The Retail Revolution: How Wal-Mart Created a Brave New World of Business - Hardcover

Lichtenstein, Nelson

Hardcover

ISBN 10: 0805079661 ISBN 13: 9780805079661

Publisher: Metropolitan Books, 2009

Synopsis

The definitive account of how a small Ozarks company upended the world of business and what that change means

Wal-Mart, the world’s largest company, roared out of the rural South to change the way business is done. Deploying computer-age technology, Reagan-era politics, and Protestant evangelism, Sam Walton’s firm became a byword for cheap goods and low-paid workers, famed for the ruthless efficiency of its global network of stores and factories. But the revolution has gone further: Sam’s protégés have created a new economic order which puts thousands of manufacturers, indeed whole regions, in thrall to a retail royalty. Like the Pennsylvania Railroad and General Motors in their heyday, Wal-Mart sets the commercial model for a huge swath of the global economy.

In this lively, probing investigation, historian Nelson Lichtenstein deepens and expands our knowledge of the merchandising giant. He shows that Wal-Mart’s rise was closely linked to the cultural and religious values of Bible Belt America as well as to the imperial politics, deregulatory economics, and laissez-faire globalization of Ronald Reagan and his heirs. He explains how the company’s success has transformed American politics, and he anticipates a day of reckoning, when challenges to the Wal-Mart way, at home and abroad, are likely to change the far-flung empire.

Insightful, original, and steeped in the culture of retail life, The Retail Revolution draws on first hand reporting from coastal China to rural Arkansas to give a fresh and necessary understanding of the phenomenon that has transformed international commerce.

About this title

About the Author

Nelson Lichtenstein is one of the country’s leading experts on labor and politics and the editor of a much-cited collection of essays on Wal-Mart. A professor of history at the University of California, Santa Barbara, where he directs the Center for the Study of Work, Labor, and Democracy, he is also the author of several highly regarded books on American history, including the award-winning Walter Reuther: The Most Dangerous Man in Detroit.

Excerpt. © Reprinted by permission. All rights reserved.

INTRODUCTION

FROM BENTONVILLE TO GUANGDONG

Shopping has become the most important thing we do to keep America's $13 trillion economy humming. It is the retailers, Wal-Mart first among them, who have become the key players in the worldwide marketplace of our time. They are the new business giants fueling the China boom, building huge container ports on every continent, and transforming the metropolitan landscape at home. Controlling more than half of all world trade, they make the markets, set the prices, and determine the worldwide distribution of labor to produce that gigantic stream of commodities that flows across checkout counters in every major industrial country.

All this is graphically apparent upon a visit to the two most dynamic nodes of transnational capitalism today. It is easy to get to Bentonville, Arkansas, where Wal-Mart has its world headquarters in an unimpressive, low-slung building nearby the company's original warehouse. There are lots of direct flights from Denver, Chicago, New York, and Los Angeles to this once remote town in the far northwestern corner of Arkansas; Beijing and Hong Kong are but one stop away. Bentonville is still not very big. Between Fayetteville, the university town twenty miles to the south, and the Missouri line just north of Bentonville there are hardly more than three hundred thousand people. But it is now one of the fastest-growing metropolitan regions in the country. The parking lots are full, the streets are crowded, and new construction is everywhere. There are dozens of subdivisions full of oversized houses, scores of freshly built motels and hotels, new country clubs and churches, and even a mosque and a synagogue. And the Walton family presence is everywhere: there's a Sam Walton Boulevard in Bentonville; a Bud Walton Arena and a Walton College of Business at the University of Arkansas; a terminal building named after daughter Alice Walton at the airport; and an ambitious, family-funded art museum in the offing.

Most important, Bentonville and nearby Rogers are now home to at least 750 branch offices of the largest Wal-Mart "vendors" who have planted their corporate flag in northwest Arkansas in the hope that they can maintain or increase their sales with the world's largest buyer of consumer products. Procter & Gamble, which in 1987 may well have been the first company to put an office there, now has a staff of more than 250 in Fayetteville; likewise Sanyo, Levi Strauss, Nestlé, Johnson and Johnson, Eastman Kodak, Mattel, and Kraft Foods maintain large offices in what the locals sometimes call "Vendorville." Walt Disney's large retail business has its headquarters not in Los Angeles but in Rogers, Arkansas.

These Wal-Mart suppliers are a who's who of American and international business, staffed by ambitious young executives who have come to see a posting to once-remote Bentonville as the crucial step that can make or break a corporate career.1 If they can meet Wal-Mart's exacting price and performance standards, their products will be sucked into the stream of commodities that flows through the world's largest and most efficient supply chain. For any goods maker or designer, it is the brass ring of American salesmanship, which explains why all those sophisticates from New York, Hong Kong, and Los Angeles are dining at the surprisingly large number of good restaurants that have sprung up in northwest Arkansas.

