by Mojave Bob » Tue Apr 15, 2014 7:54 am
The way I see this, there is plenty of blame to go around. There is always a demand for lower prices, and there is always some business willing to use price-point as their primary marketing strategy. Where I start to have a problem with it is when the company is willing to take a parasitic approach - creating a downward spiral in the community. WalMart is not the first to do this, they won't be the last, but they are the current major culprit.
As alluded to in an earlier post, it is the dishonesty of WalMart that is appalling. Back in the day, I ran a hardware store, and was a top-tier distributor for a number of brands, including among others, Black & Decker, Skil and Hoover. All three companies fell victim to WalMart, and were selling the "exact same" model at WalMart for below my cost. "How?", I asked, "I am a top-tier distributor. Nobody buys cheaper than I do." Well, the items looked the same, but weren't. the WalMart versions had smaller motors, shorter cords, vinyl cords instead of neoprene, sleeve bearings instead of ball bearings, and so on. The were a far inferior tool, being sold under the same part and model number. The owners manual for the ones I sold said to return the item to the manufacturer if servicing was needed. WalMart's said to return the item to the place of purchase for refund or replacement. In other words, mine were designed to be serviceable, their's were not.
The way it works is this: Say you make a widget that costs you $1.00 to make, and you sell it to distributors for $1.50. You have the capacity to make 100,000 of them a month. You currently produce about 80,000. WalMart approaches you and says, "We want to buy your widget. We want 90,000 of them a month. But, we will only pay $1.25. If you say no, we will buy our 90,000 widgets from your competitor instead." So, you say yes, you expand your production capacity at considerable cost, and you produce 170,000 widgets a month. After a year, WalMart comes to renegotiate the contract for the year. They say, "Your widget sold pretty well. This year, we want 120,000 widgets a month, but we will only pay $1.15." You just invested in the new manufacturing plant, you can't afford to lose their business, and now your non-WalMart business has dropped to only 50,000, because of WalMart undercutting prices in the stores, so you reluctantly agree, and you look for ways to cut costs. Next year, WalMart comes to renegotiate the contract, and they say, "We want 150,000 widgets a month, but we are paying $.90 each." You say, "I can't even make them for that. I would have to lower quality and wages." They say, "Sell them to us for $.90 or we will take our business elsewhere." That means you will be out of business. So, you agree, you cut wages and benefits, you move jobs overseas, and the cycle continues.
That is my problem with WalMart. You might (correctly) argue that that is just how business works, and you would be right, except that it isn't necessary to beat up your suppliers. In my business, I want to pay as little as reasonably possible, but I WANT my suppliers to be profitable, because that means they can produce a higher quality product, it means their employees can be adequately provided for, and it means they will still be in business next time I need to place an order. WalMart doesn't see it that way. And, if I make negotiating the lowest possible price my highest priority, I have become like WalMart. Ewwww!