The decision on whether or not to force Walmart to pay a “living wage” in Washington D.C. has finally reached the mayor’s office some seven weeks after passage of the bill by the city council. A spokesman for District of Columbia Mayor Vincent Gray has indicated they received it in his office last Friday. According to NBC News, “the mayor has 10 business days, starting Tuesday, to either sign or veto the bill. Gray has expressed reservations about the legislation's effect on economic development.”
Earlier this year the D.C. city council passed a law by a vote of 8-5 requiring Walmart and other big box retailers with sales of over $1 billion a year and stores that average 75,000 or more square feet but without collective bargaining agreements to pay a living wage of $12.50 per hour, over 50% more than D.C.’s own minimum wage.
The bill now waits signing by the mayor, who will not be the first to express concern over this type of legislation. Years ago Chicago Mayor Richard Daley vetoed a similar measure believing the city needed the jobs. Walmart has threatened to cancel its plans to build stores in the DC area if the bill is enacted.
Beating up on Walmart is a popular pastime and it's an admittedly easy target (no pun intended). Whether you don’t like big box stores, don’t care for inexpensive stuff made overseas, object to alleged trade practices or their employee wages, there are many things to find fault with, yet they remain popular enough with consumers to be the largest retailer in the world.
The most common objections are to the low wages they pay and it is often said that many of their employees earn so little they require government assistance. Also, much of their product is made overseas, including $27 billion imported from China in 2006 alone and that is a sore spot for those looking to increase jobs in America.
In some regards, the detrimental nature of the giant retailer may be overstated. Walmart has made some efforts to address these issues, including unveiling a $50 billion “Buy American” campaign earlier this year.
Walmart's U.S. unit says about two-thirds of the goods it buys to sell in its stores are made, sourced from or grown in the United States, citing data from its suppliers.
Last year, 55 percent of Walmart U.S. sales came from groceries like food and drinks as well as health and beauty products, household goods such as paper towels, and pet supplies. Many of the items are typically sourced locally.
Only 7 percent of Walmart U.S. sales were of apparel, jewelry and accessories, which retailers typically get from lower-cost countries.
But while some consumers may still reap the benefits of a mega-one-stop show with low prices, when it comes to small business, Walmart is a killer—literally. Businesses dealing in any of the same commodities typically find it very difficult to compete. Creative vendors can try carrying more exclusive products and offering better service or other things desirable to the consumer but offering a better price is nearly impossible. While many consumers prefer to deal with a local vendor, low prices and all-in-one stores have their own allure and in many cases, particularly in small towns, a Walmart often means the end of many small businesses.
In any city major retailers are hardly a friend to small ones. Whether Best Buy, Office Depot or a department store, the parallels are the same but it’s particularly disturbing what happens when Walmart moves into a small town. In the old days larger and smaller sellers often coexisted, as when many small towns had Sears catalog stores offering national brands and items not easy to get locally, while the local merchants had a different selection and more in stock.
Substituting Walmart for a more palatable alternative, what is it like for smaller vendors to go toe-to-toe with Goliath? It can be very difficult. An independent music store may have similar trouble selling against Guitar Center or comparable chain. Already armed with various inherent advantages, large companies are also frequently given tax breaks. This is common outside of retail, such as the abatements given to Apple and Samsung, among others, in central Texas. Citizens are told this generates jobs and revenue that will benefit them but of course, nobody else’s property taxes ever seem to go down as a result.
Regardless, municipalities, realtors and developers cut deals for large retailers, particularly as anchors for shopping centers so they do indeed frqeuently start with yet an additional advantage. They also have lower costs-of-sale including transportation and better prices from vendors. It’s important to note that there are antitrust Laws, specifically the Robinson-Patman Act, which ostensibly
prohibits anticompetitive practices by producers, specifically price discrimination. It grew out of practices in which chain stores were allowed to purchase goods at lower prices than other retailers. An amendment to the Clayton Antitrust Act, it prevented unfair price discrimination for the first time, by requiring that the seller offer the same price terms to customers at a given level of trade.
