Chucking your grass-cuttings over the fence

by Daniel on June 30, 2004

Daniel Drezner is busy having his head turned by a book called “The Power of Productivity”, written by someone who used to run the McKinsey Global Institute. I have a number of horses in this race in the form of personal prejudices:

1. “Productivity” is almost always used in economic rhetoric in contexts in which it is, quite strictly, meaningless.
2. The McKinsey organisation has a record as lang’s yer arm when it comes to taking uses of the word productivity from one context (specifically, the context of flogging management consultancy services) and trying to apply them in another (specifically, the making of windy public policy pronouncements).
3. The belief that the collection of lots of anecdotes from individual industries creates a “pointillist picture” which is a substitute for general equilibrium analysis is one which has been the source of large amounts of avoidable error in the past.

And a quick glance at Drezner’s review reveals that this book looks like a fine example of the genre (for example, it appears to be pushing the line that “services” generate “much less pollution than manufacturing”, in which context I note that waste management, airlines, and road freight are all services).

But for the time being, I’m only interested in one particular point on the picture which has been bugging me for a while; the idolatry of Walmart.

Wal-Mart is the current darling of the consultancy industry, because like Enron, Amazon and Microsoft, its business model lends itself to having plausible-sounding stories told about it, but unlike those companies, those business practices have not led it into bankruptcy, unprofitability or (much) serious legal trouble. Wal-Mart is, apparently, the company that everyone should aspire to be like, because of its fantastic productivity.

What is the source of this productivity miracle? Well, I’m quite prepared to believe that Walmart’s inventory management computer systems are every bit as fantastic as we’re told they are, and I’m sure this makes a difference. But I would contend that the title of this post sums up a significant proportion of Wal-Mart’s competitive advantage; its ability over the last ten years to take a significant proportion of the disbenefits of the retail business and slough them off its cost base and onto the general public’s. How so? Three ways come to mind.

1. Lower value added retailing = higher productivity!. This is a point of John Kay’s. It is an interesting fact that the majority of the “productivity gap” between Europe and the USA can be accounted for by two industries – retailing and financial services – and that these happen to be the two industries in which there are the most serious difficulties in measuring productivity. The issue being that, if the boutiques on King’s Road were to get rid of the dolly assistants, free coffee and assorted perks and bijouterie, and move to a model where they piled the Prada high in fluorescent-lit barns, then they would presumably be able to shift more units at a lower price, at the expense of taking all the joy out of shopping for the Sex-in-the-City crowd. As Brad[1] pointed out in a critical comment on the Kay article, the national statistical agencies try their damndest to make sure that the productivity statistics don’t pick up a decrease in the value-added component of retailing as an increase in productivity, but it’s an intrinsically difficult task.

2. Outsourcing distribution costs – to you!. Behavioral finance is a pretty active research programme, and experimental economics has made a few strides forward in integrating empirical psychology into microeconomics. Behavioral macroeconomics, however, seems to be pretty stagnant. Which is a pity, because I would contend that there is one particular, systematic mistake that people make which is probably of macroeconomics. And it’s a hole in popular psychology which WalMart drives through in a coach-and-four.

That particular psychological quirk is the tendency of people in industrial societies to:
a) put an irrationally low valuation on their leisure time, and
b) believe that they have more spare time than they actually do.

There is actually decent evidence for this thesis; Richard Layard (who is apparently calling himself “Lord Layard” these days, egad) summarises it well in his lectures on the subject. But the intuition is much clearer; I cite as empirical evidence the deathbed reflections of every single person who didn’t express the wish that they’d spent more time at the office. A bit motherhood-and-apple-pie, perhaps, but it’s an important point that economists ought to take more seriously.

In any case, as John pointed out a while ago, if you’re spending your “leisure” time driving to an out-of-town megastore, then it’s not leisure in any meaningful sense. If you end up doing more of this than you would, in a fully informed and reflective state, want to, then WalMart has successfully outsourced a proportion of its cost base to you, and the national income statistics and the McKinsey Global Institute will happily collaborate in helping you to fool yourself.