If Bentonville represents one nerve center of retail's global supply network, Guangdong Province is the other. Located on the southern coast of China, its sprawling factories link a vast new Chinese proletariat to the American retailers who are putting billions of Chinese-made products on a million U.S. discount store shelves every day. With more than 15 million migrant workers, tens of thousands of export-oriented factories, and new cities like Shenzhen, which has mushroomed to more than 7 million people in just a quarter century, Guangdong can plausibly claim to be the contemporary "workshop of the world," following in the footsteps of nineteenth-century Manchester and early-twentieth-century Detroit.

This was my thought when I taxied across Dongguan, a gritty, smoggy, industrial sprawl located on the east side of the Pearl River between Guangzhou (the old Canton) and skyscraper-etched Shenzhen. We drove for more than an hour late one Sunday afternoon, along broad but heavily trafficked streets, bordered by bustling stores, welding shops, warehouses, small manufacturers, and the occasional large factory complex. This is how the cities of the old American rust belt must have once looked, smelled, even vibrated.

Because of its proximity to Hong Kong, as well as its remoteness from the capital, the Chinese government in Beijing chose Shenzhen as a special economic zone in 1979. A few years later the entire Pearl River Delta became part of this zone, with low corporate taxes, few environmental or urban-planning regulations, and the increasingly free movement of capital and profits in and out of the region. The results were spectacular.Gross domestic product in the Pearl River region leaped from $8 billion in 1980 to $351 billion in 2006. Shenzhen's population rose twentyfold. Guangdong Province itself, which covers most of the Pearl River Delta, produces a third of China's total exports. And 10 percent of all that finds its way to Wal-Mart's U.S. shelves.2

Although Wal-Mart owns no factories outright, its presence is unmistakable. Its world buying headquarters is now in Shenzhen, it has already put more than a dozen big stores in the province, and Wal-Mart is feared and respected by everyone involved with any aspect of the export trade. That is why the executives at the Yantian International Container Terminal in Shenzhen, now the fourth-largest port in the world, give top priority to Wal-Mart-bound cargoes. "Wal-Mart is king," a port official said when I visited there in 2005.

But the Pearl River Delta is not merely an export platform like the border region of northern Mexico or the free trade zones of the Caribbean. In Guangzhou, Shenzhen, and their environs, well-paved roads pass through a staggeringly crowded landscape of factories, offices, dormitories, apartments, and streams of migrant labor. Governments at both the provincial and national levels are making huge infrastructure investments; likewise thousands of foreign investors from Taiwan, Hong Kong, South Korea, Japan, and the United States are building production facilities of increasing complexity and capacity. This makes it possible to transform raw materials into containerized consumer goods in just a few weeks. Nike managers at the huge Yue Yuen factory complex in Dongguan bragged that they could fill an order from the United States in just two months. Container ships are loaded in half the time it takes in Los Angeles.

The Retail Revolution puts all this into world history. It explains how Wal-Mart, America's largest and most controversial company, roared out of an isolated corner of the rural South to become the vanguard of a retail revolution that has transformed the nature of U.S. employment, sent U.S. manufacturing abroad, and redefined the very meaning of globalization.

For decades neither economists nor politicians gave retailing the respect it deserved. Shopping was what we did once all the heavy lifting had been sweated out of us: after the steel had been poured, the automobiles assembled, the skyscrapers built, and the crops harvested. This was certainly the way the editors of America's most august business magazine saw the world. Fortune's famous list of the five hundred largest American corporations consigned even the biggest retailers to second-class economic citizenship. The publisher Henry Luce had inaugurated the Fortune 500 in 1955 when the top five U.S. firms were General Motors, Standard Oil of New Jersey, Ford, U.S. Steel, and Chrysler. His editors at Fortune, reflecting the views of economists and businessmen in general, thought the mere selling and transport of consumer goods a derivative, subordinate, dependent function within the more important and far larger industrial, factory-based economy. So the retailers were not considered for the Fortune 500 list, even if they were billion-dollar chains like Sears or Woolworth.

But by the 1990s this perspective was clearly at odds with economic and social reality. Manufacturing was "dematerializing" in an economy of "digitization and deregulation," asserted a new generation of Fortune editors. This was "fuzzing up the line between manufacturing and service activities."3 Were companies like Nike and Microsoft manufacturing companies or design and marketing powerhouses? Likewise, a new and innovative set of great retailers were not just huge employers with an enormous stream of revenue, but their connections with a global manufacturing network were practically incestuous. They might not own the Asian or Central American factories from which they sourced all those big-box consumables, but their "vendors" were linked to them by a "supply chain" that evoked the iron shackles subordinating slave to master.

