Wal-Mart: The Cost Of Low Prices
Wal-Mart: The Cost Of Low Prices
Jordan Goodman (Personal Finance Author) gives expert video advice on: How can Wal-Mart sell so cheap?; What effect does Wal-Mart have on the small businesses?; What effect does Wal-Mart have as a business model? and more...
How can Wal-Mart sell so cheap?
Wal-Mart can sell so cheap because it buys in such a huge volume. It's the largest retailer in the world, and therefore they can dictate prices they are going to pay to suppliers in many cases. And they buy such a huge amount they get much better prices than anybody else, because they have such a huge distribution network. They also have a very good sense of what customers are buying at any one moment; they have very good data processing, so as sales come in they make sure enough products get to the customer, and that efficiency drives down prices. There's a whole culture at Wal-Mart that gets their prices as low as they are. Suppliers, in many cases, are not too happy about it because they're being driven down all the time, to get their prices down. But the consumers do benefit because they get much lower prices than other places.
What effect does Wal-Mart have as a business model?
Well Wal-Mart has had a big effect as a business model. A lot of businesses try to drive prices down as much as possible by buying things on mass bases. Not only domestically but globally. Wal-Mart buys a lot of material from China, India and other places where they can get very good prices and good quality. Much cheaper than they are going to get in the United States. So that to some extent has driven the trade deficit that we have because we are importing so much stuff to supply Wal-Mart's around the country. They also have a non union policy and that has been very tough, because there are millions of workers who are non-unionized. The entire Wal-Mart movement has made it tough on the labour business to unionize. I think the total unionization in the country now is about 8%, and that's probably going to keep going down. Because union stores are competing with the non union places like Wal-Mart and they are getting the cost of their goods lower because they are buying things from China. They are getting their cost of labour lower because they are not unionized. It makes it difficult for other companies to compete with their business model.
What effect does the low cost of labor in China have on my bank account?
The low cost of labor in China affects you in many ways. You are competing as an employee against people you never see in China, and there's a lot of things that you might think could never be done in China or in India that in fact can be. For example, radiologists that read x-rays, those can be done in India, they can send your x-rays by e-mail and have people read it and get back the results. That does not have to be done locally. Tax preparation, in many cases being done in India and other places like that. So, certainly telemarketing and having call centers are happening throughout India and the Philippines and other places as well. So lots of jobs that you thought might never be able to overseas today are being shipped overseas. So for the American worker who's expecting a certain wage rate, certain benefit rate, he's not going to be able to get that anymore if the same work can be done at a much cheaper price in India, China or other developing world countries.