The Super Store Business
Model
What Did We Learn from
Wal-Mart?
Prepared by a group of local
citizens
for the education of the community.
March 2000 Taos
Valley
We Owe It to Ourselves to Understand the
Forces That Are Shaping Our Community.
This packet is not just about Wal-Mart—it is about us. We are
making choices that are shaping our human environment for better or worse.
How conscious are these choices, and how much do we actually carefully consider
their consequences?
We, here in Taos Valley, are not finished with this issue.
If not Wal-Mart (and don’t be so sure the super store won’t try to come back),
others will come, and we will face these forces again and again. These issues,
be they external or internal, will return to subvert our planning decisions, to
build developments whose scale and ugliness overwhelm our community, only to
benefit the few at the expense of the many
Our best defense is to be informed. The Wal-Mart business model is a good place to start because it is widely copied in the United States, and is now making its way all over the world. Understanding this business model is critical in defining a good model for economic development in Taos.
Taos–A National Historic Treasure
===================
The Goals of Our
Community
The Vision 2020 Master Plan for the Town of Taos and the
surrounding area, adopted in January 1999 after more than three years of
intensive work by hundreds of local people, set out an important vision related
to economic development. [Section IV, Economic Development
(pp.53)]
General Goal: The Taos economy is diverse,
self-sustaining, and provides rewarding jobs that pay well.
"The Thrift acquisition, though is a real wild card. Given Wal-Mart’s desire to fill multiple niches in the communities it serves ( selling, for instance, clothing, computers, groceries and gasoline all in the same store), it could be a way to enter the personal-banking business, using its store base in all 50 states to become village banker to a staggering number of people." [Kiplinger’s Personal Finance Magazine, Wal-Mart Buys Britain! Eyebrows Arch. Brian P. Knestout Vol.53, No. 9, pp.34.]
The U.S. is blanketed with
Wal-Mart boxes. Eight states have a Wal-Mart for every 50,000 persons (that’s
every man, woman, and child), and most remaining states have a Wal-Mart for
every 50,000 to 100,000 persons —but, Wal-Mart wants to build
more!
Clearly not one
of the “small, sustainable industries that do not negatively impact the
environment or the rural character of the area,” (Goal I,
previous page).
--------------------
Separating Fact from
Fiction
Wal-Mart’s size and business
practices make it very difficult for communities to separate the corporate
“party line” from the impacts Wal-Mart has on people and
communities.
Create jobs, with good benefits & “market wages”
Help other businesses by creating more traffic,
Maintain everyday low prices,
Buy U.S. made goods (“when we can”), and
Contribute a “fair share” to community charities.Through a combination of ignorance and lack of resources, communities are led to believe Wal-Mart promises, and are easily threatened by a Wal-Mart Corporation desperate to maintain huge revenue increases.
The following analysis shows the gap between
Wal-Mart’s image and the reality.
Take a Look at Jobs
Average Hourly Wage (non-management)
Smith's/Furr's: $13.00
Wal-Mart: $7.50
A 180,000 sq.ft. Wal-Mart Super Store, with a 40,000 sq. ft. grocery store and low-wage, non-union jobs, would surely drive two stable, family friendly grocery stores like Smith’s and Furr’s [now Raley's] , right out of Taos. [Smith’s/Furr’s data are from reliable sources. Wal-Mart does not share these data. See: Bob Ortega, In Sam We Trust, Random House, 1998, pp 361. Since Wal-Mart employee turn-over is high, and Wal-Mart entry level wages are at or near minimum wage, the $7.50 estimate is probably high. The current U.S. minimum wage is $5.15/hr. See also, The Shils Report, Measuring Economic and Social Impact of the Mega-Retail Discount Chains etc., 1997, from the Wharton School of Entrepeneurial Studies, Chapter III, pp 4, states, "Retail employment in most of the major chains can usually lead to a wage near the federal minimum or slightly above it."]
Even if Wal-Mart hired all of these
employees at the Super Store . . .
our friends and neighbors would
lose ~$1,500,000 in
wages,
every year!
[Please see second note, below, for assumptions.]
---------------------[Bob Ortega, In Sam We Trust, Random House, 1998, pp361. "Wal-Mart employees paid a third of their plans premium out of their own pocket, along with a $250 deductible."]
