Wal-Mart was established in 1962 by Sam Walton (Fishman, 2006). The founder’s vision, and also one which has been passed on over the years, was to establish a multinational retail store. The company is actualizing this vision, and today has about 8,500 stores worldwide (Lichtenstein, 2010). However, the growth of Wal-Mart has not resulted in only positive impacts but also negative implications. This is because as a result of the continued expansion of the company, smaller retailers are forced out of business and their employees receive lower wages.
In order to understand the effect Wal-Mart has on other smaller retailers, it is essential to comprehend several unique attributes about the retail industry. First, the industry has high barriers to entry, and, as a result, small retailers are locked out due to lack of enough capital. The retail industry is also highly competitive which reduces the chances of success for smaller retailers (Fishman, 2006). This is because large retailers like Wal-Mart and Kroger have the financial muscle required to initiate nationwide marketing campaigns. Having understood these essential characteristics of the retail industry, let us now consider the pros and cons of the Wal-Mart expansion.
The effects of the Wal-Mart expansion are commonly referred to as the Wal-Mart effect. The implications of the retailer’s expansion are crucial especially during the current tough economic situations. In such economic conditions, retailers would prefer to reduce their operational costs to increase their profit margins. However, when a large retailer like Wal-Mart opens a store near a smaller retailer, the latter is forced to increase their marketing costs so as to retain market share.
A key economic concern is the rising inflation rates. It is necessary to point out that the Wal-Mart effect can help reduce the rate of inflation. The rise in food and other essential commodities prices places a financial burden on most consumers. However, Wal-Mart has been noted to create price ceilings hence protecting consumers from rising inflation (Lichtenstein, 2010). Also, since the company has a large market share and consequently strong control over the market, Wal-Mart has helped lower prices when they are on an upward trajectory. Wal-Mart’s impact on inflation rates is based on the company’s objective of offering lowest prices in the retail industry. Most consumer groups support the continued expansion of the retailer mainly because of its reduction of inflation.
The growth of any business creates the need for increasing the human resource. Similarly, the growth of Wal-Mart has increased employment opportunities in various countries including the United States. To understand the significance of employment creation, one should see how this topic has featured prominently in the 2012 presidential debates. At present, Wal-Mart has employed approximately 1.2 million workers. It is expected that, with continued growth, the retailer can continue creating jobs for both the United States citizens and other foreigners. Several political groups vouch for Wal-Mart based on the company’s ability to reduce unemployment.
A negative implication of the Wal-Mart effect is that it tends to create a monopoly in the retail industry. This is because when the company forces smaller retailers to close it takes over their market share. At present, Wal-Mart has about 80% market share in the retail industry. With the retailers continued expansion, its market share is expected to reach 85% before 2017 (Lichtenstein, 2010). Having such a dominant market share allows Wal-Mart to bully other smaller competitors, and this is not favorable for the growth of the industry. This negative impact caused by the Wal-Mart effect is the reason why most business owners’ group are against the retailer expanding into their territories.
Wal-Mart has been accused of forcing the salaries employees in the industry receive. This is mainly because competitors have to reduce operation costs to maintain margins when the large retailer enters their market segments. Since the retailer does not allow its employees to join trade unions, it has been accused of denying them the freedom of association. The non-union policy pursued by the retailer gives its management team full control to dismiss employees whose complaints are against company policies. As a result of this negative impact on employees, trade unions and other employee organizations are against Wal-Mart’s policies.
Most states have laws that give them the ability to approve new large businesses that are to be opened there. It is these laws that are commonly used to stop the Wal-Mart effect. According to Hughes (2012), the state of New York refused to grant the retailer a permit to open a store in the city. This refusal was mainly because of the company’s tendency to lower wages and force smaller businesses to close down.
In my opinion, the opposition towards Wal-Mart is justified. This is because, though the company creates job opportunities, it takes away more jobs than it provides. Also, the jobs the retailer creates are lowly paying which reduces the living standards in the community. I acknowledge that the role played by Wal-Mart in reducing inflation is commendable; however, the company’s use of its dominant market share to drive smaller retailers out of business is detrimental for the economy. Though the United States is a capitalist state, the government should establish a way of controlling large private companies such as Wal-Mart. This will help ensure that all business operations benefit residents of the U.S.
References
Hughes, M. (2012). Wal-Mart fails to crack New York. Telegraph. Retrieved from http://www.telegraph.co.uk/news/worldnews/northamerica/usa/9546569/Walmart-fails-to-crack-New-York-City.html
Lichtenstein, N. (2010). Wal-Mart: The Face of Twenty-First-Century Capitalism. New York: New Press
Fishman, C. (2006). The Wal-Mart Effect: How the World’s most Powerful Company really works- and how it’s transforming the American Economy. London: Penguin Books
