Is Wal-Mart Good for Small Town America?

Delta Winds: A Magazine of Student Essays
A Publication of San Joaquin Delta College
2008

Is Wal-Mart Good for Small Town America?

Ken Lambert

I began this journey interested in why the small community of Lodi, California, would be so polarized by the planned construction of a super Wal-Mart. I had read various opinions in the "Letter to the Editor" section of the local Lodi News-Sentinel newspaper. I overheard much discussion on the subject around town, and there had even been petitioners in front of local businesses. On one hand, it seemed like much ado about nothing. Yet on the other hand, Lodi already had a Wal-Mart, so why did it now need a 219,000 square foot version? I knew that the company offered some of the most competitive prices around, but I wasn't quite sure how they were able to do it. Could this be a clue to the controversy?

Lodi, California, is a relatively small community of about 50,000 residents. Things don't change very fast in Lodi, as slow growth is valued and even mandated in certain situations. Many families have deep roots there, often going back several generations. Many families are related. The pace is slow. Folks like it that way. So much so, that people often organize into political action committees when their way of life seems threatened. Their "cause" is usually slowing the pace of housing development or the "Greenbelt" issue, which would help protect Lodi from the unrestricted growth and encroachment of the city of Stockton. Probably the most controversial issue and the one most likely to raise a debate, is the attempt to build a super Wal-Mart in Lodi. Wal-Mart is planning to build a new 219,000 square foot facility (Bonnet, Group). Why would the addition of the new store cause such a commotion? Is there something wrong with Lodi, the Wal-Mart Corporation, or was it just a bad mix?

The brainchild of founder Sam Walton, Wal-Mart began operations in Rogers, Arkansas, in 1962. Through massive growth, the company now boasts 6,200 facilities around the globe, 3500 of which are in the United States as of 2005. Wal-Mart employs 1.6 million people, services 138 million customers, and claims annual sales of $312.4 billion (Walmartfacts). Wal-Mart has definitely had its share of growing pains. It is the largest company in the world and the largest employer in the United States and Mexico (Dicker 2-3). Earlier in its infancy, Wal-Mart's behavior might have only seemed a little odd. But now that it has become a giant, its operations are scrutinized, and many people are wondering if it is acting in a socially responsible way.

The PBS special "Is Wal-Mart Good for America?" was quite an eye opener for me. The stockholders' meeting at University Arena in Fayetteville, Arkansas, appeared more like a religious revival, with people chanting "WAL-MART, WAL-MART." "Sam Walton's formula: Buy cheap, undersell competitors, and make your profit on high volume and fast turnover" (Smith). To what extent, though, is the company willing to take their formula? Professor of Sociology at Duke University, Gary Gereffi, has determined that Wal-Mart has 6,000 suppliers, 80% of which are in China (Smith). With the cost of manufacturing so much less in China, those goods can be sold for less here. One has to wonder what becomes of the companies that used to manufacture those good in America? Also, what sort of jobs does this create overseas? As related in the book In Sam We Trust, by Bob Ortega, a 1993 Dateline, NBC program showed Wal-Mart in less than favorable light. Reporter Brian Ross confronted Wal-Mart CEO David Glass with clothing from ten stores that was shelved below "MADE IN AMERICA" signs. The clothing was actually made in Bangladesh. Mr. Glass believed it had been mistakenly placed there. He was then shown pictures of Bangladesh children sewing Wal-Mart's clothing. He stated that the photographs proved nothing, and the interview was immediately stopped. In hopes of repairing the damage, David Glass arranged a follow-up interview. When again asked about the photos of child labor in Bangladesh factories, Glass replied, "You and I might, perhaps, define children differently." He noted that it is often difficult to tell the age of Asians because they are short (Dicker 109-111).