A larger company's costs of scale head a list of inherent advantages. Even if pricing starts out the same, which it rarely does, large buyers can move product from overseas via sea freight, which is much less expensive than air, or move product domestically via large truck shipments that are cheaper than UPS or smaller loads.
Of course, anyone in a business dealing with products also resold by larger retailers likely knows this law is not only difficult to enforce, it is largely ignored. The suppliers can easily skirt the system by setting up tiered purchase levels that are impossible for smaller stores to achieve. Taking some arbitrary numbers, a manufacturer might have pricing that indicates if you place a $100,000 order you get price schedule A, $50K price schedule B and anything less is price schedule C. In addition, perhaps anything over $25K gets free ground shipping but anything less does not. Finally, they may have a rebate schedule that pays you 1% back at $200K, 1.5% at $300K and 2% at $500K in annual sales. In addition, there may be extras such as advertising money commonly referred to as co-op or marketing funds tied to your volume, markdown money for goods that don’t sell and more.
Since things are hardly "fair" to small business, then is it a good idea to pass laws forcing mean old’ Walmart and other big box stores to pay more?
As mentioned previously, Walmart stated that it would halt plans to build an additional 3 stores in the D.C. area if the law received final approval and went into effect. No sooner did Walmart threaten a pullback that the headlines began to pour out along the lines of "Walmart Refuses to Pay a Living Wage." Of course, a more accurate description would be that Walmart may refuse to pay a wage that is 50% higher than any other business is required to.
While haters gonna hate, didn’t we all learn in kindergarten two wrongs don’t make a right?
Almost no one other than consumer likes the advantages that come with buying and selling large quantities; however, the answer is not in doing something even worse. Clearly, many people don’t have any problem with doing something that is discriminatory if the object is a large hated corporation such as Walmart. What seems to be elusive is the concept of unintended consequences and possibly the law.
Such laws are already subject to challenges in federal court. How can one employer be required to pay a different wage than another? In at least one instance a similar local law has already been overturned in Maryland.
But even if the law were to stand, what would be the outcome?
There are many who assume that corporations simply make so much profit that they always have excess and can operate on less. These assumptions are not based on facts and if a company’s overhead increases, that is ultimately passed on to the consumer. Since labor costs are usually one of the two highest costs to a given company, prices could rise significantly and that could have a number of effects. If the company has to maintain a uniform price nationwide as Walmart seems to (many items are available on its website) then the scenario may simply be unworkable.
Another possibility is that if Walmart is able to maintain this level of wages, what will that do to the labor market? Being forced to pay that wage will make Walmart the most desirable place to work and will pull employees away from local businesses who cannot afford to match them. While some of the same people who champion such laws would like argue this is a good thing, forcing small companies to operate on a substantially higher overhead may not be feasible either and could potentially drive many of them out of business.
And while the line is being drawn in D.C at “billion dollar retailers,” what is to stop new laws that have an entirely different distinction? Will the bar be lowered to half a billion? What other criteria might be introduced? Public vs. private? Local vs. regional or national? How many different ways might a city be able dictate “if you do x you must do y”
What many proponents of such laws also either don’t realize or choose to ignore is the aforementioned favors many municipalities do for large companies to begin with. Perhaps one way to have a level playing field is by not tilting it in favor of big companies to begin with before they have ever even broken ground.
Walmart and other large businesses are sometime unfairly scrutinized if we fail to consider contributions city, county, state and federal governments, including sales, property, payroll and income taxes, import duties, excise, road use and utility taxes, city, county, state and federal regulatory fees, unemployment taxes, and a myriad of others. However, when they are given breaks, the skepticism is justified, especially if they are not creating new revenue but rather, simply transferring it from one place to another.
It seems to be part of the natural course of things that modern communications and transportation systems have led to the demise of many small businesses, particularly those selling commonly-available goods in medium-to-large markets. From books to clothing to appliances to groceries, big retailers dominate the market in many ways and have forced smaller companies who wish to survive to specialize and rely on ingenuity and flexibility to stay ahead. To be certain, there are thing that can be done to help small business be more competitive but we need to start by not giving large companies with inherent advantages any additional handouts on the front end rather than trying to pass discriminatory laws after the horse has already escaped from the proverbial barn.