In our July-August issue, we take a deep dive into water issues on a local and national scale with one of the experts on the subject: Charles Fishman, author of the acclaimed and essential read The Big Thirst: The Secret Life and Turbulent Future of Water. Our conversation also addressed Fishman’s research on the space race of the 1960s, and the incredible innovation it continues to yield in our daily lives.
In our time with Fishman—who spoke eloquently this past March at Festival of the Arts Boca—we didn’t want to leave out the compelling topic of one of his other books, The Walmart Effect, a comprehensive account of the retail giant’s pros and cons that has enjoyed an influential life on bookshelves and in business schools alike. We discuss it here in this exclusive Web Extra.
I understand The Wal-Mart Effect is not necessarily an anti-Walmart polemic, because it presents both the positive and negative aspects of its place in the economy; can you synopsize the major points?
The Wal-Mart Effect tried to do two things—first, to explain the extraordinary scale of Walmart (Walmart took the hyphen out of its name in 2018, after the book came out). And second, to try to assess the impact of Walmart on the economy—on prices, on merchandise, on how we Americans think about shopping.
In terms of scale, when the book came out in 2006, 70 percent of Americans lived within a 15-minute ride of a Walmart. Back then, Walmart had 3,331 U.S. stores, with 4.2 million square feet of shopping space. Today, Walmart has 3,936 U.S. stores, with 6.3 million square feet of space. So in the 17 years since the book came out, Walmart has added 600 US stores—35 new Walmart supercenters a year, on average. And it has added 50 percent more shopping space. So however dominant Walmart was in the landscape of the U.S. in 2006, it is more dominant now.
Walmart’s sales have almost doubled in the last 17 years—from $345 billion to $611 billion. That’s a 77-percent increase, starting from a point where Walmart was already (in 2006) the largest company in the U.S., and the largest in human history, by sales. And the growth has come even as Amazon has grown during those two decades—to nearly rival Walmart in scale.
Today, Walmart sells 25 percent of all groceries in the U.S. (30 percent of all groceries purchased online). It’s worth pausing to appreciate that: A single company feeds 1 in 4 Americans. That kind of market power—in groceries, but also in everything from blue jeans to laundry detergent—gives Walmart incredible power.
That’s where the second set of issues comes in. Walmart’s focus on price and efficiency gave it incredible power. I used data when I wrote the book to show that, over more than a decade, Walmart kept the inflation rate in the entire U.S. lower by 1 percentage point (not 1 percent—1 percentage point out of what it would otherwise have been—4 percent, 6 percent) than otherwise. That’s an incredible, compounding gift to all Americans. And you got the benefit of those lower prices whether you shopped at Walmart or not—because 70 percent of Americans lived within 15 minutes of a Walmart. No matter where you shopped, they were competing on price with Walmart.
There is a significant downside. The most obvious is that, at least until about 2012, Walmart paid minimum wage or just a little above—and the company’s scale worked to keep wages down across retail. (In the 2010s and into the 2020s, Walmart has steadily and publicly improved wages.) Much more subtle but just as important is that Walmart caused its customers to focus on price. How much do these blue jeans cost? How much does this lawnmower cost? How much is this gallon of 2-percent milk?
That focus on price caused a very steady deterioration in the quality of what we bought, which I also documented in the book. The way to make everything cheaper is to steadily make it lower quality, a small amount at a time.
Yes, you could buy a lawnmower, with a gas engine in it, for $119 at Walmart. (The push mower they sold cost $139.) But that mower would be lucky to last a single season or two. Then try to get it fixed. It was literally cheaper to throw the lawn mower away and buy a new one than get it fixed. The same is true of microwave ovens for $49, or kids’ bikes for $69. (We actually had that experience with our son’s first real bike. The bike store simply wouldn’t fix it, because it was from Walmart.)
Walmart magnified that “disposable consumer culture” across the entire economy.
And that hurt the people Walmart was ostensibly trying to help the most: Those of modest means were getting low cost, but they were getting cheap products with no durability. I bought a pair of Walmart Levi’s blue jeans that didn’t last two years. At the same time I was still wearing a standard pair of Levi’s jeans that were 20 years old—not made for Walmart.