Lodi began as an agricultural community, and grapes comprise the major commodity grown there today. This feeds the local wine industry, which produces fine wines that are exported globally. In addition there is seasonal produce, much of it processed at the local canneries. One of its largest employers is General Mills Corporation, which produces many cereal and baking products. They partner with local growers and provide jobs for local residents. But there seems to be very little manufacturing of non-food items left in Lodi. Where have all the manufacturing jobs gone? The PBS special gave me a clue. They interviewed Yvonne Smith, spokesperson for the Port of Long Beach. She said that $36 billion was imported from China each year at this port alone. These were finished consumer products. What was exported? When asked what we were shipping to China, she stated "raw materials." We ship out the raw materials, and they return as finished products. This contributes to a $120 billion annual trade deficit with China. She said that Wal-Mart was their number one customer. With the off shoring of jobs to countries paying very low wages, is it any wonder American companies can no longer compete? It seems to me the recent free trade agreements have been more generous to foreign countries than our own.

Author Charles Fishman believes that Wal-Mart has had quite a drastic effect on the economy in the way it conducts business. He refers to this as the "Wal-Mart Effect." When Wal-Mart comes to town, bringing its lower prices, it forces its competitors to lower theirs. Wages at these businesses must drop in order to compete. Buying habits are changed, and once viable businesses are now in jeopardy. Because of its sheer size, it is able to force its will. There is often a sense of foreboding that comes with this new retailing.

The Wal-Mart economy describes the nagging sense that there might be some unseen but terrible cost to be paid for "always low prices." The Wal-Mart economy is a place where the jobs are traps: low wages, miserly benefits, stultifying work, no respect, no future. In the Wal-Mart economy, we as consumers often buy too much just because it's cheap. We are slaves to our own impulse for a bargain (Fishman 9-10).

What effect does Wal-Mart have on the local community? Looking at just one line of product, hardware, gives a good indication. Since Wal-Mart opened about 12 years ago, I have seen the demise of "Coast to Coast," "Ace Hardware," and "Henderson Bros. Hardware," the latter of which had been in business in Lodi for over 100 years. Lowe's, which recently opened for business, might not be adversely affected, but Orchard Supply Hardware, a regional chain, might suffer. Another negative aspect of Wal-Mart coming to town has been the loss of advertising by the local paper. When Wal-Mart first comes to town, they take out huge advertising supplements, but after they corner the market and often drive other stores out of business, the advertising stops (Quinn 6-7). I saw this happen in Lodi. The Wal-Mart ads were quite unique in that they used store employees rather than paid models in their inserts. After about a year the advertising stopped. The local paper loses the revenue from those businesses that go under and from Wal-Mart, so in essence, they take a double hit.

The way Wal-Mart handles its banking can also have a negative effect on a community. Most businesses bank locally, the money continuing to circulate throughout the local economy. This is not the case with Wal-Mart. The money goes into a local bank and an overnight wire transfer is made back to Bentonville, Arkansas, Wal-Mart's corporate headquarters (Quinn 9-10). Now Wal-Mart wants to get into banking in the U.S., but has run into considerable opposition. If they ever succeed, they will no longer have need for any other bank services.

The secret to Wal-Mart's ability to lower prices seems to be the stranglehold it has on suppliers. Though Wal-Mart did not create the current style of retailing, they have perfected it. Professor Edna Bonacich of U.C. Riverside refers to the old method as the push system, in which manufacturers produce items they believe retailers would want to buy. The newer method, called the pull system, involves the retailers deciding what they want to sell from sales data, and requiring the manufacturers to produce those products (Smith). Prof. Nelson Lichtenstein from U.C Santa Barbara, states it this way:

The power of Wal-Mart is such, it's reversed a 100-year history in which the manufacturer was powerful and the retailer was sort of the vassal. It's changed that. It turned that around entirely. Now the retailer, the mass global retailer, is at the center. That's the power. And the manufacturer becomes the serf, the vassal, the underling who has to do the bidding of the retailer. That's a new thing (Smith).

If a company can't produce what Wal-Mart wants at a price Wal-Mart feels is attainable, they go elsewhere; in most cases that is to China. As Dicker states, "China provides a combination of political stability, sturdy infrastructure, and a labor force willing to work for pennies an hour" (118-119). If major United States manufacturing firms are being cut out of the equation, small town companies could never hope to conduct business with Wal-Mart. Lower priced goods seem to lose their luster, though, when so many sacrificed jobs are figured into the equation.

