Wal-Mart H.Bailey, M.Himpele,C.Hotaling, Z.Wang, L.

Whitton

Wal-Marts founder, Sam Walton traveled the country before he opened his first WalMart store to research what Americans wanted out of a shopping experience. , He focused on bringing low prices by cutting costs within their supply chain. The Wal-Mart mantra of Always Low Prices has swept through the country and across the world like a virus. Retailers have reacted wrongly by trying to act as Wal-Mart and deliver low prices by cutting marketing, labor rates and promotional ideas all in an effort to compete on lower prices. Wal-Mart has changed the way goods are manufactured, distributed and the way that people shop. As the biggest company in world history, Wal-Mart has grown powerful within its industry. The complexity of the ethical issue within the Wal-Mart case is difficult to explain. While there are obvious ethical infringements, they can be accounted for by well-reasoned causes. This paper will explore the issues presented using the CAT Scan Framework. The first argument deals with Wal-Marts treatment of its employees. It is true that employees rarely earn over an average $9 an hour. It is also true that there is not much hope of a raise, as higher wages would lead to a need for Wal-Mart to increase its prices, something that defies the very principles on which the company was built. Another unethical practice with Wal-Mart is its interaction with suppliers. As a powerful firm, Wal-Mart is able to make demands and force suppliers to enter into a bidding war for space on their shelves. In the case of Vlasic pickles, this heavy-handed partnership lead to financial peril for this supplier. Communities also suffer from Wal-Marts vast reach, a fact that Wal-Mart consistently denies. While they claim to bring employment and infrastructure to towns, the opposite is actually true.
1

Wal-Mart H.Bailey, M.Himpele,C.Hotaling, Z.Wang, L.Whitton

The last major ethical infringement under the Wal-Mart effect is the companys monopolistic competition. The retail giant still has big competitors, but it has slowly phased out weaker participants that lack the capital to expand as rapidly as Wal-Mart. If they continue with this practice, it is likely that eventually more of their competitors will go out of business and the will operate as a monopoly. For two-thirds of Americans, Wal-Mart is the single largest employer in the state that they live. Even at $9 per hour, a years wage for the front line associate with a family of four falls below the 2006 federal poverty level of $20,000. A study by the consulting firm Global Insight concluded that Wal-Marts expansion has saved U.S. consumers $263 billion in commodity goods is deeply flawed. A robust set of research findings shows that Wal-Mart;s entry into the local labor markets reduces the pay of workers in competing stores. This effect is largest in the southern states, where Wal-Marts expansion has been the greatest. Wal-Mart could raise wages and benefits significantly without raising prices and still earn a healthy profit. Wal-Marts main strategy is to bring the lowest possible prices to consumers. Meanwhile, they possess the power to squeeze profit-killing concessions from vendors. To survive in the face of pricing demands, makers of everything from bras, bicycles to blue jeans had to lay off employees and close U.S. plants in favor of outsourcing products from overseas. In other words, Wal-Marts strategy raises the unemployment rate. In looking at our options, we decided that the best plan of action is to institute public policy on the amount of information large corporations should provide to the public, rather than allowing them to choose what kind of information, they can release. Historically, Wal-Mart has had a corporate culture of secrecy when it comes to releasing information about the
2

Wal-Mart H.Bailey, M.Himpele,C.Hotaling, Z.Wang, L.Whitton

company, and as a result, consumers have been making their purchasing decisions at Wal-Mart based on imperfect information, as they do not fully understand the impact Wal-Mart has on the world. Without realizing it, consumers are giving all of the power to Wal-Mart because they do not know all of the costs that arise from the way that Wal-Mart conducts business to be able to deliver low prices to the consumer. In addition to their fiduciary obligation to their shareholders, Wal-Mart has a moral obligation to their other stakeholders, including their employees and suppliers. Wal-Mart has upheld their duty to their shareholders, by maximizing shareholder wealth through their commitment of offering always low prices. At the same time, however, Wal-Marts low pricing strategy violates duties to their suppliers and employers. Wal-Mart cannot afford to pay their employees higher wages, otherwise they would not be able to stay true to their always low price mission, because they would have to raise prices to pay their employee higher wages and provide better health insurance. In addition, Wal-Mart also violates their duty to their suppliers because they use their power to squeeze suppliers. If a supplier is unable or unwilling to deliver the lowest possible price that Wal-Mart wants, then they threaten to take their business to another supplier. For example, Wal-Mart is bigger than P&Gs next nine customers combined, which means that staying in business with Wal-Mart is imperative for P&Gs success. Rights-based avenues that Wal-Mart is accountable to uphold include employee rights such as right to affordable and good health care, equal opportunities and reasonable wages. They also extend to suppliers who have a right to make a profit and to gain advantage from opportunities.

Wal-Mart H.Bailey, M.Himpele,C.Hotaling, Z.Wang, L.Whitton

Group discussion concluded that Wal-Mart is a necessary evil. We found Wal-Mart to operate in a cyclical manner. Starting with employees, Wal-Mart is known for having very low wages. These employees are forced to shop at Wal-Mart for low price items that they are able to afford from low wages. Wal-Mart may have some unethical practices for obtaining their low prices, such as supplier bullying and extravagant cost cutting, but their success is owed to the millions of faithful customers that patronize their stores and that help to make this giant grow. Ways to combat this cycle from happening would be to impose government regulations applicable to the entire market, setting requirements so high that Wal-Mart would be the only corporation affected by them. These regulations could include ideas such as information transparency, zoning laws, and price floors (offering suppliers protection). Wal-Mart is known for having shady business practices concerning suppliers and where cost cutting is coming from. If they had to make supplier relationships public it may deter regular Wal-Mart shoppers because of the unethical suppliers practices they are using. Furthermore, price floors on supplier goods and a protection from large scale buying could also help to create transparency of Wal-Marts practices. Though most suppliers like the fact that Wal-Mart shops from them, they often find themselves setting prices well below what they would normally have. In some cases this has ruined suppliers and caused them to go out of business. If the government imposed a floor that denies a company to make under a certain profit per order it would help many suppliers survive. Yes, we do realize that this may increase Wal-Marts prices slightly, though it may not be the worst thing. Zoning laws could be very important to many small business owners all over the country. Wal-Mart Supercenters now competes in just about every industry there is. When they
4

Wal-Mart H.Bailey, M.Himpele,C.Hotaling, Z.Wang, L.Whitton

enter small rural areas small business owners slowly fade away. The home business cannot compete with Wal-Marts low prices and even if they do have loyal customers, price almost always wins in the end. Government regulations could regulate the distance from certain size population areas where large retailers can move in. In The Walmart Effect it said that 95% of Americans live within 15 minutes of a Wal-Mart. If the government could produce zoning laws that would increase this distance to 25 or more miles there could be a large change in where consumers shop.