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Cart Blanche?
The Megamarket's Savings Don't Come Cheap

By Bob Thompson
Washington Post Staff Writer
Thursday, April 13, 2006

It's just a big old sack of dog food, for crying out loud, but Charles Fishman can hardly restrain himself: "Fifty pounds for $13.82! That's amazing!" the author of "The Wal-Mart Effect" bursts out. "That's less than 30 cents a pound!"

You'd think the guy would be a bit jaded by now. Fishman has schlepped through more than a hundred Wal-Marts in 23 states, trying to chart the nearly unfathomable influence of the retail behemoth Americans have learned to love, hate or take for granted. But he's never been to the one in Hagerstown, through which we're piloting a shopping cart on a weekday afternoon -- and he's calling out bargains like a hyperactive carnival barker.

"$3.88 for a rake! How much cheaper could the rake actually be before it was free ? You know what I mean?"

We've driven 65 miles out from the District of Columbia, one of the nation's few Wal-Mart-free zones, to get here. A closer option would have been one of the two stores in Alexandria, but they're normal-sized Wal-Marts, the kind that stock a mere 60,000 products. I've asked Fishman to show me around a "supercenter," the extra-humongous kind that stocks 120,000 products and boasts a full-size grocery store.

Wal-Mart No. 1,674 is a nondescript, boxlike structure, an eighth of a mile wide and a football field deep, that makes neighbors such as Home Depot, Borders, Pier One and Circuit City look like Georgetown boutiques. Outside, discarded Wal-Mart bags festoon a field like unpicked cotton bolls. Inside, canyons of merchandise envelop us: Easter candy, power tools, bras, microwaves and green plastic margarita glasses, stacked on shelving higher than our heads.

Wal-Mart loves to experiment, Fishman says, hence the recently opened upscale store in Plano, Tex., which features sushi, microbrews and a coffee shop with Wi-Fi. But there's not a lot of experimentation visible in No. 1,674. The Hagerstown supercenter is built on the same principle as the nearly 4,000 other U.S. Wal-Marts, the principle that has driven the company's growth since Sam Walton opened the first store in Rogers, Ark., in 1962, and the one Wal-Mart management expects to fuel its recently announced move into blighted urban areas -- one of the few parts of the American landscape it has yet to conquer.

It's right there on the ubiquitous blue-and-yellow smiley-faced signs: "Always Low Prices. Always."

"A hundred-foot heavy-duty outdoor extension cord: My God, it must weigh eight pounds! $9.68. That's truly amazing!"

For more than two hours, the Wal-Mart Tour rolls on and, as it does, I drop an occasional item into the cart. This is partly so we'll look normal walking around the store, but it's also because -- as someone who doesn't get to Wal-Mart that often -- I'm almost as excited about the prices as my guide.

Where am I going to get a better deal on light bulbs or shaving cream or the half-socks my daughter just told me she needs?

'What's Your Price?'

We think we know all about Wal-Mart. But we don't.

It's a fantastic American success story, built on entrepreneurial genius and hard work, whose rock-bottom prices are a boon to the nation's working families. Or it's a soulless corporate empire that decimates small-town shopping districts, pays its workers poverty wages and restricts their access to decent health care.

Or maybe both: The two versions aren't contradictory, after all.

But to Fishman, all of that is just the beginning of what Wal-Mart means. However you choose to judge the company, he argues, Wal-Mart is a retail planet with a gravitational pull so strong it shapes our economic universe in ways we can barely comprehend.

What happens when a single enterprise gets so huge it has no real rivals? Wal-Mart, Fishman points out, "is as big as Home Depot, Kroger, Target, Costco, Sears and Kmart combined." What happens when it can dictate how and where the companies with which it deals do business? Wal-Mart has become a prime mover in economic globalization, "accelerating the loss of American jobs to low-wage countries" in the name of keeping its prices down.

"The Wal-Mart Effect," which has drawn favorable reviews and made several business bestseller lists, is an attempt to show just how pervasive Wal-Mart's influence really is.

It started as an article for Fast Company, a business magazine for which the 45-year-old Fishman works as a senior editor. (Earlier in his career, he did stints at several newspapers, including a few years at The Washington Post.) In 2003, his boss asked him to write about the culture of Bentonville -- the small Arkansas town dominated by Wal-Mart's headquarters -- and in particular, about the sad plight of the urbane corporate types forced to relocate there to service their companies' Wal-Mart accounts.

