Monday, November 2, 2015

What happens when Wal-Mart opens a Supercenter?



 Stossel's conclusions are supported by Academic Research:  when Wal Mart opens a supercenter (grocery store), they offer "many identical food items at an average price about 15%-25% lower than traditional supermarkets." This raises welfare for consumers by about 20% of their food expenditures.   In addition to the direct effects of another option for consumers, there is the indirect benefit of increased competition on rival prices, an additional 5%.  And these effects are much bigger for poorer consumers.

9 comments:

  1. The economies of scale is a concept that states that the average unit cost of service or good can be reduced by increasing its output rate. For example, Walmart has been able to increase the size of their corporation, by hiring more workers, buying more machines, and remove production bottlenecks.
    Walmart is a great example of the economies of scope. The economies scope is economies that reflect the ability to produce multiple products more cheaply in combination than separately. Walmart is a one stop shopping store, because you can get everything you need there. Walmart employs a lot of individuals around the world, and pays them a decent wage, at least in New York. I think the minimum wage should be higher, however that is not up to Walmart, they are paying their employees depending on position, higher rates. I know this because my sister in law, my niece, and my cousin works for the company and they love it.
    Walmart superstores offers internal and external customers the following services:
    Grocery shopping
    Jewelry
    Clothes
    IN Store Banking
    Photo Studio
    Optometry
    Hair Salon
    Nail Salon
    Gun purchases
    Automotive services
    Tires
    Gardening
    Electronics,
    Cosmetics
    MoneyGram Service
    Tax Services
    Greeting cards
    Pharmacy
    Home Improvement
    Lawn care
    Furniture
    Restaurants

    I understand why small and large business owners do not want Walmart in their neighborhoods. There is no way the can compete with one company offering so many products and services at a lower price. However, I think that people should take their concerns about wages to Congress, the people making over 150k a year. Because they are individuals that decided what Americans should be paid an hour.

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  2. When a supercenter opens there are changes that occur because it affects other local businesses. The local companies such as food stores, clothing stores, furniture stores, and hardware store prices change. Supercenters are huge stores that combine general merchandise, groceries, and services. The main strategy behind these supercenters is they are the one stop shop for everyone. Walmart increases its revenue because of adding the grocery section. When Walmart comes to any area it causes other businesses to decrease in their sales. Walmart is a threat to all other companies especially in the urban/rural areas. This leads to these businesses to close. When Walmart incorporates the scale economies that arise from operating multiple stores.

    By Myeshia Wagner

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  3. An economy of scale is the cost advantage that arises with increased output of a product. Economies of scale arise because of the inverse relationship between the quantity produced and per-unit fixed costs; i.e. the greater the quantity of a good produced, the lower the per-unit fixed cost because these costs are shared over a larger number of goods. Economies of scale may also reduce variable costs per unit because of operational efficiencies and synergies. Walmart offers thousands of goods at a very low price in over 6000 stores. Consumers save about $100B by shopping at Walmart. Walmart supercenters have been highly successful and currently outnumber the regular Walmart (They are differentiated from more traditional shopping outlets that often specialize in a specific category: supermarkets specialize in selling food, although they carry other products, while a supercenter will sell food, clothing, prescription drugs, clothing, home office supplies, and electronic equipment). The competition is extremely fierce as many towns vote to try to keep Walmart out of their areas. Many low income families shop at Walmart as it is deemed more affordable than the small businesses. Walmart is considered to be “greedy” as they underpay their workers, and do not offer insurance to their employees. They remain very profitable and keep their costs down by hiring retired workers, students, part timers and people who are seeking additional income.
    Reference:

    http://www.investopedia.com/terms/e/economiesofscale.asp#ixzz407ssrmcm

    http://www.nber.org/papers/w11809.pdf

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  4. Tough to say much really, I mean I don’t know. I believe it’s important for anyone to stay updated with economic or anything related to that. I do Forex trading and that’s where it becomes even more important for me to stay updated to things and only then I could be making serious profits. I always stay focus and with help of OctaFX broker, it’s easier for me to control things through their magnificent rebate program where I am able to gain massive 50% back.

