Herman School of Business
Wal-Mart all over again...
Twenty years ago a manufacturer was making gym sets and selling over twenty-five million dollars worth per year. They made a small profit and wanted to sell to the largest retailer in the country. Wal-Mart. Wal-Mart said they would pay a certain price for the units…which was less than the cost of producing the gym set. When advised of that fact the buyer for Wal-Mart reportedly said, “Get your profit from the other guys…we need this cost to meet our price-point on the selling floor.”
I have personally been in conversations with about one hundred manufacturers over that twenty year period who related a similar story. It became what I will call the “Wal-Mart Tax” because to keep their business you paid them to keep your orders. Somehow, the logic of how they could virtually turn over a major portion of their manufacturing operation…at a loss…hoping to cover that loss with higher margins to the competition of Wal-Mart was astonishing to me. By charging the other retailers higher prices than what Wal-Mart could sell a gym set for the inevitable happened. Customers bought their gym sets from Wal-Mart.
What happened next was another logical step. Other retailers screamed for lower prices…or stopped selling gym sets because they couldn’t compete and the manufacturers were left with only their Wal-Mart sales. Which, I remind you…were at a loss In the year that I sold that gym set manufacturer 3 of the top 5 gym set manufacturers were in bankruptcy. The Wal-Mart tax killed them.
Wanting to buy products at the cheapest levels is great, but we can’t kill the capitalist system by letting one segment make all the money while all others lose their butt. Isn’t that now happening in the banking industry and their new partner, the United States Government?
The banks scream…we won’t take losses, the government has to pay us back for our mistakes. The government hears the bankers loud and clear…kill the banks and lose the money that floods into the campaign coffers. Let’s save the bankers and pass the loss on to the poor schlep we are supposed to represent. Because banks are “too big to let fail” today a Bill will pass that will cost this country to fall further behind. It’s the Wal-Mart tax all over again. Wal-Mart killed manufacturing and now the government and the bankers are taking out the middle and lower classes with their new tax to save the banks. Let them fail!
Monday Citigroup offered one dollar per share to buy Wachovia and the government would be backing huge losses in that deal…today Wells Fargo offers seven dollars to buy Wachovia with no government backed losses. That is the marketplace at work. After the Bill passes today there will be huge sales back and forth between bankers. Because, all of the losses will be paid for by us. As in you and me! Not one Congressman or Congresswoman will lose a nickel of pay. Not one Banker will send his bonus check back. Millions of small business people will go under…just like when Wal-Mart killed manufacturing.
Sorry Wal-Mart…that’s my opinion.
- Posted: 3 October 2008
- Comments: 1
- Category: Business success
There is another Wal-Mart tax. Never try to sell to Wal-Mart.
I worked for a wireless phone company. Our systems would let workers have wireless phones inside the building. Ideal for a big retailer, right.
No, they pimped us around on price, wanted custom changes, and then long demonstrations. They never actually buy!
If they do buy, you are installed into new stores only. Once a store is built and setup, it is never improved. They pay for the store once, and don’t put another dime into infrastructure.
Smart for them, but the sales guys slobber all over themselves that you could get a system into every store. Not gonna happen!
I saw some CNN at lunch. The original bill was not porked enough. Now there is protection for wooden arrow makers, increased deposit insurance, and a NASCAR provision. http://www.cnn.com/2008/POLITICS/10/02/bailout.pork/index.html
This is the bull shit that will sink the US.
I do not think we are done either. This is the first of many bail out bills. They wanted one big one, so the others will seem minor. It is also enough to get us through the elections. After we vote, look for 20 billion here, 100 billion there to bail out home builders, land developers, more banks, and anybody else with a brother in law in congress.
HERMAN SAYS: Glad to let you vent. The bail out is voted in and the market falls 157 points. Hold onto your shorts people...as we slide down the bannister of life this is just one more splinter in our ass.Sigh.
Written by Doug on 3 October 2008