Fishman didn't much like the idea. "The sophisticated people come to Hicksville -- it isn't amusing, and it isn't true," he says. If an enterprise he calls "the most powerful company in history" comes out of Arkansas, then "I guess the hicks have got something going on ."

His wife, an editor at the Philadelphia Inquirer, suggested a different approach. Couldn't he write more broadly about the benefits and costs of being a Wal-Mart supplier? How much does being in a "partnership" with a store so big that 100 million Americans shop there every week put you under Bentonville's thumb?

Intrigued, Fishman set out to understand this relationship. He asked a former Kraft executive he knew, now a business school professor, for guidance. The man wouldn't go on the record, and he wouldn't talk about Kraft's actual relationship with Wal-Mart, but he offered a helpful hypothetical:

Suppose you're the manager of barbecue sauce at Kraft, he began. You go down to Bentonville to show off the new label on your bottles and the summer's jazzy cardboard display, "and all they say is: 'What's your price?' And you say, '99 cents a bottle.' And they say, 'You know, we don't care about the cardboard display, that's cute and everything, but, 79 cents.' "

How do you deal with that? Fishman asked.

"You slap your palm on your forehead and you say: '79 cents a bottle! What a brilliant idea!' "

And if you don't?

"They say, 'Well, we're not going to carry the barbecue sauce.' "

But wait! You represent a major multinational corporation! Why wouldn't you hold the line?

"Well, you just lost 20 percent of your barbecue sauce business for the year. By the time you get back to Chicago from Bentonville, you're fired."

Fishman's article wasn't easy to report. No one at Wal-Mart would talk to him, and suppliers were terrified by the very idea. Wal-Mart is "our biggest customer by far," a Dial executive told him. "We have a great relationship. That's all I can say. Are we done now?"

The article -- based mainly on conversations with people who used to do business with Wal-Mart -- got more response than anything Fast Company had ever done, Fishman says. A significant percentage came from businesspeople hungry for advice on working with the world's biggest retailer. "I could have opened my own little 'How to Deal With Wal-Mart' consulting firm," he jokes.

Instead, he got a book contract -- and kept trying to understand what "always low prices" really means.

'A Layer of Toxic Sludge'

What it means right now is that our shopping cart is filling up.

In go the Barbasol shaving cream (92 cents) and the Dial soap (eight bars for $3.50). In go the energy-saving light bulbs (two for $8.44) and the ordinary 60-watters (eight for $1.67) and the Easter chocolates in the shape of soccer balls, basketballs and baseballs ($1.66). We still haven't found my daughter's socks. But by the time we hit the grocery section I'm starting to lose all restraint: I stock up on OJ, pasta, shredded cheese, clementines and breakfast cereal.

So what if the house-brand cornflakes end up tasting like cardboard? An 18-ounce box is just $1.33!

Fishman, meanwhile, has been tempering his running commentary on Wal-Mart prices with observations about how those prices are achieved.

Prowling the health and beauty section, he reminds me that some years back, just about all deodorant brands came in paperboard boxes. Then Wal-Mart said: Boxes costs money, they take up space, who needs 'em? Pretty soon, deodorant didn't come in boxes anymore.

No harm done there, unless you were a box manufacturer: Wal-Mart was using its clout to force waste out of the system. What's more, Fishman says, it passed on most of the savings. Its main goal, when forcing suppliers to economize, is to keep prices down, not to increase its extremely low profit margins. Its formula is simple: Low prices equal volume equals growth and thus success.

Yet much of what Fishman highlights on the Wal-Mart Tour has more troubling implications.

Take the L.R. Nelson lawn sprinklers, which used to be made in Peoria, Ill., before Wal-Mart pressured Nelson to make them in China instead. Before the move, one laid-off Peoria worker told the reporter, Chinese managers were "walking around the plant and videotaping us working. That was horrible, horrendous. Right in our faces. They are taking our jobs."

Take the fresh salmon we find in the seafood section for $5.84 a pound (it cost a buck less when Fishman was writing his book). "What exactly did Wal-Mart have to do to get salmon so cheaply?" Fishman wrote, then answered his own question by noting that the Chilean fish farms from which it buys are environmental disaster areas that deposit "a layer of toxic sludge" -- made up of salmon feces and excess fish food -- on the ocean floor.