3. Employment practices – transferring risks to those worst equipped to bear them

I’ve written on this subject before. When one adopts “flexibility” in labour practices, and gains an improvement in output/input ratios as a result, then it can be made to look as if a massive productivity improvement has been made for free. This is not always the case. A large part of this apparent improvement in the company’s ability to generate outputs from inputs has come about simply as a result of taking the cost of mismatches between inputs and demand, and shifting it away from the company onto the shoulders of some other bugger – either the worker or the taxpayer through the benefits system. As Jerome Levy pointed out in the 1930s, one of the historical functions of the corporation has been the provision of implicit unemployment insurance to the working class, allowing them to smooth the volatility in their incomes by taking fluctuations in overall demand as variances in the profit rate. When an employer decides that he no longer wishes to provide for this cost, it doesn’t go away. WalMart are, notoriously, one of the most aggressive employers out there when it comes to alleged off-the-clock working practices, union-busting, sending workers home or keeping them waiting for shifts, and having a surprisingly high proportion of their cost base subsidised by the welfare system. If this cost of higher volatility in labour incomes is taken up by Joe Soap the taxpayer through social insurance, then it shows up in the figures as an increase in corporate productivity and a swelling of the bloated government sector. If the government doesn’t step up, then this transfer of cost shows up as a pure gain; the cost to the workers of self-insuring against fluctuations in their income isn’t something that is measured in the statistics, and unless you read Barbara Ehrenreich along with your McKinsey Global Institute, it ain’t gonna show up in your pointillist painting either.

I have no particular animus against WalMart as a corporation, other than that it keeps getting chucked up in my face by consultancy types with phrases like “I have seen the future and it works”. But I consider it rather striking that one of the exemplars of the American Economic Miracle also appears to be an exemplar of some of the most important reasons why this kind of economic miracle might not be all that it seems.

Footnotes:
[1]Brad is wrong, btw, in asserting that the French don’t have big-barn retailers. They practically invented the concept, and Carrefour invented a number of the tricks of the trade which WalMart put to work in the USA.

{ 68 comments }

1

Lynne Allen 06.30.04 at 4:29 pm

Many people in America have nicknamed Wal-Mart “The Great Satan.” In the town next to mine, the citizens are mobilizing to keep Wal-Mart out. Not everyone here thinks Wal-Mart is great. They have gotten a lot of bad publicity lately and I expect that they will have a pretty thin time of it pretty soon.

Daniel Drezner can be expected to support any policy that hurts the American worker. He is a total corporate shill.

2

MPC 06.30.04 at 4:37 pm

This point is made above in regard to low cost seeming to be an indicator of productivity, but I remember seeing an interesting discussion of this about 2 months ago in Business Week. It said something to the effect that Costco has higher profit per employee (is this productivity?) than Wal-Mart, while paying higher wages and better benefits. Seems this management strategy might be a better paradigm, but I suppose it doesn’t make as clean a narrative.

3

Sebastian Holsclaw 06.30.04 at 5:08 pm

“In any case, as John pointed out a while ago, if you’re spending your “leisure” time driving to an out-of-town megastore, then it’s not leisure in any meaningful sense. If you end up doing more of this than you would, in a fully informed and reflective state, want to, then WalMart has successfully outsourced a proportion of its cost base to you, and the national income statistics and the McKinsey Global Institute will happily collaborate in helping you to fool yourself.”

Fascinating that this particular critique should come immediately on the heels of praise for the boutique model. One of the key reasons Wal-Mart is so popular is because you can go there and get lots of different things you might want in a single place. That saves shopping time because you don’t have to go to multiple stores. If you are going to decry time wasted getting to a single Wal-Mart you should certainly compare that to time going from store to store to store to store to store.

4

alexander 06.30.04 at 5:19 pm

Ditto sebastian’s comments. Plus, I suspect that the vast majority of Wal-Marts are located centrally, not “out-of-town” — hence the drive is short.

5

Nicholas Weininger 06.30.04 at 5:20 pm

Also, this provides a very nice example of that old and common linguistic practice: the use of “irrationally low valuation” to mean “valuation lower than mine”.

