June 15, 2006

ANOTHER REASON WHY NOTHING COSTS MORE THAN IT USED TO:

The Price of Pickles: a review of The Wal-Mart Effect: How an Out-of-Town Superstore Became a Superpower by Charles Fishman (John Lanchester, London Review of Books)

The moment of revelation is a little different for every person who experiences it. For Sam Walton, founder of Wal-Mart, the road to Damascus came in the form of a pair of knickers. At the time – 1945 – Walton was in his late twenties, and was running a small department store in Newport, Arkansas belonging to a franchise called Ben Franklin. Walton had grown up in Missouri and attended the state university, then gone on to a clerical job during the war. He married Helen Robson, borrowed some money from her lawyer-banker father, then opened his Ben Franklin ‘variety store’.

The life-changing pair of panties appeared in a list of goods sold by a garment-industry middleman in New York. The pants were ‘two-barred, tricot satin panties with an elastic waist’ and their price, $2 a dozen, was 50 cents cheaper than that offered by Walton’s current supplier. This differential allowed Walton to sell the knickers at four for $1 instead of three for $1. The panties began to get up off the shelves and walk out of the shop on their own. The clouds parted, a beam of light shone down, and, as Walton reports in his autobiography, Made in America:

Here’s the simple lesson we learned . . . which eventually changed the way retailers sell and customers buy all across America: say I bought an item for 80 cents. I found that by pricing it at $1 I could sell three times more of it than by pricing it at $1.20. I might make only half the profit per item, but because I was selling three times as many, the overall profit was much greater. Simple enough. But this is really the essence of discounting: by cutting your price, you can boost your sales to a point where you earn far more at the cheaper retail price than you would have by selling the item at the higher price. In retailer language, you can lower your mark-up but earn more because of the increased volume.

Arthur Danto once observed that Andy Warhol had only one idea – roughly, that mass-produced media images could be seen as a form of art – but that what was unique about him was that he fully grasped that idea in every aspect, artistically, philosophically, commercially, psychologically. Sam Walton was a little like that about price. Many people in many different businesses have had their equivalent cheap-knicker epiphany. But Walton was the only person to do two things. First, he made price the central question at every stage of his business, from top to bottom, from the utmost frugality of his own offices and living habits, to paying everybody involved at every stage of the business as little as possible, to exerting the maximum pressure on his suppliers, not just to not-raise their prices, but to lower them, every year. This is easy to conceive: it would be not much of an exaggeration to say that every business in the world fantasises about keeping costs rigorously down. But it is very, very hard to do, and to keep doing, when things like an extra lick of paint, or a slightly increased wage bill, or the wiggle room offered by giving customers a hint of style – which allows retailers to charge more – are all so tempting. Second, Walton combined his fanatical insistence on low prices with a manic appetite for expansion and innovation: he would open everywhere, he would try anything to sell stuff, and he would do so without ever relaxing his grip on the numbers and the costs and the always paramount question of price, price, price. Most company mottoes and advertising slogans are bulls[quat]. Wal-Mart means what it says: ‘Always low prices’ – a slogan which on some of its stores now simply appears as ‘Always’, in the knowledge that its customers can be trusted to complete the thought.


What the Left can't seem to grasp is that their war on Wal-Mart is, in turn, a defense of higher costs to consumers and a less efficient economy. Mr. Fishman revealed this in hilarious fashion several months ago:

FROM THE ARCHIVES (2/16/06):
AUDIO: 11:00 Charles Fishman: "The Wal-Mart Effect" (Diane Rehm Show)

A look at how the world's largest retailer is transforming the American economy.

Guests: Charles Fishman, senior writer, Fast Company


Poor Ms Rehm, today's show was a perfect illustration of how adherence to Leftism requires ignorance of reality. At the point where Mr. Fishman explained that the 15% you can save on groceries at Wal-Mart essentially buys some families 7 weeks of free food a year, it seemed a possibility her head might explode.

Posted by Orrin Judd at June 15, 2006 5:02 PM
Comments

Wal-Mart did well only because Hillary was on their Board for 6 years! A real rainmaker, she.

Posted by: ghostcat at June 15, 2006 5:34 PM

Remember visiting the in-laws 30 or so years ago in Rogers AK, near Bentonville and frequenting the local Wal Mart. OK store, but wasn't particularly impressed. Who knew they would conquer the world for Satan?

Posted by: jdkelly at June 15, 2006 6:15 PM

Conquer the world as Satan.

Posted by: Raoul Ortega at June 15, 2006 7:23 PM

"Rainmaker?" Is that the same thing as "baglady?"

Posted by: Lou Gots at June 15, 2006 8:19 PM

OJ:
"What the Left can't seem to grasp is that their war on Wal-Mart is, in turn, a defense of higher costs to consumers and a less efficient economy."

Higher costs and less efficiency is exactly what they want. What do you think all their anti-consumerist bluster is about?

Posted by: Bryan at June 15, 2006 8:26 PM

Higher costs and lower efficiency is indeed what the Left wants. And all because the Left elite want to be the only ones who get to buy or own things. The idea that all the yucky poor people might actually get to obtain stuff they want is untenable to them.

Posted by: Lisa at June 16, 2006 10:47 AM

I wonder if John Forbes Kerry's servants shop at Wal-Mart? Would Tereza have a fit? Or would she give them raises for cutting expenses?

Posted by: ratbert at June 16, 2006 7:36 PM
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