In the Oct. 6 issue of Business Week, Anthony Bianco and Wendy Zellner discuss a growing concern: "Is Wal-Mart Too Powerful?" The article leaves me with another concern.
For one, the company has dominated its suppliers. Wal-Mart, which owns a hefty 30% of the U.S. consumer staples market and 15% to 20% of all music and video sales, plays a role in determining what gets sold. For example, the company has forced record companies to produce clean versions of explicit-label CDs or risk losing out on sales. And based on the complaints of a few customers, modern male magazines such as Maxim, Stuff, and FHM have been removed from store shelves.
And if you think that's a problem, Wal-Mart accounts for 28% of Dial's
Among other negatives, the article points to the fact that Wal-Mart employees earn 20% less than those at unionized supermarkets. In addition, Wal-Mart's entry into new markets has forced the closure of existing stores: According to Business Week, "for every Wal-Mart supercenter that opens in the next five years, two other supermarkets will close." And this is done without creating new jobs.
Which brings me to my new concern: the possibility of monopoly pricing.
According to a Retail Forward report cited in the article, 30 supermarkets have "closed since Wal-Mart saturated Oklahoma City." Think about this: Wal-Mart is successful because it can offer lower prices than anybody else. But what if nobody else exists to compete?
In business classes, you hear stories of the unacceptable practice of predatory pricing -- financially stable companies pricing at a loss until weaker competitors exit the marketplace. Today, the accepted business practice is to actually create value. Wal-Mart and Southwest Airlines
Wal-Mart today is saving money for consumers everywhere. But 10 to 20 years from now, are we going to want a Wal-Mart with pricing power?
You can reach Jeff Hwang at JHwang@Fool.com