6

praktike 06.30.04 at 5:37 pm

This is not the best WalMart critique I’ve ever seen.

Far more pernicious are its business practices; the company takes advantages of gullible municipal officials, corrupt and incompetent planning commissions, externalizes many of the traffic, environmental, fiscal, and health costs of its superstores on a gullible public.

7

dsquared 06.30.04 at 5:38 pm

Sebastian: Watch an episode of Sex and the City. IIRC, the vast majority of them turn on precisely that distinction which you are failing to make.

Nicholas: No, it means what it says. I couldn’t give a toss what anyone else does with their lives, but empirically, people who reduce their leisure time or fail to make good use of it, end up regretting the choice.

8

MIchael Greinecker 06.30.04 at 5:40 pm

1. “Productivity” is almost always used in economic rhetoric in contexts in which it is, quite strictly, meaningless.

I have to admit I don´t get the point. What is the relationship between reswitching and measuring GDP? The points made in the top link given are all things familiar to anyone with a modest knowledge of mainstream general equilibrium theory.

9

Cranky Observer 06.30.04 at 5:46 pm

Perhaps I have just been unlucky, but every project I have seen where McKinsey was involved ended up causing major damage to the organization that followed McKinsey’s advice.

And usually the damage was in two rounds: the initial wound, and then a second wound as everyone who tried to flag/contain/fix the damage was labeled a “change resister” and fired. Only after the damaage from losing so many good people became apparent would someone step in and get rid of McKinsey, but in several cases I saw the wound was already terminal.

Why those guys get away with charging $300/hour is beyond me.

Cranky

10

dsquared 06.30.04 at 6:11 pm

Michael: Really? Anyone with a modest knowledge of general equilibrium theory knows that the concept of an aggregate capital stock is dependent on the assumption made about the rate of profit? Are you sure?

And the reason that the CCC is relevant to the measurement of GDP is quite simply that GDP is the wrong measure to be using if one is concerned with “productivity”. This is simply because it is a “gross” (of depreciation) measure, which is clearly inappropriate for the purpose. And you can’t fix this problem without knowing what the capital stock is that you propose to depreciate, which you can’t know unless you’re prepared to specify a “natural” rate of profit, which you can’t justify doing in general equilibrium theory …

Think about this one again …

11

Giles 06.30.04 at 6:17 pm

There’s also the terms of trade effect – over the last few years alot of Walmarts productivity gains are due to a high dollar/low yuan. It’ll be interesting to see how Walmart does if the Yuan appreciates substantially against the dollar.

12

SomeCallMeTim 06.30.04 at 6:20 pm

No comment on the article; just glad to see that Dsquared lives. (I was worried by the lack of posting when the Bush Admin was busy providing such lovely material).

I note, for the record, that I didn’t see a single curse or odd sexual reference in the piece; I’m not sure, therefore, that this fully counts as a Dsquared post.

13

Sebastian Holsclaw 06.30.04 at 6:43 pm

Daniel, do you disagree just to disagree?

You respond to my point that you decry the time spent getting to a location while lauding the time spent going from location to location to location with anecdotes from a Sex in the City? You want to talk about the meaningless of measuring productivity while pretending that (a highly amusing) television show which shows unusually rich women with unusual amounts of free time as if it is an answer to that?

My point is that if you are going to complain about the time it takes to get to a Wal-Mart, you can’t ignore the time that it takes to get from store to store to store in a boutique model. Furthermore if you want to say that the shoppers derive so much pleasure from a boutique model that they are willing to pay much higher prices, you are ignoring the fact that apparently vast numbers of people would prefer to spend their leisure time doing something other than shopping if they can pay low prices while shopping and spend their money on other things that they enjoy more.

Perhaps you like shopping enough to do so at multiple place while paying high prices. If you don’t, probably quite a few people do. But there is no reason for the rest of us to subsidize that preference. Some of us hate shopping, would rather go to one location to get it over with, and like the fact that the prices are cheap while the quality is high.

You are willing to discount leisure-time expenditures which involve driving to Wal-Mart for those who like spending all day shopping without allowing for the existance of people who want to get shopping over with so that they can engage in non-shopping leisure-time activities that they enjoy.

