February 18, 2005

View From Lodi, CA: Washed Away By The Wal-Mart Wave

Wal-Mart is in the news again…nationally, regionally and locally.

Earlier this week, the U.S. Labor Department announced that the retail giant had agreed to pay a $135, 540 fine but without having to admit wrongdoing for 24 violations of child labor laws.

Over the last four years, at Wal-Mart stores in Arkansas, New Hampshire and Connecticut, employees under 18 operated hazardous equipment like chain saws and paper balers.

These latest charges are, according to US Representative George Miller (D-CA) part of a Wal-Mart’s long-standing pattern to undercut labor standards at home and abroad wherever possible.

Meanwhile in Galt, Los Angeles developers have purchased a 53-acre commercial site with the intention of constructing a 206,000 square foot Wal-Mart Supercenter on 20 of those acres in September.

The projected Galt Supercenter would be the fourth between North Stockton and Galt—a distance of about 20 miles.

Finally, in Lodi, the News-Sentinel Business Editor Greg Kane reported that city officials have cut a new deal with developer Darryl Bowman that will allow him to keep the original agreement of leasing half of the existing Wal-Mart. Or Bowman’s new options are that he can sell the property or demolish and rebuild the structure.

The bigger Wal-Mart gets, the more frightening it becomes.

In fiscal 2004, which ended January 31^st, Wal-Mart sales of $259 billion ranked it as the world's largest retailer. The enormity of its sales volume has also pushed it to the top spot in individual categories as varied as food, apparel, jewelry and home furnishings.

During fiscal 2005, Wal-Mart plans to add 310 new stores and 30 new Sam's Clubs to its stable of 3,625 locations.

Retail analyst Bernard Sosnick from the Wall Street firm Oppenheimer & Co. expects that by 2010, Wal-Mart will have 3,000 supercenters, up from 1,600 this year, and total company sales of half a trillion dollars.

When that happens, Wal-Mart will become number one in dozens of other product categories. And that will put even greater pressure on companies in fields that it already dominates like clothing and food.

No company large or small would be safe. Established giants like Safeway will become memories.

To understand how Wal-Mart works, look at how it muscled Tower Records into bankruptcy.

Tower Records follows in the footsteps of earlier bankruptcy filings by Sam Goody, the Wherehouse and Musicland.

Over the past decade, Wal-Mart has emerged as the nation’s biggest record store and sells one of every five major-label albums.

Wal-Mart had been willingly losing money on CDs by selling many of them for $9.72. The company hoped to entice customers to buy other Wal-Mart goods while they were stocking up on cheap CDs.

But then Wal-Mart, tired of losses, demanded that the record industry sell at more favorable prices. The chain threatened to simply stop selling CDs if it couldn’t get the prices it wanted.

One record label executive told Rolling Stone Magazine reporter Warren Cohen that “If they got out of selling music, it would mean nothing to them. This keeps me awake at night.”

In the last two years, largely because of Wal-Mart’s powerful position, more than 1,200 smaller record stores have closed.

Wal-Mart’s domination of the music retail business means that people employed in other outlets—like Tower, Sam Goody, the Wherehouse and Musicland—lost their jobs.

And music lovers who might be looking for 1940s jazz or early Baroque composers will come up empty—at least at Wal-Mart.

In November 2004, in what I view as a public service, Forbes published a list of five categories of employers that look particularly vulnerable to Wal-Mart’s "looming threat.”

They are:

Consumer Electronics: currently number two behind Best Buy, retail analyst Howard Davidowitz predicts: “They are going to fry Best Buy's brains out."

Pharmacy: Fourth in the nation behind Walgreens, CVS and Rite Aid, Wal-Mart is opening 24-hour operations and putting the price squeeze on suppliers of both prescription and over-the-counter medication.

Fashion: Wal-Mart plans to upgrade its marketing from mundane items like underwear and socks in favor of selling trendier brands like the number one British apparel manufacturer, George.

Gasoline: Wal-Mart stores operate more than 1,550 stations for a 3% share of the U.S. market. With its huge number of locations, Wal-Mart could go it alone. Said analyst Kurt Barnard, "The volume they could offer would be of enormous interest to refineries."

Banking: Quietly considering banking for five years, Wal-Mart has a built-in market. Of the 100 million customers that shop at Wal-Mart weekly, 20% do not have bank accounts. The Sun Trust Banks operate more than 30 Wal-Mart Money Centers. And the chain offers financial services like check cashing, bill payment and money orders.

If you are currently employed in one of those five fields, you might consider updating your resume.

What Wal-Mart wants, Wal-Mart gets.

Joe Guzzardi [email him], an instructor in English at the Lodi Adult School, has been writing a weekly column since 1988. It currently appears in the Lodi News-Sentinel.