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  5. Walmart the Good, the Bad and the Ugly!
    A few years ago Walmart arrived in my small town. It came with much resistance and protest. The neighborhood was not looking forward to the traffic, noise and pollution. One local business man was worried about the effect it would have on his grocery store and other Mom and Pops stores. After years of fighting Walmart won and the New Supercenter in part of our community.
    Good aspects of Walmart is it does offer low prices and good deals for its customers, household goods and products, convenience. Its supposed to help with the local taxes, (not sure how that happens because my taxes are still going up). Walmart does add jobs to the community, 
    The bad is that Walmart is squeezing out small business with the lower prices that are hard to beat. (Offering optical, nails hair salon, groceries etc.. )
    The Ugly, Walmart does come across as greedy and not sharing the wealth with its employees. Walmart has the finances to offer good wages and benefits to employees. I have heard that they hire low income people so they can turn around and use food stamps at Walmart. (This was told to me by a cashier).

    I know that Walmart is a business. I am a business owner myself, I wish I had the capital to give my employees more money  and benefits. Walmart should share the wealth. I am not sure if Walmart has effected the community like everyone first thought. The local grocery store is still in business and offering local produce and specials.

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  6. As with most things in life there are pros and cons with Walmart Supercenters coming to one’s town. Walmart, as the largest company in the world by revenue(1), is able to develop economies of scale by purchasing large amounts of products from vendors which allows them a strong negotiation platform. Add superior supply chain management(2), which aids in minimizing any diseconomies of scale due to inefficiencies due to sheer size, and Walmart services as a model of economies of scale and management. With Supercenters being able to provide about 142,000 different products(3) to its customers, it clearly demonstrate economies of scope by having so many goods and services under one roof with the same set of fixed costs.

    Unfortunately with Walmart having these major economic advantages, it makes it difficult to for small stores to compete. Small towns have been more affected than larger cities and have lost up to 47% of their retail trade after a Supercenter comes to their location(4). Smaller stores need to develop their own value by creating or selling niche products, developing name recognition or providing exceptional customer experience. By adopting these and other tactics, smaller stores who cannot compete on pricing alone can coexist with Walmart Superstores.

    However for all the challenges it presents to a community, Walmart’s philosophy of keeping prices as low as possible, makes it possible for lower income earners to be able to afford more goods and more affluent buyers to secure better deals.(5)

    1. http://beta.fortune.com/global500
    2. http://flashglobal.com/blog/supply-chain-management-walmart/
    3. https://www.quora.com/How-many-products-are-stocked-in-a-typical-Walmart
    4. http://www2.econ.iastate.edu/faculty/stone/10yrstudy.pdf
    5. http://www.investopedia.com/articles/personal-finance/011815/how-walmart-model-wins-everyday-low-prices.asp

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  7. Walmart is now found in many towns and is one of the largest companies. These Walmart Supercenters are usually strategically placed next to other grocery store such as Wegmans or Tops. There is known competition between these stores since Walmart Supercenters sells products ranging from healthcare and beauty products to grocery items to gardening and home improvement products. Many people choose to go to Walmart for these items because Walmart has a known reputation to keep their prices lower. Even though smaller businesses may not like when a Walmart Supercenter pops up in their town because they now face heavy competition it is important to have a Walmart for the lower income families in the surrounding areas. Walmart can serve as an example of both economies of scale and economies of scope. Walmart is able to provide low prices to its customers at a much cheaper cost than if these products were provided separately. Walmart is able to sell products at a lower cost than its other competitors because Walmart produces or buys in products in mass quantities. Since Walmart has economies of scale they have a competitive advantage against the smaller stores. Walmart has such large revenues because they price their goods low and still charge a lower price than their competitors making more customers attracted to Walmart.