14

JRoth 06.30.04 at 7:01 pm

RE: “centrally located”:

Central to what, I ask. The population center of pretty much every county in the US is a Central Business District. For all practical purposes, no WalMart in America is located in a CBD. They are, inavriably, located at the fringes, where six acres of dead-level land can be had (or made) on the cheap. Suburban zoning codes ensure (nay, require) that WalMart not be located within walking distance of any residence. Certainly, suburbanites live in the suburbs, and, inevitably, some will live within, say, a five minute drive of WalMart. But the very nature of suburbs (low density) means that relatively few people will have less than a 15-20 minute drive to WalMart. This amount generally increases substantially at lunch, rush hour, and weekends, when the ring roads and arterials that feed WalMart as well as other big boxes and commuting patterns are filled with non-shoppers.

By contrast, non-auto-dependent development patterns have much greater absorption capacity for ebb and flow of traffic – walking across a CBD takes no longer at 5 PM than it does at 2 (not enough to matter, anyway).

Certainly there are concrete benefits to one stop shopping, but I suspect that these are overestimated, both by businesses who, of course, want that one stop to be theirs (how much US bank dereg was sold on the claim that people want one-stop financial shopping, when there has been no evidence, before or since, that they do?), and by consumers, who rarely actually examine how they’ve spent their time (and before you claim that this is somehow elitist, or that _of course_ consumers are rational, and must use their time in only the most efficient manner, I point you to Jackson and all the early 20th C ergonomists who found that even experienced workers can be very inefficient in their work due to lack of self-examination).

Oh, and further indirect evidence of Americans, at least, undervaluing leisure: least amount of vacation time anywhere in the free world. Unless you argue that Americans are inherently, fundamentally different from Europeans, this suggests that they are unwisely choosing a marginal 2% wage increase over a 50% increase in weekday leisure.

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Nicholas Weininger 06.30.04 at 7:07 pm

dsquared: I just don’t buy, epistemologically, the idea that you can *have* such a thing as an “irrationally low valuation”. All valuations are completely subjective. Furthermore, even if you buy objective valuation in principle, whether *some* people who do X (or even most people who do X) regret later that they did X doesn’t really answer the question of whether their valuation of X was rational at the time. The lack of people on their deathbeds wishing they’d spent more time at the office says at least as much about deathbeds as it does about offices.

And, of course, it is not my job, your job, or any damned social engineer’s job to keep consenting adults from doing things on the grounds that they may later regret those things.

16

Steve Carr 06.30.04 at 7:08 pm

Daniel, the point about leisure time really does seem to me ill-conceived, at least when it comes to the U.S. Big-box retailers are generally not “out-of-town,” and, as Sebastian says, it’s far quicker in most cities to go to one store where you can do everything than to go to multiple stores.

Even the argument about product variety seems misconceived, at least with regard to much of America. In many towns, the arrival of Wal-Mart meant an explosion in the variety of products that became available. That’s less true now that Wal-Mart is expanding into areas that are already well-equipped with stores, but it’s certainly the case that a Wal-Mart SuperCenter in, say, inner-city LA or Chicago would dramatically improve the variety and quality of goods available to shoppers there, as well as significantly cutting the cost.

17

John 06.30.04 at 7:15 pm

Whether Walmart is centrally located or not, Americans spend a lot more time driving to shops and work than anyone else, even Australians who have similar patterns of car ownership. This should be taken into account in making international comparisons of productivity and living standards

18

alexander 06.30.04 at 7:48 pm

I’ve lived in both the big city and the burbs.

Shopping in the big city is a pain in the butt. Grocery stores don’t have much selection. Clothing stores aren’t exactly on every corner. Hardware stores are tiny. Prices are astronomical.

Shopping in the burbs is easy. You need to buy a fan, some sandwich bags, and some underwear? Go to Target or WalMart. You’re done. It may involve a 15 minute drive, but better one 15 minute drive than three 10 minute walks. And prices are low.