Walmart literally caused its suppliers to make Walmart-quality products, to be sold at the Walmart price—and that too rippled through the whole economy. I think the focus on price over “value” is one of the most significant, and corrosive, effects Walmart had as it became so dominant.
The book is coming on 18 years old now; what’s changed at Walmart in all of this time, vis a vis wages, vis a vis competitors like Amazon?
It’s interesting. Among the places that assign the book is MIT’s Sloan School of Business (the MBA program). All incoming students are given it to read—even though the statistics themselves are clearly out of date. The reason is because what Walmart did—and does—is extraordinary.
Walmart became the largest company in the history of humanity—but not by doing anything original, at least on the surface. Right? The scale of Apple is understandable. Of Microsoft. Of Google. Those companies literally invented whole new categories of products and of business.
When Sam Walton started Walmart in 1962, no one in America didn’t have toothpaste or laundry detergent or athletic socks because they didn’t have access to a store. There were really good, and deeply experienced, retailers in America in 1962. And Sam Walton out-competed them all, and every other company as well, in some sense.
Then came Amazon, and for about 10 years, Amazon did an incredible job of “catching up” to Walmart in scale.
• Walmart’s 2022 sales: $611 billion
• Amazon’s 2022 sales: $514 billion
When the book came out in 2006, Amazon’s sales were $11 billion. During the 17 years since then, Walmart has added $266 billion in sales. Amazon has added $500 billion. That’s mind-boggling. Amazon grew at twice the pace of Walmart—to a scale almost the same as Walmart.
Here are two significant things Walmart has done in the last decade:
• They’ve really re-focused on their staff. They’ve changed everything from how scheduling is done (to give store staff more predictability beyond a week out of their work schedules), to health insurance, to wages. Walmart’s average wage is now $17 an hour, more than double the legal minimum wage. That’s a response to pressure across the country, and to competition for workers (from Amazon, among others), but it’s also a focus of the current CEO Doug McMillon—who realized that treating staff poorly was really hurting the company, not to mention the company’s employees. It’s still not like being a prized software coder in Silicon Valley. But it’s a lot better place to work than it was 10 years ago.
• Walmart has quite seriously focused on sustainability. They’ve doubled the gas mileage of their long-haul truck fleet (from 6 mpg to 12 mpg)—mostly by doing small things. All of which they have shared with any trucking companies that wanted the knowledge.
They’ve aggressively cut energy use in stores—with skylights, with better HVAC, with LED lighting—such that a typical supercenter in 2020 used one-third less energy than a supercenter in 2006. Literally, build three supercenters, get the fourth one “free” in energy terms. They also shared that energy-saving store tech with their competitors.
In Mexico, as an example, all their stores are powered by renewable energy—solar and wind. Walmart Mexico generates enough solar and wind power, into the Mexico grid, to power all of its stores. And Walmart is … the No. 1 retailer in Mexico. Bigger in Mexico than it is in the U.S. (2,700 stores—bigger than the next five chains combined). Walmart is the No. 4 producer of solar in the U.S. overall, and says it now produces 46 percent of the power it uses worldwide from renewable sources.
Meanwhile, Amazon’s competition has really reinvigorated Walmart’s sense of retail urgency and innovation. The competition for merchandise delivered to your door, or a full order ready to pick up at a store, has been dramatic. And Walmart’s “digital orders” are growing 30 percent a year—which is what Amazon’s sales used to be growing.
So for those who thought Amazon would outflank Walmart, the 2010s, and 2020s, are showing that Walmart remains nimble and up for the fight. In the short-term, we customers benefit from that competition. Faster delivery. More comprehensive selection. Cheaper delivery. All kinds of perks like video memberships. In the long-term, I’m worried it’s like Walmart’s original rise: I don’t want groceries or household products so cheap, or delivered so quickly, that the quality of the products, or the environment, or the lives of the workers suffer.
This web extra is from the July/August 2023 issue of Boca magazine. For more like this, click here to subscribe to the magazine.
