sell. I'm basically saying it is not their fault that the suppliers are idiots, so people need to quit putting it on them. And sooner or later this will come back to bite them in the ass. They will have to change something if they want to sustain. That is what makes a company great, the ability to change as the economy, culture, etc changes around you.

I don't shop at Wal-Mart cause I'm not the low cost, low quality guy (I get some stuff there from time to time), but I think they have a very good business model. It will be interesting to see how things pan out in the future.

[DarkWing6]

The thing is Derek, WalMart intentionally targets these kinds of vendors and exploits them in this way. Then once they are gone, they go to China. Most of you guys might not be old enough to remember this, but WalMart used to have huge marketing campaigns touting the fact that they sold MADE IN THE USA goods. They even profiled companies that they "saved" by choosing to buy American.

Hell, now even a lot of the food they sell comes form China. Take a look at the label on a bottle of WalMart brand Apple Juice . . . .

They changed their strategy. Companies do that all the time. I'm sure they weren't low cost, low quality if everything was made in the US. They may not have been Nordstrom, but it wasn't the same crap they are selling today. It's not like they are telling people is still all US made.

WalMart has become a master at externalizing costs. Like the way they train their employees to get government assistance - it avoids the direct cost of employee health coverage.

I think this is a very good business strategy. Genius if you ask me. Take advantage of the resources around you by training people to get government health care instead of paying it yourself. It's not like they were hanging their employees out to dry. They would offer classes on how to get the gov't health care, etc.

They have historically done it with real estate as well. Before the Supercenters came around, WalMart would say they were opening up a new store in some rural town and they would not buy the property but would lease it from investors who would build the store. They would negotiate terms based on a 30 amortization to those people, but WalMart had plans to stay only 10 (maybe 15).

See my previous post. People sign contracts for a reason. Why would a building owner/investor negotiate on a 30 year amortization and sign a 10 year contract? That's dumb business.

Put this into the bigger picture - they would do this in say 4 towns in a 40 mile radius. The Stores would effectively eliminate all of the local clothing/hardware/mom and pop stores.

THEN, Walmart pulls the plug on all four of its stores and builds one, maybe two SUperCenters to serve the same geographic region.

So they are forcing people to buy crap? Maybe they have the market for cheap crap, but if people can only afford the cheapest thing possible why wouldn't those people want a Wal-Mart? It's not like Wal-Mart puts small high quality, high priced clothing stores out of business. Differentiation strategies would do wonders against Wal-Mart.

They have wiped out 90% of the other retailers, and now they leave the investors who built their "normal" stores holding the bag on a Big Box that they cannot possible lease for any reasonable amount - I mean, who is going to move in and compete with WalMart? If you go around rural parts of the South, these empty WalMart strips are littered across the landscape.

Again, dumb investors investing long term on a short term contract.

[rwh11385]

I'm basically saying it is not their fault that the suppliers are idiots, so people need to quit putting it on them.

?? Is it also the victim's fault then they fall for a scam artist??

And sooner or later this will come back to bite them in the ass. They will have to change something if they want to sustain. That is what makes a company great, the ability to change as the economy, culture, etc changes around you.

Hopefully soon it will bite them in the ass. Oh wait, they feed off lower income people who don't have the luxury of being able to go somewhere else, regardless of the evilness of Walton family's decisions. They've grown rich off the downfall of suppliers, local communities, and our trade balance. One company should not be able to control our economy or communities as they see fit.

I don't shop at Wal-Mart cause I'm not the low cost, low quality guy (I get some stuff there from time to time), but I think they have a very good business model. It will be interesting to see how things pan out in the future.

It's good, but bad for everyone they deal with. Technically stealing purses until you get caught is a very profitable business model as well.

[Turf1600]

?? Is it also the victim's fault then they fall for a scam artist??

Yes, it is their fault.

[rwh11385]

Yes, it is their fault.

I'm calling up your grandma and selling her some terrorism insurance.

[Turf1600]

I'm calling up your grandma and selling her some terrorism insurance.

My grandma sleeps with a gun under her pillow. I will give you her real # and let you try to call her. She will tell you to fuck off and rot in hell.