Thus when Fortune inserted retailers on its list of giant corporations, Wal-Mart immediately popped up as number 4,measured by sales revenue, right behind GM, Ford, and Exxon Mobil. Sears Roebuck was number 9 and Kmart number 15. Indeed, by 1995 sixteen of the top one hundred firms on the Fortune 500 list were mass retailers. Wal-Mart, which also displaced General Motors as the largest private employer in the nation, moved to number 1 on the Fortune 500 list in 2002, and it has held that rank ever since, except for the year 2006 when the spike in oil prices put Exxon Mobil at the top. Today, the retail trade employs some 15.5 million workers, more than in all manufacturing. Wal-Mart alone employs almost twenty times the number of workers as the biggest oil company.4

Founded less than fifty years ago by Sam Walton and his brother Bud, this Arkansas company is today the largest private-sector employer in the world, with nearly 2 million workers, 1.4 million of whom are in the United States. It operates more than six thousand huge stores, doing more business than Target, Home Depot, Sears Holdings, Safeway, and Kroger combined. It imports more goods from China than either the United Kingdom or Russia. Though Wal-Mart and the other mass retailers seem low-tech, these big-box stores may actually be the most consequential and effective users of computer processing power in our time. Their lofty place on the Fortune 500 thus signals a tectonic power shift within the structure of the economy, both in the United States and around the world.

The retailers, Wal-Mart above all, have set the standard for a new stage in the history of corporate capitalism. When Peter Drucker, the founder of modern management studies, wrote the pioneering analysis of a modern business, The Concept of the Corporation, in 1946, it was the General Motors organization from the Flint assembly lines to the executive offices in Detroit and New York that he thought exemplified corporate modernity in all its variegated aspects. Sixty years ago GM was the world's largest corporation, with sales that amounted to about 3 percent of the U.S. gross domestic product, making it an even larger economic presence than Wal-Mart is today. "The automobile industry," wrote Drucker, "stands for modern industry all over the globe. It is to the twentieth century what the Lancashire cotton mills were to the nineteenth century: the industry of industries."5

Other powerful enterprises have been hugely influential of course, the template enterprises of their time, embodying an innovative set of technological advances, organizational structures, and social relationships. At the end of the nineteenth century the Pennsylvania Railroad declared itself "the standard of the world." U.S. Steel defined the meaning of corporate power and efficiency for decades after J. P. Morgan consolidated the first billion-dollar company in 1901. In the mid-twentieth century General Motors symbolized bureaucratic management, mass production, and the social enfranchisement of a unionized, high-wage, blue-collar workforce. In the 1960s and 1970s IBM seemed an information-age version of General Motors, but in more recent years, Microsoft, Google, and the other Web-based innovators have seemed the model for a digital economy that has transformed the production and diffusion of knowledge around the globe.

Wal-Mart today commands the respect and influence once wielded by the manufacturing giants of the twentieth century. The company's innovations in logistics, merchandising, and labor relations have become part of the core curriculum at Harvard and other business schools, and not only for those with their eyes on an executive post in retail.6 Just as industrialists and social savants were mesmerized by the "machine age" power of Ford's first assembly lines nearly a century ago, so today we live in a time when the supremacy of the mass retailers, in culture, politics, and ideology, as well as logistics, manufacturing, and merchandising, seems to define so much of our contemporary world.

In business, information is the raw material out of which market power is built. Before Wal-Mart, the bar code was but a grocery store innovation, useful for quickly scanning cans of soup and cartons of milk. But Sam Walton made the lowly bar code sing: he demanded that all Wal-Mart vendors slap a bar code on every product they shipped to his stores, and then he built a mammoth "digital warehouse" in Bentonville to slice and dice all the information that now poured across Wal-Mart's checkout counters each day. This enabled Wal-Mart, as opposed to the manufacturer, wholesaler, or distributor, to capture, manipulate, and respond to the raw sales data generated by billions of individual transactions each week. Sam Walton and his successors understood that this kind of knowledge gave them an enormous competitive advantage, which they deployed to vastly increase the efficacy of what the biz school professors now labeled the "retail supply chain. "Wal-Mart now wields the tools to relentlessly squeeze every cost out of both its worldwide system of supply as well as the millions who work for the Bentonville giant, directly in its stores and warehouses or at the workbench of the sixty thousand vendors who are dependent upon the American retailer.

Wal-Mart began as an Arkansas upstart, but its enormous commercial success created a business template that reshaped the nation. It is the architect of a social order here in the United States that reflects its origins in the rural South of a half century ago. Unlike so many other twentieth-century titans of American business, Wal-Mart began its stupendous growth in a region that was distinctively provincial, even fundamentally at odds with the economic structures and political expectations that had nurtured commerce in the great northern tier of industrial states that stretched from Boston to Chicago and Minneapolis. America's manufacturing belt was a region of ethnic and racial heterogeneity, home to an increasingly skilled workforce and, after the reforms of the New Deal and the Great Society eras, a potent union movement and an extensive welfare state.

In contrast, the Ozarks of northwest Arkansas and southern Missouri were poor, white, and rural. Neither the New Deal nor the civil rights impulse had really come to that region when Sam Walton began to assemble his chain of small-town stores in the 1950s and 1960s. But the agricultural revolution of the early postwar era was in fu...

Edition details

• Publisher: Metropolitan Books
• Publication date: 2009
• ISBN 10: 0805079661
• ISBN 13: 9780805079661
• Binding: Hardcover
• Language: English
• Number of pages: 320