The direct loss of $1,500,000 in wages would be accompanied by the staggering loss of over $1,000,000 in annual benefits earned by Smith’s and Furr’s employees. These dollars would not be available locally, to buy or improve housing, educate our children, or make purchases such as, health care, prescriptions, tires, autos and clothing. [Currently, Smith’s, Furr’s and WM are estimated to provide 280 FTE jobs, for total compensation of $5,865,000. Assumes a new WMSS opens & Smith’s & Furr’s close. Assumes also that WMSS replaces the 280 Full-Time-Equivalent jobs lost, @ average $7.50/hr.for total wages of $4,368,000. Note, however, that, "...fewer employees are required for each $1 million in sales at Wal-Mart than for the same quantity of sales in other retail stores..." Muller & Humstone, What Happened When Wal-Mart Came to Town, For The National Trust for Historic Preservation, May 1996, pp 8.]
In addition, local stores recycle money in the community. Every dollar spent with a locally owned business gets spent up to two times again. [Dr. Lee A. Reynis - University of New Mexico, Bureau of Business & Economic Research, as presented at Rural Economic Development Forum, Oct. 22, 1998.]
Therefore, lost wages and benefits, with the closing of these two stores
alone, means that, over time, this community would lose purchasing power of
more than $5,000,000, and the gross receipts taxes that would have been paid
to the town and county.
Furr’s and Smith’s
are no more local
than Wal-Mart, but the wages and benefits, more than 1½
times the average retail
salary in Taos, are powerful local
economic
contributions.
--------------------------------
Compare these corporations on family
sustainable incomes
Wal-Mart Annual
Salary
$15,600
Smith’s/Furr’s
Annual Salary
$22,000 to
$30,000
Comparison: U.S. Poverty Level, family of four = $16,700
----------------------------------
Compare These Corporations with One Vision 2020 Master Plan Economic Goal:
"The Taos economy is diverse, self-sustaining, and provides rewarding jobs that pay well."----------------------------------
Wal-Mart makes a lot of money in Taos and gives back wages below the poverty line.
Smith’s and Furr’s give back wages and benefits 1½ to 2x the poverty wage.
----------------------------------
Potential gross revenues
for a 180,000 sq.
ft.
Wal-Mart Super Store: $63,720,000
[Revenue projection based
on Impact of An Anticipated Wal-Mart on the Northern Neck, Thomas Muller,
Ph.D., January 1999. pp 8. National sales average of ~$354 per sq.ft. It
appears, however, that revenues would be even higher in Taos since Wal-Mart
currently is selling ~ $400 per sq. ft.
here.]
[See: What Happened When Wal-Mart Came to Town, A Report on Three Iowa communities with a Statistical Analysis of Seven Iowa Counties, for the National Trust for Historic Preservation, Thomas Muller, Ph.D. & Elizabeth Humstone, Ph.D., May 1996, pp 8.]
[Employee agreement in, Al Norman, Slam Dunking Wal-Mart, Raphel Marketing, Atlantic City, NJ, 1999, pp 47-48. Also see Appendix.]
Wal-Mart claims it helps local
business by creating shopping traffic & increasing
sales.
[But] "In the three case study communities...from
77% to 100% of Wal-Mart sales came from existing businesses in the
county." [From: What Happened When Wal-Mart Came to Town,
A Report on Three Iowa communities with a Statistical Analysis of Seven Iowa
Counties, for the National Trust for Historic Preservation, Thomas Muller,
Ph.D. & Elizabeth Humstone, Ph.D., May 1996, pp 14.
Thus, FROM existing Auto Stores, Drug
Stores, Variety Stores, Shoe Stores, Hardware Stores, Sporting Goods Stores,
etc.
a Wal-Mart Super Store might take as much as
$63,000,000
of the
potential gross revenues of $63,720,000--almost all of it!
------------------
Who
Benefits?
“While Wal-Mart may be thriving, the decline in the rest of the stores means that the net effect is a drop in the number of dollars spent in town...the money Wal-Mart drains from the community won’t come back; it isn’t in the hands of local people who might invest it back in the community. Then you lose a sense of community loyalty, that small town atmosphere...”
[From: Dr. Kenneth Stone, Iowa State University, Mississippi Business Journal, 6/88.]
Wal-Mart’s negative impacts on small communities have been demonstrated in study after study.
[See: Muller, The Northern Neck, January, 1999. Harris, Kevin, American Planning Association, Economic Development Division, News and Views, October, 1996. Stone, Kenneth, Competing With the Discount Mass Merchandisers, Iowa State University, 1995. Dunham-Jones, Ellen, Asst. Prof. MIT, Sprawl: The Low-Commitment Landscape, Harvard Design Magazine, Fall 1997.]
Wal-Mart has already taken a toll on Taos. In 1985 there were 700 retail stores. In 1997 there were 259 retail stores.