[Ryan Stewart]

Shit up here they don't sell handgun ammo at walmart because they feel that it promotes violence, from what i was told. I thought it was ironic that they did however sell 7.62x39 mm ammo which if i am not mistaken only fits into one particular make of firearm. I thought an AK-47 had a worse reputation for violence than handguns in the eyes of the liberals.

It also works in the SKS, which is a popular semi-automatic for rednecks. You can buy beat to shit ones at gunshows for <$100.

[DarkWing6]

?? Is it also the victim's fault then they fall for a scam artist??

If you are a business person negotiating, and signing contracts you should probably pay attention to what you are negotiating and signing. You are an idiot for not. If you fall for stupid mistakes like this you should either not be in business or you wont be for long.

If I bought a bunch of viagra and penis elargement pills from a random email I got is it my fault if my credit card info got stollen? YES!

Hopefully soon it will bite them in the ass. Oh wait, they feed off lower income people who don't have the luxury of being able to go somewhere else, regardless of the evilness of Walton family's decisions. They've grown rich off the downfall of suppliers, local communities, and our trade balance. One company should not be able to control our economy or communities as they see fit.

How do you plan on controlling that? The market will. It sucks that our economy is in a recession now, do you think the gov't should attempt to bail us out? No, there are ups and downs in life and in the market. Wal-Mart might be up right now, but it wont last. It is not sustainable. It is not Wal-Mart's job to make sure their suppliers are getting the better end of the deal. There are good things that come out of taking care of your suppliers. Wal-Mart does not do that and it will hurt them.

It's good, but bad for everyone they deal with. Technically stealing purses until you get caught is a very profitable business model as well.

Stealing purses is illegal. There are a lot of illegal things you could do that could be profitable. Wal-Mart is not doing anything illegal. Some might argue the moral issue, but that is not my case. I am saying there is no such thing as unfair competition if the law is being followed.

[Ryan Stewart]

heeter, there is only one person to blame for Wal-Mart's practices, the consumer.

Dont agree with them dont support them. I personally dont care if their version of globalism is making it hard for mom and pops to compete. I deal with in my own way (by voting against land rezoning for Wal Marts, they have been trying to build a second in our town). That and I avoid it like the blacks.

[rwh11385]

There are a lot of illegal things you could do that could be profitable. Wal-Mart is not doing anything illegal. Some might argue the moral issue, but that is not my case. I am saying there is no such thing as unfair competition if the law is being followed.

predatory pricing is illegal... search for cases against them and you'll see several

http://www.stolaf.edu/people/becker/antitrust/statutes/ftc.html

The Federal Trade Commission Act (1914)

Sec. 45. Unfair methods of competition unlawful; prevention by Commission(a) Declaration of unlawfulness; power to prohibit unfair practices; inapplicability to foreign trade (1) Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful.



Now what which Dave mention does not sound deceptive? And not affecting commerce?



What is needed is an equal competitor or two. Balance out the power and not have a single company force practical vertical integration on producers.



But what if a company tried to challenge Walmart? How likely would Walmart go to its suppliers and say if they go to the new store, they lose Walmart's business... which can break some of them. That is not good for competition. And not good for the economy.

[rwh11385]

http://query.nytimes.com/gst/fullpage.html?res=9904E2D8123AF936A25753C1A96E958260

F.T.C. Tells Toys 'R' Us to End Anticompetitive Measures
Published: October 15, 1998

The Federal Trade Commission unanimously upheld today an earlier ruling by an administrative law judge that Toys ''R'' Us, the nation's largest toy retailer, had colluded with manufacturers to prevent competing retailers from offering toys at lower prices.

The commission's opinion, written by the F.T.C.'s chairman, Robert Pitofsky, found that Toys ''R'' Us had ''used its dominant position as toy distributor to extract agreements from and among toy manufacturers to stop selling to warehouse clubs the same toys that they had sold to other toy distributors.''

The commission ordered the company to stop engaging in the illegal practices.

Toys ''R'' Us, which is based in Paramus, N.J., and operates about 650 stores nationwide, is estimated to have about 30 percent of the nation's toy business. [that is about what Walmart controls in many products now]

The Government first filed a complaint against the company in 1996, contending that Toys ''R'' Us was using its dominant market position to eliminate competition from warehouse price clubs, like Price/Costco and the Sam's Club arm of Wal-Mart Stores.