Wednesday, November 23, 2005

Wal-Mart and the End of Variation

I read an article this morning about the new movie by Robert Greenwald called
Wal-Mart: The High Cost of Low Price. There was an advance screening in New York (I think) and Wal-Mart sent a spy in to get the low down on the movie so that Wal-Mart could launch a counter offensive. We don't have Wal-Mart here, so I can't speak from direct experience, but we do have our own version called The Warehouse which seems to follow similar lines.
My basic read of Wal-Mart is that it is using its' size to push prices down. This is of course good for the consumer. In an example here, CDs cost NZ$32 on average which is about US$22. I don't know how that compares with other countries, Korea is cheaper, but I have always found this on the high side. Along comes The Warehouse and offers new release CDs for NZ$22 or US$15. It is a no brainer for someone like me who loves music, I am of course going to buy from The Warehouse. This is what I see happening with Wal-Mart.
I am not a big follower of the business world, frankly my socialist leanings do not sit well with our capitalist society, but one thing I have learned over the years is that most economies in the world require that citizens spend money. When consumer spending is up, the economy is up. I know this is a little simplistic, but basically that's how it goes. With cheaper prices at The Warehouse or Wal-Mart, this means that people will spend their money there and I have generally found that when people find a bargain they spend more than they otherwise would. So on the one side of the coin these places are good for our economies. On prices, I certainly have no complaint.
I was however thinking the other day that one day all the shops I pass everyday could cease to exist. The Warehouse is now talking about getting into alcohol sales, they already sell some food, and there will come a time where they will sell everything, at cheaper prices.
Watching the trailer for the movie, as well as reading comments on anti-Wal-Mart , I can understand the arguments against these kinds of places. People, such as myself, are always going to go for the lower price. If it were just a few dollars we were talking about, then perhaps our loyalty would not be affected, but a $10 difference on CDs? How can I turn that down. This means that shops near the big store will have to reduce prices to get customers. They obviously don't have the buying power of the big place and having to cut prices means lowering wages and then in the end closing down completely. I have seen this happen at our local mall. Once The Warehouse went in, our local CD shop which had been around for 20 years, went out. Other shops followed and now we are left with The Warehouse and two $2 shops.... Obviously the $2 shops are thriving, a little bit sad. After killing the competition, what is to stop the big store from raising its' prices? After all, when it comes down to it, modern business is all about delivering dividends to their shareholders and higher profits definitely are good for that.
What am I trying to say? Well, this kind of store has good points and bad points. In the long term I can see things getting really boring as everytime we go shopping it will be to the same place, as all the other shops will have gone under. Monopolies generally don't have our best interests at heart and without government intervention do not particularly need to worry about their employees either. In the short term however cheap CDs are good!

San Nakji for President!


Anonymous said...

Actually, I prefer to go to the more expensive places for certain things.

San Nakji said...

For certain things.... yes....

Ashley said...

I avoid Wal-Mart entirely. I seek the best value. Value isn't always the price, in my opinion. I don't shop at Wal-Mart for all the reasons most people cite. I also think those giant box stores are an eyesore. Aesthetically unpleasing architecture in my city is another reason I boycott certain businesses.

hale said...

Golly, San Nakji, you had it just about right, until you said: "After killing the competition, what is to stop the big store from raising its' prices?"

You should know that if they raised CD prices too high, some smart little cookie would open a cut-rate CD store next door. They know this, too, and know that they CAN'T raise prices!

But you are not doing badly for a near-socialist non-capitalist Kiwi! (smile)

Bloggin The Maghreb

hale said...

Mr President:

About my comment above, you said: "I don't know if I agree with your idea about CD prices however. The big places can always put the prices back down to kill the competition and then back up again. What's to stop them?"

I was just using CD prices as an example. If they dropped prices and then raised them when competition ceased, here in the US, the government would get them. That is strictly illegal. I doubt that any country has a FREE market system - it needs some regulation to make it work properly.

What I was trying to point out - obviously quite poorly - was that there is a good deal of self regulation in a semi-free market system (hopefully!) by the sort of feedback correction I alluded to.


San Nakji said...

Thanks, I appreciate your comments. I think you are right there.