A Wal-Mart super store, with its huge footprint and larger array of goods, would mean...
Market domination by Wal-Mart, with 35% to 40% share of all retail sales in Taos.
Good jobs replaced by poverty wage jobs, and probably net loss of retail jobs overall.[Muller and Humstone, What Happened When Wal-Mart Came to Town? A Report on Three Iowa Communities with a Statistical Analysis of Seven Iowa Counties. "...examination of retail employment ...indicates a disturbing trend. Collectively, retail employment increased by only 1 percent, when a 6 percent rise would be expected, given adjusted state patterns."and, "...The linkage between Wal-Mart and reduced employment following the opening year is particularly evident when examining general merchandise employment from employer records over time..." May 1996, pp. 39 & 40.]
And a decline in gross receipts taxes a serious possibility.[See Muller and Humstone, May 1996, pp 37. Six years after the arrival of Wal-Mart market share of all retail sales in the seven counties declined by 6.8%. Losses persisted when adjusted for relative economic growth.]
-----------------------------
And the Profits . . .
How Much Stays in the
Community?
Super store: 5 - 8
%.
Chain store: 20 %
Locally owned business: 60
%
[From: National Public Radio, Sunday Morning Edition. Quoted from Kennedy Smith of The National Mainstreet Center from a study by The National Trust for Historic Preservation. 3-26-2000.]
---------------
Another Vision 2020
Master Plan Economic
Goal:
"Taos’ local population buys
locally and produces goods and services for internal and external
consumption."
Loss of community loyalty is fostered by businesses designed to carry huge profits out of town, to leave behind economic crumbs, and acres of ugly, temporary structures, smack-dab in the middle of our daily lives.
This way of doing business erodes our community fabric, & fails to provide the decent jobs which keep our young people here and well. Many communities have been devastated before realizing that corporations like Wal-Mart are part of the problem, not the solution to economic woes.
Mortgaging our futures
to corporations
that “never have enough,”
only to lose good jobs already in
the community,
makes no sense.
We can do
better!
-------------
According to an Analysis by the U.S. National Bureau of Economic Research, a 20% Drop in
Wages is Statistically Correlated with a 12-18% Increase in Youth Crime.
Source: U.S. Bureau of Labor statistics/Children’s Defense Fund
“These young workers, who are aged between 20 and 29, have seen their real wages (measured here in constant 1996 dollars) fall by almost 22%—a drop that may contribute to rising juvenile crime rates.”
[Southern Poverty Law Center, Intelligence Report, Youth at the Edge, Fall, 1999, pp 22.]
Wal-Mart wages of $7.50 per hour are 10% below even this steadily declining wage. No doubt low wages are just one factor contributing to youth crime rates, but to what extent does the Wal-Mart business model spreading through the U.S. economy increase this trend?
The Shils Report observes that, “...this study (is) concerned as much with the ‘desocialization’ of traditional family communities (as with economic issues)... As retailers fail to survive, so do the neighborhoods fail, with resultant urban crime, drugs, gangs and blight.”
[The Shils Report, Measuring the Economic and Sociological Impact of the Mega-Retail Discount Chains on Small Enterprise in Urban, Suburban and Rural Communities, Edward B. Shils, Ph.D., Director Emeritus, Wharton Entrepreneurial Center, The Wharton School, University of Pennsylvania, February 7, 1997, Ch. I, pp 2.]
-------------------------
Let’s Examine This Business Model More Closely
Wal-Mart Has Capitalized Heavily On Citizen’s Preference to Buy Products Made in the U.S.
[Cited in report below. International Mass Retail Association, released in May, 1994 found that "84% of Americans either strongly or moderately prefer American products to those produced overseas. Sixty-four percent (64%) either moderately or strongly indicated that they would pay 10% more for a U.S. product, than a comparable one made offshore."]
[Report of United Food & Commercial Workers@ www./ufcw.org/worker/walmart/wmreport.html]
Over 300 empty stores nationwide, and
10 abandoned stores in the state of New Mexico. In Warr Acres, Oklahoma, Wal-Mart closed its store—which is the size of three football fields—after only eight years of operation. According to the mayor, Tommy Pike, Wal-Mart is moving out for a “bigger”suitor (and) Warr Acres will lose $900,000 in sales tax annually. In Lebanon, Tennessee the real estate company holding the Wal-Mart lease sued for $54 million because Wal-Mart left the town 11 years before expiration of its lease. In Catoosa, Oklahoma, the Wal-Mart store was closed eight years early. In Hearne, Texas, Wal-Mart pulled out unexpectedly, leaving the town devastated since it was virtually the only supplier of consumer goods, and the small businesses that had previously served this need were now closed.