That said, I prefer the city. It’s got character. Most people, however, don’t really go in for character; they prefer convenience, and that, along with crime and schools, is one big reason why they live in the burbs.

19

dsquared 06.30.04 at 8:14 pm

Nicholas: you wrote:

just don’t buy, epistemologically, the idea that you can have such a thing as an “irrationally low valuation”.

In which case you have what I would regard as an unreasonably hardcore view of revealed preference. For example, you would presumably be in a pretty poor position to argue against a heroin addict.

Others: I dispute that it is any quicker to get your shopping done in a big-box retailer than on the high street.

20

Sebastian Holsclaw 06.30.04 at 8:55 pm

“I dispute that it is any quicker to get your shopping done in a big-box retailer than on the high street.”

I suspect you don’t shop at Wal-Mart much so you are just blowing out your mouth at this point. Furthermore it is beyond dispute that it is CHEAPER to shop at Wal Mart.

I also suspect you are just as poorly informed in your expectations about how available ‘the high street’ is to the average American. Which explains why you are so poorly informed about the fact that having a Wal Mart available tends to increase selection.

But I can see this has devolved to the ‘because Carrie on Sex in the City says so’ level, so I’ll move on.

21

Jake McGuire 06.30.04 at 9:07 pm

Others: I dispute that it is any quicker to get your shopping done in a big-box retailer than on the high street.

Based on what, exactly? In my personal experience (and this is living in San Francisco, which is as devoted to the concept of small retail stores over big boxes as anywhere), it’s much faster to drive to Daly City, go to Target, and drive back, than to cruise (or walk) around trying to hit three different stores.

22

Fred 06.30.04 at 9:31 pm

Others: I dispute that it is any quicker to get your shopping done in a big-box retailer than on the high street.

This may be true in Europe or in urban centers on the coasts, but it is decidedly not true for most Americans. In the mid-sized Midwestern city I live in, Wal-Mart is a ten minute drive from my house. Target is a little closer. The closest thing to a “high street” we have is downtown, which is at least a half hour away in light traffic. I can’t imagine that the experience is much different for lots of Americans not in spitting distance of the ocean. And I’d never, in a million years, consider living in the urban center. The schools are bad, crime is higher, and property costs are higher.

23

Angry Bear 06.30.04 at 9:50 pm

I generally agree. I’m not fond of WalMart’s policies and I don’t shop there. But I don’t begrudge or consider irrational those who do.

So I’ll add my voice on this point: “if you’re spending your ‘leisure’ time driving to an out-of-town megastore, then it’s not leisure in any meaningful sense. If you end up doing more of this than you would, in a fully informed and reflective state, want to, then WalMart has successfully outsourced a proportion of its cost base to you …”

1. I think shopping at WalMart does in fact take more time for most people. Take the things that WalMart sells and subtract the things that grocery stores sell. The remainder are infrequently purchased items, removing much of the time savings of one stop shopping (since people go to the grocery store anyway.)

2. So what determines the consumption of leisure? Irrationality? No. It’s the usual suspects: preferences, income, and prices. At low and modest levels of income, leisure is a normal good, meaning that most people will consume more leisure as their income rises (the income effect dominates the substitution effect.) Stated equivalently, we get

2.a) [Income] As income rises, people consume more leisure, which entails, inter alia, less shopping at WalMart.

Also, preferences differ: some people will give up a lot of “all other goods” in exchange for more leisure; others will give up a lot of leisure in exchange for a small amount of additional other goods. So

2.b) [Preferences] As people have a higher marginal utility of goods relative to the marginal utility of leisure, they will trade leisure for goods. One way to do that is to travel to WalMart.

2.c) [Prices] Demand curves slope downward. When WalMart lowers prices faster than do rivals, they will, shockingly, sell more. This will come both from existing customers buying more and from drawing in new customers (people who find that, at the new lower prices, the additional consumption is worth the reduced leisure.)

My point is that WalMart is a low-price, low quality (in terms of service and frills, not the quality of the goods) option. For the standard array of economic reasons, some people will prefer that bundle to other feasible bundles. Others will not. There seems to be no irrationality intrinsic to the decision.

