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Ben Stein On Wal-Mart

Jim Prevor’s Perishable Pundit, May 16, 2007

The New York Times Sunday Business section often publishes a column entitled Everybody’s Business written by the eminently sensible Ben Stein. He is probably most famous for playing the role of a boring teacher in Ferris Bueller’s Day Off and as a game show host of “Win Ben Stein’s Money,” but he is also an important writer on business and finance and the son of Herbert Stein, who was Chairman of the Council of Economic Advisors under both President Nixon and President Ford.

In his most recent column, Ben Stein pondered the inanity of opposing the opening of Wal-Mart in Manhattan. More broadly, though, the column is about the motivations of the politicians who fight against Wal-Mart openings in so many places:

Alas, all of the mysteries I’ve been pondering in the last week are about large, global issues. Another thing that preoccupies me, albeit on a slightly smaller scale, is an enduring mystery of the retail economic world: why don’t people in New York City want a Wal-Mart in Midtown?

Manhattan is the most underserved market I have ever seen for retail customers. There really is nowhere for bargains on ordinary household goods and groceries in the whole borough. Yes, I know unions hate Wal-Mart. But not every New Yorker is in a union, and every New Yorker needs food and paper towels. (I, by the way, am a member of three unions: the Screen Actors Guild, the American Federation of Television and Radio Artists, and the Writers Guild of America, West. How many unions is Mayor Michael Bloomberg in?)

Don’t the consumers deserve a break, too? I know Wal-Mart is not hip, slick and cool. It’s for people who have to live within a budget, not for people who see movies with subtitles and have houses on Martha’s Vineyard (or would like to). But don’t working-class people deserve bargains on their daily bread?

To keep Wal-Mart out of New York — or my home, Los Angeles — is simply to inflict a snobby class prejudice on working people. Why they and their representatives put up with this classist, “let them eat Whole Foods” nonsense is yet another mystery, and one that could be solved if politicians really cared about consumers.

You know, even thinking about politicians really caring about ordinary investors and consumers actually made me laugh as I was writing this. Pretty sad, huh?

Ben Stein has written about Wal-Mart before and made a more general point:

When a Wal-Mart opens in a town … it’s as if everyone in the town got a raise. That’s because the stuff at Wal-Mart is so much cheaper than that same merchandise was anywhere else. This is not a trivial thing. Now, don’t get me wrong. Target and Sears and K-Mart and J.C. Penney and Brooks Brothers also sell good stuff usually at bargain prices, but they do not have the same reach of stores, the same astounding prices that Wal-Mart offers every day. This makes the people who shop there richer. Price matters a lot to most people.

I am sure Wal-Mart is stiff competition for the stores and supermarkets across America. I feel bad for the people who lose their stores because of Wal-Mart. But not everyone is a store owner. Everyone is a consumer, and Wal-Mart is about as good a friend as the consumer ever had.

Wal-Mart just announced an 8.1% rise in first quarter profits but Wall Street, mostly composed of people who never operated a business a day in their lives, isn’t satisfied and Wal-Mart Chairman Lee Scott feels the need to apologize:

“Quite honestly, we’re not satisfied with our overall performance,” Scott said during a pre-recorded conference call. Sales and profits for the quarter were “not where we would have expected to be nor where we believe we should be.”

“You will see us be more committed than ever to price leadership,” Scott said.

Wal-Mart has been wildly distracted, losing any sense of why customers shop it with ridiculous PR-oriented approaches at being upscale and green. So a refocusing back on the core appeal — price — is a great idea.

But to really focus on price means to really focus on costs and all these initiatives have been costing money and raising General & Administrative expenses. Wal-Mart should be aiming to lower gross margins and to reduce the cost structure to allow the company to operate profitably at lower margins.

Then it would get back on its virtuous cycle in which lower prices mean higher sales, which mean lower costs per dollar of sales, which means lower prices … and then Wall Street would be more happy and Wal-Mart would do more for the common man than will be done by all the ads in Vogue or all the organic produce the company could buy.

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