Economy & Budget

Combating Wal-Mart Asymmetrically

Among the many arguments lodged against Wal-Mart by its critics is that, by selling goods at very low prices and offering comparatively low wage and benefit packages to its workers, they are leading a “race to the bottom” that is dragging down the entire service economy.  American Prospect writer Ezra Klein puts the case succinctly:

So let’s say you’re a midsize retailer with national ambitions. You essentially can’t offer a decent benefits package because Wal-Mart doesn’t, and you can’t allow their prices to remain substantially below yours (where they’ll already rest thanks to Wal-Mart’s economy of scale).

Wal-Mart and other big box chains have designed a business model around selling large volumes of commodity items at small markups.  To the extent that Wal-Mart is the 800 pound gorilla, competing against them on their terms is an uphill fight.

Then again, why would anyone want to do that? As the late philosopher Jim Croce counseled, one is ill advised to tug on Superman’s cape or pull the mask off the Lone Ranger.

Why not instead compete asymmetrically? Rather than trying to outdo Wal-Mart’s “everyday low prices” on everything from soup to nuts, why not instead come up with a different business model emphasizing your comparative advantage?

Before moving to the Washington, D.C. area, which has the worst Wal-Mart stores I’ve ever seen, I lived in a small Southern town where a new Wal-Mart SuperCenter was where everyone from the university president to the hospital chief to the lowest wage earners did most of their shopping.  I made several trips to the store a week, as it was my venue of first choice for everything from groceries to hardware.

Despite this, there were all manner of things I would never have thought of buying there. For example, Wal-Mart sells everything a business man needs to wear to work: suits, dress shirts, neckties, socks, belts, and dress shoes. Yet, aside from a couple pairs of socks, I have not bought any of those items from Wal-Mart despite owning an amount of those items that would place me in the 99th percentile and having lived most of my life in places where Wal-Mart was the best store in town.

Why? Because Wal-Mart is aiming considerably lower on the fashion scale than my tastes dictate and my budget allows.  So, despite regularly being in a store where I could dress myself head to toe for under $200, I go out of my way to shopping malls, specialty stores, and other places that charge many times that.  

For various reasons, my wife and I buy books, coffee, pet food, wine, toiletries, and a whole array of things available much more cheaply and conveniently at Wal-Mart and its upscale rival Target from specialty outlets that charge considerably more.  (And, I’d wager, provide better compensation to its employees.)

Apparently, we’re not alone. Despite competition from big box stores, chains like Whole Foods, Trader Joe’s, Linens and Things, PetsMart, Pier One, World Market and dozens of others are thriving by catering to those willing to spend more for quality and selection.  
This shouldn’t be surprising.  After all, McDonald’s has many of the same advantages in the restaurant business as Wal-Mart has in retailing and yet thousands of other eateries manage to stay in business by catering to customers who want more than a cheap, quick meal.
 
Come to think of it, fast food chains don’t pay particularly well, either, nor are they on the leading edge of employee benefit packages.  Yet, somehow, they’re not the subject of anything like the vitriol that the Democratic Party and its interest group allies reserve for the world’s number one retailer.  Perhaps Jonah Goldberg is on to something in dubbing the Left’s obsessions with the subject “Wal-Mart derangement syndrome.”


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