And to counter the “the deathbed reflections of every single person who didn’t express the wish that they’d spent more time at the office” point, I could point to those who either wished they had had more to give to their children when they died, or were happy that they were able to leave their children well-situated. Add in retirees who were able to travel, or retire to a pleasant place, and you could have a large chunk of people on their death not regretting the failure to consume more leisure.

In fact, those most likely to regret time spent in the office are those who die shortly after retirement. But they’ve got other problems.

But your more general point on the herd mentality of management consultants is well-taken. WalMart does do supply chain extremely well, and many firms can benefit from that. But there are diminishing returns to everything, and WalMart’s model will not be right for everyone. As they say, strategy is about being different. But too often consultants tend to say “be just like firm X”, where X is the latest greatest firm since sliced bread. Usually WalMart or Southwest.

AB

24

dsquared 06.30.04 at 9:56 pm

Sebastian: you would, as I often find myself saying, be surprised at what I do and don’t have first hand knowledge of. Furthermore, the popularity of shopping malls suggests that the activity of retail shopping as recreation is not necessarily confined to effete Europeans and New Yorkers. How dull does a town have to be before hanging out at WalMart becomes the cool thing to do?

Jake: How many times do you need to “hit three different stores” when doing your shopping? My high street has a perfectly adequate convenience store on it, and so do most of the American streets I’ve seen. If I also needed to buy a pair of jeans and a lawnmower at the same time as my groceries, I grant that that would require three shop visits, but really how often does that occur?

When people make journeys to the big-box retailers, they spend significant amounts of time and effort on the exercise. Some of this time and effort is rebated to them in the form of a financial saving, but none of it should be accounted for as superior productivity.

Jake, and Fred: I’m not arguing that US consumers are irrational in their retail behaviour given the options available to them. I’m arguing that 1) US big-box retailing is a lower value added activity than non-big-box retailing and 2) inasmuch as the lower prices charged by US big box retailers are the result of urban planning which redistributes distribution costs to the customers, this should not be counted as superior productivity or taken as a model to be emulated.

25

a different chris 06.30.04 at 10:03 pm

Do an anti-Walmart post if you really want to see some right-wing frothing. I don’t know why they love this monstrosity so much.

Unlike DD, I was born, grew up in, and now live in suburban Midwestern American. Our parents’ fondness for “blue light specials” was a common source of amusement growing up. I was there when Kresge became K-mart. So don’t waste your I’m-an-elite-anti-elitist crap on me. Also, as a guy who makes his living pimping myse..er, billing by the hour, I am painfully aware of the opportunity cost I lose when not actually at a jobsite.

So Listen:

1) Shopping efficiency- Daniel is quite right.

a- You’re limited by what you can handle, not what the store can offer you. Do you get groceries and furniture at the same time? Not too often, I suspect. So BFD that Walmart has a limited selection of hardware. I’m going to Lowe’s anyway. I go grocery shopping. I shop for home furnishings. I am a virtual Tim Tooltime Taylor (or a bad judge of housing!) so I can be found in home centers at least weekly. But I do not, I cannot mix these trips. All you who take this position, make a list of your shopping trips and the purchases made. You may actually learn something.

b- When you don’t need much it’s a PIA to have to leave work at lunch, drive 15 minutes (because in America you don’t mix home, work, and retail), and have to walk across a parking lot the size of Bosnia to search a couple of acres for a toenail clipper.

2) Daniel is right about undervaluing leisure time.

a- Conservatives claim they’re all about business, and we liberals know nothing about it, but the first business lesson I can remember is “time is money.” But suddenly it isn’t when a guy with 100K in advanced engineering degrees is doing what any 16 year-old could do- driving a car. That’s a really efficient use of my skills, not.

b- You guys can’t even do word problems correctly. You aren’t “15 minutes away” from a Walmart, a trip to Walmart requires 30 minutes overhead in your life. Seinfeld spent less time with the Soup Nazi.

