Wal-Mart is not just the world's largest retailer. It's the world's largest company--bigger than ExxonMobil, General Motors and General Electric. It does more business than Target, Sears, Kmart, J.C. Penney, Safeway and Kroger combined. What almost no one outside the world of Wal-Mart and its 21,000 suppliers knows is the high cost of those low prices. Wal-Mart has the power to squeeze profit-killing concessions from vendors.
The only solution for many companies is to use overseas suppliers. Wal-Mart is so big and so centralized that it can all at once hook Chinese and other suppliers into its digital system. So--wham!--you have a large switch to overseas sourcing in a period quicker than under the old rules of retailing. There is no question that Wal-Mart's relentless drive to squeeze out costs has benefited consumers. The giant retailer is at least partly responsible for the low rate of U.S. inflation, and a recent study concluded that about 12 percent of the economy's productivity gains in the second half of the 1990s could be traced to Wal-Mart alone.
Wal-Mart's acceleration is inevitable. The United States is on a rapid downhill trend that will devastate our economy unless we wake up. There is no way the world is going to stand by and tolerate our excess spending and earnings when they are earning so little. Wal-Mart will make sure that many U.S. jobs go overseas. While that buys us cheaper products, it also presents a dilemma in that many will need to switch jobs. This is also happening in high-tech. Much of the programming is shifting overseas. I did it three years ago. I hired four Polish programmers for my Web site for the price of one U.S. programmer.
My guess is that we need to shore up our savings in anticipation of an eventual economic decline.
Fast Company December 2003