[From: Bob Ortega, In Sam We Trust, pp 223-229. Tells us that this is not a new problem for Wal-Mart. Wal-Mart’s Shirts of Misery, Catholic Peace Voice, Fall 1999, pp 17.]
"...The atrocious work conditions at the Beximco Factory include forced overtime—twelve and a half-hours a day, seven days a week, to total an 80-hour work week. Employees are actually at the factory 87 hours a week, but are paid for 80 hours as their lunch break is unpaid. ... it is not uncommon for employees to be forced to remain in the factory beyond 8:00 p.m., working a 24-hour shift right through the night. Any time off from work is very rare...
"Under Bangladesh’s labor law the regular work week is set at 48 hours, with overtime limited to 12 hours a week, making 60 hours the maximum allowable work week...
"...Under EPZ (Export Processing Zone) regulations in Bangladesh, sewing operators are to be paid 3360 taka a month for a 48 hour work week. In U.S. dollars, this amounts to $69.28 a month, $15.99 a week and 33 cents an hour. However, at the Beximco factory the women sewing Wal-Mart garments are illegally paid just 2,000TK per month, which means they are earning just $41.24 each month, $9.52 per week and 20 cents an hour.
"...Overtime work, according to Bangladeshi law, must be paid at double the standard hourly wage of 33 cents an hour. The legal overtime rate, therefore, should be 66 cents an hour, but the Beximco workers earn just 20 cents.
"Wal-Mart and its contractor Beximco do not pay the overtime premium. In fact, as we have seen, they do not even pay the legal hourly wage of 33 cents. They pay only 20 cents an hour and pay overtime at the same illegal 20 cent rate." [Op. Cit. ..."the taka has lost 19% of its value against the U.S. dollar since 1995, and there is a 5-6%inflation rate." ]Can’t Wal-Mart afford to pay
Bangladeshi minimum wages?
The Wal-Mart Business Model in Taos
As told to a small business owner born in
Taos:
Nick
Martinez from Gon Mar clothing store related a story to me that about 13 years
ago when Wal-Mart was first opening in Taos, Nick and his son went to clothing
market in Las Vegas, Nevada. Mr. Martinez found a shoe supplier with prices
available to compete with the Wal-Mart low prices. Mr. Martinez began to work
with the salesman and began to place an order. Mr. Martinez said to the salesman
that he was happy to see the selection and prices available because Wal-Mart was
opening a store in Taos and with this selection, Mr. Martinez could now compete
with Wal-Mart. With this comment the salesman stopped the order
and said that he couldn't sell to Mr. Martinez because he had a
contract with Wal-Mart not to sell to
competitors.
Paul Martinez from Paul's Clothes for Men told me of a seamstress he had working
for him 13 years ago. She bought her thread at El Mercado. When Wal-Mart opened
they offered thread in their sewing department with prices extremely low. El
Mercado eventually had to close out this department and other household and
hardware departments because of the unfair competition from Wal-Mart. The
seamstress was now forced to buy her thread at Wal-Mart. With all other competition to Wal-Mart gone the prices for thread
increased week to week, until the price was now almost twice the price El
Mercado had on the original
thread.
Bill Vickers from Sierra Sporting Goods said that
they battled Wal-Mart for 10 years before they had to close. People from
Wal-Mart actually came in to Sierra Sports to scout items and prices carried by
Mr.Vickers. Soon the same type of item, but of a lesser quality would show up on
the Wal-Mart shelves. A work/outdoor jacket that Wal-Mart sold looked the same
as Sierra, but the fabric weight was lighter, and the insulation was thinner and
the total quality was cheap along with the price. Mr. Vickers did his own
scouting in Wal-Mart. When he was interested in selling a new line, he would
make sure that Wal-Mart didn't carry it. As soon as
Sierra picked up the new line, Wal-Mart was right behind in adding like
merchandise to their sporting goods
department.
One local business enterprise that opened in Taos
13 years ago, employed a woman whose sister went to work at Wal-Mart at the same
time. Today, (October 1999) the sister who works at the local small
business earns twice as much per hour than the one that has worked at Wal-Mart
for 13 years, and she has almost 2.5 times as much in her 401k plan.
