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January 6, 2006

Jack Covert Selects: Jack Covert Selects: The Wal-Mart Effect

By: Jack @ 3:30 PM – Filed under: Management & Workplace Culture

The Wal-Mart Effect: How the World's Most Powerful Company Really Worksand How It's Transforming the American Economy by Charles Fishman, The Penguin Press, January 2006, 270 Pages, $25.95 Hardcover, ISBN 1594200769

When I read a book that I plan to consider for a JCS, I mark interesting pages with Post-It notes. Doing this allows me to put the book down and easily pick up the points of the book later. This is a book that is bristling with Post-Its.

I have always been fascinated by Wal-Mart. They seem to be everywhere. I watch shows--mostly negative--on PBS about them and read business articles--mostly positive--about them. Finding a neutral source--one that doesn't have an axe to grind or a publicity spin to present--for Wal-Mart information is difficult. This book is that neutral source.

I knew Wal-Mart was big and influential; this book made me realize that they are ridiculously huge. For example, Target is their closest competitor, and Wal-Mart sells by St. Patrick's Day what Target sells in a year. As the author states, "More than half of all Americans live within five miles of a Wal-Mart store, less than a ten-minute drive away. Ninety percent of Americans live within fifteen miles of a Wal-Mart. On the nation's interstates, it is rare to go a quarter of an hour without seeing a Wal-Mart truck."

As an aside, did you know that Wal-Mart started the same year as Target and Kmart in 1962? The company is built on saving money--they'll do anything to save money. For example, in the early 1990s all deodorant came packaged in a paperboard box. Wal-Mart and other retailers decided the box was a waste. Eliminating the box saved a nickel. When you multiple that by the 200 million deodorant users, that equals a savings of $10 million.

The book talks about Sam, his philosophy and how the current management team has carried forward the idea of being the cheapest place in town. It explains employee hours. The buyers and senior executives often arrive around 6:00 a.m. and quit between 5:00 and 7:00 p.m.; all white collar employees work from 7:00 a.m. to 1:00 p.m. The employees also attend the legendary Saturday-morning meeting.

At the end of the book is a chapter called Wal-Mart and the Decent Society. In that chapter Fishman states,
So even within ourselves, we struggle unsuccessfully to answer the question we started with: Is Wal-Mart good or bad? The answer is surprising for its simplicity, its obviousness, and also its power.

Wal-Mart is something utterly new.

Wal-Mart is carefully disguised as something ordinary, familiar, and even prosaic. The business model is built on the shopping cart. But, in fact, Wal-Mart is a completely new kind of institution: modern, advanced, potent in ways we've never seen before. Yes, Wal-Mart plays by the rules, but perhaps the most important part of the Wal-Mart effect is that the rules are antiquated; they are from a different era that didn't anticipate anything like Wal-Mart.

That is the source of the company's sweeping ability to suffocate inflation across the entire U.S. economy. And it is the source of the company's ability single-handedly to drive manufacturing jobs overseas.

Wal-Mart has outgrown the rules--but no one noticed.


The book ends with the story of the demise of US manufacturing for a sprinkler company in Peoria, IL. When Wal-Mart, who had been the sprinkler company's largest customer, said that prices were too high, management laid off 400 people and sent the manufacturing offshore.

This JCS is longer than most, but it's hard to summarize such a gigantic company into a few hundred words. Plus, I wanted to emphasize how important I think this book is--a must read for anyone interested in business.