No matter how low prices go, however, a person must have a job to afford to shop, even at Wal-Mart prices. When Wal-Mart knocks their competitors out, the only jobs left may be at Wal-Mart. In 2004 Wal-Mart claimed that its full time workers averaged $9.64 per hour. Since full time is only thirty-two hours a week, annual take home is only $18,000 a year. According to the Federal Register, "For a family of four, the figure is nearly a thousand dollars below the poverty line." Many states report that Wal-Mart employees are among the largest groups seeking public assistance (Dicker 28). Is it necessary for the taxpayer to provide assistance to employees of the largest company in the world?

Unfortunately, this is not the only burden we taxpayers are shouldered with. Incentives are often offered to Wal-Mart to lure them into the community: "free or reduced price land, infrastructure assistance, tax-increment financing, property tax breaks ... job-training and worker-recruitment funds" (Dicker 200). From "Everyday Low Wages: The Hidden Price We All Pay for Wal-Mart," a report by the Democratic staff of the Committee on Education and the Workforce, U.S. House of Representatives, February 16, 2004, comes the revelation that a single 220-employee Wal-Mart store costs the American taxpayer an average of half a million dollars a year (Dicker 208). Good Jobs First, a non-profit think tank, reports that state and federal governments have provided Wal-Mart with approximately $4 billion in subsidies: a full 90 percent of their stores reaping the spoils (Dicker 27-28). Those are incentives we ultimately pay for and are not available to Wal-Mart's competitors.

With all the controversy surrounding Wal-Mart, it's easy to see why a planned super store would create such a firestorm in a small town like Lodi. I visited the super Wal-Mart in Stockton. It is huge. Definitely out of proportion for a town Lodi's size. It is sort of like having a St. Bernard in an apartment. It's a bad fit. In addition, the harmful side effects associated with the super center are more easily absorbed in a large city. Lodi would feel the full brunt. Unbelievably, Wal-Mart wants to build a super store in the city of Galt, a town considerably smaller than Lodi.

The Lodi News-Sentinel chronicles the steps taken by those for and against the proposed super center. One organization, "The Small City Preservation Committee," was active in drafting a local ballot initiative that would limit the size of commercial projects to 125,000 square feet unless voter approval was received. The reasons listed for such a measure are:

The loss of trees, open space and farmland, traffic congestion, displacement of locally owned small businesses, erosion or even elimination of Lodi's unique small-town atmosphere, disruption of the city's policy to support the downtown as a retail and cultural area, increase in crime, and the tendency for city services to cost more than income generated by tax revenue (Bonnett, "Citizens").

The measure went on to defeat, though many people said they either did not understand the measure, or were worried that it would adversely affect auto dealerships needing large areas for development (Bonnett, "Measure").

I interviewed local attorney Ann Cerney on November 24, 2006. Though she was not the chairperson, she was an influential member of the group who often spoke for them. She said that "Measure M." as it was called, was not specifically aimed at Wal-Mart, but due to their proposed building project, they fell into their sights. She belongs to a loose-knit group of business owners and citizens hoping to retain the small town ambience that distinguishes Lodi from other "larger" communities. She said that a measure passed in the 1980s restricting growth to an annual rate of 2 percent was flawed, and has resulted in the growth rate now that can be as much as 12 percent. Hoping to increase the public coffers, city officials have been more than willing to allow the growth. Groups like hers act as sort of a "check and balance" on local government. They are not the only group fighting the proposed project. Steven Herum, the attorney for "Lodi First," has filed lawsuits challenging the environmental impact reports submitted by Wal-Mart Stores, Inc. and Browman Development Co (Kane). How long the legal maneuverings can go on is anyone's guess. If Wal-Mart's past practice is any indicator, this could be a long battle.

I realize that my caricature of Wal-Mart is not at all flattering. In its favor, though, Wal-Mart has definitely brought some good ideas and practices to the marketplace. I doubt if the American economy would be as efficient as it is today if it were not for the cost cutting techniques mastered by Wal-Mart. They have been able to cut out waste in the supply line, allowing them to deliver merchandise at the lowest possible price: a commitment that they can and do deliver on. With reported sales of $315.6 billion in 2006 and net profit of $11.2 billion, that only leaves the company with a profit of 3.5 percent profit margin (Fortune 500 - 2006). A large amount of the savings go to the consumer, but with Wal-Mart's extreme emphasis on cost reduction, it inevitably must put employee, suppliers and communities at odds with the company's interests.