---------------
A Closer Look at Wal-Mart’s
“Every Day Low
Price” Campaign
“After decades of being told that Wal-Mart has the lowest prices, it is certain that most consumers believe it. But in Carroll County, Arkansas, the local newspaper decided to explore the “low price” claim of Wal-Mart. The newspaper staff generated a list of nineteen household items, and then went to six stores in Berryville, Eureka Springs, and Green Forest, Arkansas. The shopping survey was conducted over a one month period so as not to give any one store an unfair advantage for the shopping day to coincide with a sale. The Carroll County Newspapers staff said the results “were surprising.” Of the nineteen items purchased, Wal-Mart was the cheapest on only two items. ‘Wal-Mart, which advertises itself as the everyday low price leader, ‘Always the low price on the brands you trust —Always’, isn’t necessarily so. The lowest register receipt total for the nineteen items was $12.91. The highest on the total—the most expensive on the nineteen items, was Wal-Mart, at $15.86'” [Slam Dunking Wal-Mart by Al Norman, Raphel Marketing, Atlantic City, NJ, 1999, pp 82.]
The Wal-Mart model has all the
characteristics of monopoly:
Rapid and relentless
expansion
Questionable business practices
Public relations myths
Market
domination
Worker exploitation
Excessive profits
Domination of
wholesalers
---------------------
And Where
Does This Business Model
Lead Us?
Big Box Retail and "Sprawl"
"Sprawl is the expansion of low-density, automobile dependent development that occurs at the edge of the existing urban (or rural) landscape. Sprawl is particularly evident around cities and towns in New Mexico and the El Paso area, which are among the least densely populated and most sprawled-out communities in the nation".[Sprawl Costs/Sprawl Solutions for New Mexico and El Paso. A report by the Rio Grande Chapter of the Sierra Club, December, 1999.]
Wal-Mart Superstores and Wal-Marts in general lead the way in "Sprawl" by locating at the edge of rural areas, and becoming the magnet for other stores to "fill in" in a direct line toward the store. Witness the growth down Paseo del Pueblo Sur, which many folks here liken to Cerrillos road in Santa Fe—an unattractive row of one national franchise after another, with no local character, creating an automobile haven, where walking becomes a distinctly uncomfortable proposition. Other big box retail is on the horizon. Santa Fe already has a Wal-Mart, Sam's Club, Target and Home Depot.
Sprawl development does not create the kind of development that Taoseños want as indicated in the Vision 2020 plan. Numerous studies from around the nation prove that sprawl imposes significant costs on society that are paid for by every person who pays taxes. Sprawl development never generates in new revenues what it costs to provide in roads, water or other ongoing public services.
Big box retail promises tremendous negative economic impacts for Taos. It will result in our community looking like all the others—our uniqueness will disappear. Taoseños need to think long and hard about major decisions involving big box retail, be it a Wal-Mart Superstore or any other big box retail that will have a dramatic effect upon our community.
---------------------------
What Role Do We
Play
In this Scenario?
". . .the law
properly gives the people who live here more rights than corporations, to
determine the uses of land . . ."
"Many people...believe that anybody who has money and land should have the freedom to do anything they want with them. They believe the freedom of the rich to invest as they please is the cornerstone of our Republic, the source of all wealth, and the most precious of freedoms. Some believe that what is good for Wal-Mart is good for (The Taos Valley).
"Yes, laws have long restrained the free market from abusing other freedoms perhaps even more important, as by prohibiting child labor or slavery, challenging unsafe labor conditions, banning hazardous products, stopping false advertising, limiting pollution of water and air, penalizing union-busting, and preventing monopoly restraint of trade. While Wal-Mart is not more evil than most corporations, they are big enough to have power over many lives. So when they are bad, they are very bad.
"Thus, in (The Taos Valley), the law properly gives the people who live here more rights than corporations, to determine the uses of land. Within public limits, beneficial and socially-responsible enterprises can thrive.
[Quoted from: Does Ithaca Need a Wal-Mart?, 1994, by Paul Glover, pp.4, except that “Ithaca” was changed to “The Taos Valley.”]
"Full-time Associates are those who work at least 28 hours per week (70% of all associates); they receive benefits such as health insurance, life insurance, dental care, and paid vacations. Part-time associates are eligible for benefits as well, and all associates are eligible to participate in our profitsharing plan, making them shareholders in the company."
"The company has a habit of laying off and/or sending employees home on short notice. Example: a young man scheduled to work, arrived, then was told his hours were insufficient for him to stay the day, so: go home young man! The heck with your expectations for a full day's work, as you anticipated when you were hired. Wal-Mart didn't let on that when a department's hours were reduced, so were the employee's income hours. You can imagine how this wreaks havoc with family budgets, and the domino effect on local creditors."