How can Wal-Mart Keep Low Prices

When Sam Walton opened his first store, the Five and Dime, he had no idea that he would become a success. He started his first store with one vision – to keep prices as low as possible. He knew that by keeping the prices low, his profit would not be as large as his competitor’s but he also knew that he could compensate this by the volume of sales. Soon he was opening new stores in other states and its sales reached millions of dollars.

At present, Wal-mart is the biggest corporation surpassing its competitors (Jim Hightower) It has over more than a hundred retail stores all over the world making the Waltons some of the richest people in the world. S. Robson Walton is ranked by London’s “Rich List 2001” as the wealthiest human on the planet having more than $65 billion surpassing Bill Gates. (Jim Hightower) Its present status was however not attained overnight. There were several strategies adopted by Wal-Mart which made it the world’s largest retailer. The first is the use of technology.

Wal-Mart was the first to use the Universal Bar Code system. As the largest retailer, Wal-Mart was able to force manufacturers of products to adopt a common labeling called the bar code. The bar code contains details about the product which tells the retailers information such as how many of the said products have been sold and how many are still remaining. This system helped improve the way inventories are done in stores. With the bar code system, retail store owners no loner need to hire employees to conduct the inventory and the inventory system is now more accurate.

Another business strategy adopted by Wal-Mart to keep prices low is its adoption of the corporate culture of frugality. The Waltons were very careful about spending their money and they lived a very simple lifestyle. They also demanded frugality from their employees. Frugality is so imbedded in its culture that even the company’s headquarters is located in Arkansas which is very old and looks dull. The executives of the company do not ride in fancy limousines and nor do they reside in expensive hotels. Instead, the executives shared budget-hotel rooms with their colleagues. (Caroline Wilbert)

The corporate culture of frugality was manifested in the way the wages of their employees are being paid. It is said that the company pays an average wage of $9. 68 an hour which is definitely not enough for the employees to maintain a decent standard of living. (Gregory Heires) There have been complaints that the said company even compels its employees and managers to work overtime without paying them additional compensation for overtime work. The employees do not have adequate health care insurance and other benefits. Health care insurances are essential especially for employees who are earning barely enough for their daily living.

Even if these employees get sick they will get some help from health care providers for their medicine and hospitalization expenses. Research, however, shows that “Wal-Mart’s health insurance covers 44% or approximately 572,000 of its 1. 3 million U. S. workers. [In comparison, Wal-Mart rival Brown & Cole Stores insures approximately 96% of its 2,000 eligible workers. Further, Wal-Mart spends an average of $3,500 per employee for health care, 27% less than the retail-industry average of $4,800. ”(“Wal-Mart”) Wal-Mart adopted an aggressive policy against labor unions.

The role of unions in workplaces is very important. They ensure that the employees are given the wages and benefits which the law gives them. It is said that in North America, Wal-Mart has thwarted efforts to create union through aggressive anti-union tactics such as managerial surveillance and pre-emptive closures of stores or departments who choose to unionize. (“Wal-Mart”) Initially, Wal-Mart advertised the “Buy American” campaign. However, in order to maintain its low prices, Wal-Mart had to look for other suppliers which offered products for a lesser price than the suppliers in the United States.

Eventually Wal-Mart began looking at other countries for the cheapest source of production. In 1995, Wal-Mart said that 6 percent of its total merchandise was imported. A decade later, experts estimated that Wal-Mart imported about 60 percent of its merchandise. (Caroline Wilbert) Today, Wal-Mart is considered the largest importer of Chinese-made products in the world, buying $10 billion worth of merchandise from several thousand Chinese factories. (Jim Hightower) There is, however, a price for the success of this management policy of Wal-Mart.

For the company to maintain low prices for its buyers and customers, it has to reduce its expenses in the barest minimum – including wages, benefits, working conditions, supplies and products. As a result, Wal-Mart has been criticized worldwide for its business policies by other business organization, religious organization. Among the issues raised against it are: a) low wages it pays to its employees, cases of union busting, lack of health care and employee benefits, use of foreign labor, discrimination against women,

It bears stressing that the current management policy of Wal-Mart is devastating for the millions of its employees worldwide. Though it may have generated employment, it has also created unemployment insofar as the employees of their competitors are concerned. For its existing employees, their working condition is far from being ideal. The purpose of this research project is to prove that it is possible for Wal-Mart to improve the wages and benefits it gives to its employees and at the same time maintain the prices of their products low.

The philosophy is clear and definite – Wal-Mart can maintain the low prices of its products without hurting its employees. The persons who will be interested in this research project are not only the employees who will be benefited by the increase in their wages and benefits but also the consumers who desire to ensure that the prices of products in Wal-Mart remain the same. II. I believe that it is possible for Wal-Mart to improve the wages and benefits it gives to its thousands of employees and at the same time maintain the prices of their products low. As proof, I aim to use studies made by economists and researchers.

One potential secondary source that will prove the said point is the studies conducted by the Economic Policy Institute which is cited in the article of Emily Kaiser entitled “US: Wal-Mart Could Hike Pay and Keep Prices Low: Study. ” Researchers have also concluded that if only Wal-Mart would reduce its profit margin to about 2. 9%, where it stood in 1997, from the 3. 6% margin it recorded last year that would free up about $2. 3 billion to pay workers without raising prices. ” (Emily Kaiser) The primary research tool that could be used for this research is the examination into the Income Statement of the Wal-Mart Inc.

These are public documents which could be looked into by any citizen. By examining the company’s Income Statement, we will be able to find out just how much money the company is earning in a year. If a small portion of these earnings will only be equitably distributed, then the employees will experience an improvement in their living condition. Another primary research tool are Internet sources which shows the extent of the complaints, criticisms and suits against Wal-Mart. By looking into the information from these sources, one can conclude that the wealth and success of Wal-Mart was made at the expense of its employees.