26

q 06.30.04 at 10:13 pm

Pickles – The famous “jar of Pickles” story should be appended to these comments. Walmart Jar of Pickles Essentially, the near-monopoly position of Walmart in segments of the retailing sector allows its purchasers to strike very competitive deals. In the case of the pickles, the supplying company found that its own deal with Walmart started undermining the general business model.

27

Dan F 06.30.04 at 10:29 pm

Just to pile on Sebastian:

Have you ever bought a half-gallon of milk at Wal-Mart or other big-box? It easily sucks 30 min from your life trudging through parking lot, through the store past the tires, gas grills, and lawn furniture, then waiting in line. Yes “high street”/CBD require you visit three shops, but Wal-Mart is the size of three shops.

28

q 06.30.04 at 10:40 pm

_Wal-Mart is, apparently, the company that everyone should aspire to be like, because of its fantastic productivity._

Capitalist or Threatened Worker? McKinsey won’t tell you the truth about business in the same way that Reverand Moon won’t tell you the truth about religeon. McKinsey’s audience is capitalists, not workers.

Productivity brings benefits to the shareholders of Walmart. Great if you are a capitalist. How many Americans use capital earnings as their major source of income? 20% maybe. Not all consumers are the same.

Overseas jobs … The Walmart outsourcing model, which treats all workers around the world in the same way is to be applauded. 100 million Chinese workers are HAPPY at the productivity miracle that is Walmart.

29

Sebastian Holsclaw 06.30.04 at 10:55 pm

Yes, I would be surprised to find that you regularly shop at Wal-Mart. And your claim to be well informed is immediately belied by such quotes as: “My high street has a perfectly adequate convenience store on it, and so do most of the American streets I’ve seen.” You honestly have no idea where most Americans live do you? You honestly don’t realize that there are huge numbers of perfectly nice communities where Wal Mart is not only the most convenient place but also the closest place to shop. And honestly not knowing that would be fine if you weren’t so damned arrogant about how stupid we are to such places. And, by the way, I live downtown yet still find it faster to drive 10 minutes to Wal-Mart to pick up a large selection of things than it is to go to lots of different shops. But we can file both your experience and mine under ‘anecdote’ which is what I’m sure you will do with my experience since it disagrees with your point of view.

In any case, the grocery/lawn-mower dismissals are silly. You can buy groceries for the week AND the CD you wanted. You can buy the fan you need to help deal with global warming AND the low watt bulbs to decrease your energy consumption (not always available at other stores) and the beard trimmer to make your goatee look a bit smarter. You can purchase eyeglasses for ridiculously low prices which are ground while you shop for other items. You can get toys for your children AND groceries AND motor oil AND a new windbreaker jacket to quickly replace the one you left at the game AND any of thousands of other non-big purchases that you couldn’t easily make at grocery stores or other places. I’m sure that if you live a) in a big city AND b) within walking distance of a large shopping street AND c) there is not inclement weather AND d) you won’t be buying more than you can easily carry (or if you can hire a servant to lug it around for you) then it is more efficient not to go to Wal Mart. You are in the minority, but congratulations. Some of the rest of us won’t mind travelling a long way to shop inconveniently where you do. But the rest of us might want to take a fairly short trip to Wal-Mart and shop for a short time only once.

And for God’s sake I’m not even against boutique shopping. Different people have different preferences. I am fully aware that some people love shopping and would be horrified to just ‘get it over with’. I’m fully aware that some people like hand-holding from staff. Fine. Fabulous. Great. But that doesn’t mean that rest of us do not understand the value of ‘leisure time’. It means that you don’t understand that other people value things differently than you do.

“Some of this time and effort is rebated to them in the form of a financial saving, but none of it should be accounted for as superior productivity.”

What a silly formulation. Of course it might be superior productivity if the time and effort of going to one store minus the time and effort of going to multiple stores is less than the price differential. I’m not even an economist and I can figure that out. And honestly I find it difficult to understand how you can believe that going to more shops takes less time than going to one shop unless the one shop is dramatically out of your way and the multiple shops are dramatically close to you.

And while we are speaking of productivity, are you factoring in the high cost of renting or owning a house in the downtown area? Perhaps that thousands of dollars saved in rent represents a significant time/leisure balance for those of us earning less than a hundred dollars an hour.