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  8. Wal-Mart has enjoyed tremendous success in both economies of scale and economies of scope. In scale, as the largest retailer in the world, with $486 Billion in revenue in 2015, it dwarfs its competition. This size allows them to sell more at a lower average cost which provides a key competitive advantage. However, there is a limit on how much efficiency they can gain which has driven them to push suppliers for lower prices in order to get more margin. They also have developed considerable economies of scope as they have moved beyond their original dry goods model to embrace grocery items which now equate to 56% of their sales (Reuters, p. 1). A visit to their store shows ever expanding offerings in scope to include auto service, eye care, spa treatments, professional photography and banking.

    The resistance to Wal-Mart from many who protest the devastating impact on local stores and on the working conditions and compensation of the workers appear to ignore the other rules of economics. There is considerable wealth being created by Wal-Mart’s efficiency. It is estimated that $287 Billion is saved annually by US shoppers due to Wal-Mart and its competitors who have lowered consumer purchases approximately 3% (Worstall, p. 2). This surplus goes to both the seller but even more to the buyers. If Wal-Mart is not present, this money is in effect wasted and we are employing more expense in dollars and people than necessary to efficiently distribute wanted goods. This is an example of the hidden-cost fallacy where denying Wal-Mart entry to a market is in effect costing the consumers who would have enjoyed lower savings. Pushing Wal-Mart to pay their employees more money is in effect a proposed tax on consumers who will pay more which is destroying wealth because we’re subsidizing.

    Shopping and working at Wal-Mart are voluntary. We should let the market work and stop trying to put barriers to letting wealth be created .

    References:

    Reuters, (2017), This Is Walmart's New Plan to Squeeze Prices in the Face of Discount Chains, Fortune, February 27, 2017, downloaded from http://fortune.com/2017/02/27/walmart-price-comparison-test/

    Worstall, T. (2013), WalMart Destroys Jobs, Yes, But The Benefits Go to Consumers, Not the Top, Forbes, August 11, 2013, downloaded from www.forbes.com/sites/timworstall/2013/08/11/walmart-destroys-jobs-yes-but-the-benefits-go-to-consumers-not-the-top/#7d14667933f6

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  9. Do you know what the number one bestselling product at Walmart is? Bananas! Food is big business, Walmart Super centers are so successful, they have closed the old Walmart’s in our area, leaving them completely abandoned, and built new supercenters literally within ear shot of the old one. To put that into perspective, the cost of building an entirely new store is dwarfed by the revenue a supercenter can make them. Walmart is doing with food what they have done with retail goods, using their cost differentiation strategy and low costs operations to offer lower prices on food than local competitors. When we look at the economies of scale, Walmart is successful because their long-run costs fall with output, meaning the more they sell, the average cost goes down. They make money by selling more of the product but at a lower price. One way they do this is by placing large orders with their suppliers, “If your long-run costs exhibit increasing returns to scale, securing big orders allows you to reduce average costs.” (Froeb, McCann, Shor, & Ward, 2016)
    I am not a local store owner, and I do not know anyone who works for a Walmart. I have read and researched Walmart’s business dealings and ethics, so I know they have work to do, but for me for me Walmart is a good thing. With a growing family my budget is stretched and every dollar counts. Regarding retail items, I have shopped around and for the most part, you cannot beat their prices. In the past you could find a better deal on Amazon if you didn’t have to pay for shipping, but Walmart has adapted to the market and invested heavily in their ecommerce. I’ve noticed this past year that Walmart is beating Amazon prices, and has free shipping, and you can get a discount if you ship to the store and pick it up. Here’s a trick, put something in your Walmart cart online, then wait to buy it, I’ll bet that within a week they “roll back” the price to entice you to buy it. I don’t know if they are using an algorithm, or if price decreases as the seller tries to decease their inventory, but it happens. I just did this with a car Gracco car seat, and Walmart beat Target and Amazons price by $100! Fortunately, the winner of the ecommerce wars is the consumer. Unfortunately, Walmart’s pricing strategies are so enticing, I went and spent those savings on other products. Walmart is like a casino; the house always wins.
    My hope is that one-day Walmart will merge their supercenters with Home Depot, and I can finally I do all my shopping in one massive store with unbeatable prices.

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