Wal-Mart may have become too big for its own good. What once was a small company struggling to gain a foothold in the retail business has now become a giant mega-corporation that demands and gets almost anything it desires. Its sheer size and market share allow it to dictate to others how business will be conducted. By importing massive amounts of cheap products from countries like China, manufacturing in America has been all but destroyed. Who will be left to buy the products in the future is anyone's guess, as Wal-Mart is destroying its customer base.

The presence of the local Wal-Mart has not had the detrimental effect that some believed it would. Its size is in proportion to the other existing retailers such as K-Mart and Target. In fact, consumers probably benefit from the larger variety of merchandise and lower prices offered. But the proposed super Wal-Mart would be a drastic departure from this. Not only would they dominate the retail section, but then they would be able to control the grocery segment as well. Not just one, but two areas of retail could be unduly influenced.

In conclusion, is Wal-Mart good for small town America? With its older, smaller stores, I would say yes. It's admirable that small towns would attempt to protect their downtown areas and the way of life they have always known, but retailing has changed significantly over the past few years, and larger stores have more to offer. There are still a number of competing retailers, allowing consumers a choice. But when it comes to the larger super stores I would have to say no. It would allow a large retailer to dominate the market, concentrate too much retail in one area, hurt property values, cause traffic concerns, and eventually harm those businesses that do not benefit from Wal-Mart's presence. A super Wal-Mart would exert an even greater influence over our lives. Wal-Mart has become one huge vending machine for China, delivering all the shiny things we desire. But as our country's wealth leaves for China, I believe a little bit of America's soul goes with it.

Works Cited

Bonnett, Jennifer Pearson. "Group Resubmits Big-box Ballot Petition." Lodi News-Sentinel 17 Apr. 2004. 19 Oct 2006. < http://www.lodinews.com/articles/2004/04/17/news/07_bigbox_040417.txt>.

---. "Citizens Group Files Ballot Initiative on Big-box Stores." Lodi New-Sentinel. 31 Mar. 2004. 19 Oct. 2006. < http://www.lodinews.com/articles/2004/03/31/news/02_bigbox_040331.txt>.

---. "Measure R Defeated." Lodi News-Sentinel. 3 Nov. 2004. 31 Nov. 2006. < http://www.lodinews.com/articles/2004/11/03/news/02_measure_r_041103.txt>.

Cerney, Ann. Telephone interview. 30 Nov. 2006.

Dicker, John. The United States of Wal-Mart. New York: Penguin Group (USA) Inc, 2005.

Fishman, Charles. The Wal-Mart Effect - How the World's Most Powerful Company Really Works - and How It's Transforming the American Economy. New York: The Penquin Press, 2006.

Fortune 500 - 2006. 10 Dec. 2006. Cable News Network. 17 Dec. 2006. < http://money.cnn.com/magazines/fortune/fortune500/snapshots/1551.htm>

Kane, Greg. "Attorney Files Lawsuit to Stop Wal-Mart Supercenter in Lodi." Lodi News-Sentinel. 18 Mar. 2005. 2 Nov. 2006. < http://www.lodinews.com/articles/2005/03/18/breaking/00_walmart_050318.txt>.

Quinn, Bill. How Wal-Mart is Destroying America (And the World) And What You Can Do About It. Berkeley: Ten Speed Press, 2000.

Smith, Hedrick. "Is Wal-Mart Good for America?" 16 Nov. 2004. PBS.org. 9 Dec. 2006. < http://www.pbs.org/wgbh/pages/frontline/shows/walmart/etc/script.html>.

The Wal-Mart Timeline-Wal-Martfacts.com. 28 Sep. 2006. Wal-Mart Inc. 15 Nov. 2006 < http://www.walmartfacts.com/content/default.aspx?id=3>.