Or take the beautiful yellow oxford-cloth boy's shirt Fishman stops to rhapsodize over. ("Look at the level of perfection! There's little buttons sewn in for replacement, it's got the little loop -- $8.87!")

The shirt was made in Bangladesh. Two years ago, on an American tour sponsored by a labor rights group, a Bangladeshi garment worker named Robina Akther talked about the working conditions in a factory there that supplies Wal-Mart. At age 16, Fishman writes, Akther worked 14-hour days, seven days a week, for 13 cents an hour; when she didn't sew fast enough, "a supervisor would slap her across the face with the pants she was sewing."

Last year, Akther joined 14 other workers from Bangladesh, China, Swaziland, Indonesia and Nigeria to sue Wal-Mart, arguing that its suppliers' actions are the company's responsibility. Wal-Mart has argued, in response, that it has a code of conduct for its suppliers and a worldwide inspection program to enforce it. Fishman's analysis of this program led him to conclude that Wal-Mart's inspections, however well-meaning, are not tough, frequent or independent enough to prevent abuse.

But lost manufacturing jobs, environmental damage and sweatshops are only part of the cost of "always low prices." The Wal-Mart effect can be more subtle as well. To make this point, Fishman walks me over to the lawn mower display to consider a product that's not there.

That would be the Snapper mower, a high-end brand whose management decided a few years back that it couldn't afford to continue dealing with Wal-Mart. The reason? Meeting Wal-Mart's incessant demands for lower prices would put the company in what Fishman describes as a "death spiral" of "collapsing profitability, offshore manufacturing and the gradual but irresistible corrosion of the very qualities for which Snapper was known."

Almost no one turns down Wal-Mart. The sales volume it offers is simply too enticing. But "once you get hooked on the volume," as the CEO of Snapper's parent company once explained, "it's like getting hooked on cocaine."

A Decision to Make

"This looks like a modest book section," Fishman says. "A lot of inspirational. All books 25 percent off the cover price. Let's see if we can find Sam's."

No luck. Wal-Mart No. 1,674 doesn't seem to carry "Made in America," its founder's autobiography. The book was published in 1992, the same year Sam Walton died.

Is Walton's retail legacy good or bad for us? The question is far from simple, and in Fishman's own book -- which, not surprisingly, we don't find in stock, either -- he wrestles with more aspects than can be covered in a quick Wal-Mart tour.

There's the question of Wal-Mart's rock-bottom wages and benefits. Had he been able to talk to CEO Lee Scott, Fishman says, he'd have asked about Wal-Mart's "brutal" 50 percent turnover rate: "Why do you allow 650,000 of your employees in the U.S. to leave every year?"

There's the company's recently announced concern with environmental sustainability. "We're very passionate about sustainability at Wal-Mart," Scott told the nation's governors in Washington in February. Is he serious? If so, how will he change a culture that for 40 years has focused, with messianic zeal, on lowering prices at all costs?

Wal-Mart, which has put more energy into defending its image lately than it used to, has nonetheless chosen to ignore "The Wal-Mart Effect." ("We really do not have comment on the book" was spokeswoman Mona Williams's response to an interview request.)

But however his efforts are viewed in Bentonville, Fishman is not a blame-Wal-Mart-for-everything kind of guy. Wal-Mart didn't create globalization all by itself, he says, and America's health care crisis is bigger than any one corporation -- however outsize -- can deal with alone. At the end of his book, in fact, he puts the ball right back in our court.

"Wal-Mart is the ultimate form of democracy -- we vote yes each time we buy something," he writes. The problem is, we don't know enough to understand what our vote means.

Speaking of which, I've got a decision to make. Am I going to buy my daughter the socks we've finally tracked down: plain white, Fruit of the Loom, $3.76 for five pair? They've got a stick-on label that says "Made in Turkey."

Fishman peels it back. Underneath, it says "Made in the USA."

Is this more evidence of the Wal-Mart effect? There's no way for us to know. Maybe Fruit of the Loom was going global anyway. Maybe it just had some extra pre-printed bags. Meanwhile, that price seems awfully good . . .

I toss the socks in the shopping cart. Pretty soon we're heading for the checkout line.

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