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Sebastian Holsclaw 06.30.04 at 10:59 pm

DanF, I don’t like shopping. I buy milk two gallons at a time. Why would I plan so poorly as to just need to get a half gallon of milk? If I wanted just one item I would go to a convenience store with higher prices. I don’t travel to Wal Mart to purchase just a candy bar. Most Americans don’t.

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Jane Galt 06.30.04 at 11:05 pm

D2, I think it’s fair to point out that you and John Kay are both British, which has very, very different land-use patterns from America. Permit me to express my doubts that you’ve been travelling around the suburbs and farms of America’s smaller cities to witness their shopping habits. In small towns like the one my family comes from, the Wal-Mart is the closest clothing retailer, and its clothes are no uglier (and are certainly cheaper) than those which used to be sold on Main Street. These days if you want nice things, you need to drive to Rochester–which was exactly the situation before Wal-Mart, and indeed before shopping malls.

Moreover, I think you’re highly overvaluing American leisure time. Recently, when I had to purchase an air-conditioner, I had a choice: buy one at the hardware store, or go to Wal-Mart 40 minutes away. The air conditioner at Wal-Mart was $189; the one at the hardware store in New York City was almost $400. Is 1.5 hours of my leisure time worth $200? If we price it at the amount of freelance work I could produce in that hour and a half, it certainly is. If I were a high-priced consultant, I’m sure I’d feel differently.

Most new suburbs don’t have high streets such as you’re describing. Strip malls, such as the ones where Wal-Mart is found, are the high streets.

And might I suggest that the reason you don’t buy a lot of different sorts of things at one time is that you don’t have children? If you had three or four kids, each of whom had various new medical, sports equipment, clothing, dietary, and beauty requirements every month, and needed to spend most of your valuable leisure time ferrying them from place to place, you might feel quite differently about one-stop shopping.

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dsquared 06.30.04 at 11:39 pm

Janegalt: You may suppose all sorts of things. While you’re supposing things about me, I’d be grateful if you were to suppose that I was devastatingly handsome, weighed no more than 85kg and had an enormous male member. However, in real life, I grew up in Oklahoma City during the oil boom, which I believe trumps most of the cards so far played for sheer damnable MidWestitude, and I do have children. So I guess we’re both better off continuing to live in a world of false suppositions.

Meantimes, I repeat: I am fully aware of American land-use patterns and the decisions that people make as a result of them. I just don’t believe that they should be counted as productivity improvements because they aren’t, and I’m right.

Sebastian:

And while we are speaking of productivity, are you factoring in the high cost of renting or owning a house in the downtown area?

No, obviously not, because that is clearly a wash at the level of the whole economy. You’re not actually engaging with the argument here. Your only genuine argument appears to be:

What a silly formulation. Of course it might be superior productivity if the time and effort of going to one store minus the time and effort of going to multiple stores is less than the price differential. I’m not even an economist and I can figure that out. And honestly I find it difficult to understand how you can believe that going to more shops takes less time than going to one shop unless the one shop is dramatically out of your way and the multiple shops are dramatically close to you.

And this just fails internal consistency tests. If the locations currently occupied by WalMarts were more convenient for customers than the locations occupied by the pre-existing stores, then why were those stores there in the first place? The cost advantage of WalMart has to come from using locations which are convenient from the point of view of supply, not demand.

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Sebastian Holsclaw 07.01.04 at 12:15 am

“If the locations currently occupied by WalMarts were more convenient for customers than the locations occupied by the pre-existing stores, then why were those stores there in the first place?”

You assume that living patterns have not changed since the original stores opened for business. And that is a somewhat surprising assumption to make.

And how is my statement internally inconsistent? You are willing to assume that the old shops must have been conveniently located because of their mere existance but you do not extend that assumption to Wal Mart. I think your assumption is faulty, but I at least try to apply both my assumptions and yours to both cases instead of picking and choosing when to apply them as you do.

If you want to value the convenience of one-stop shopping you obviously have to deal with only EXTRA time spent shopping. You can’t merely say Wal-Mart is 20 minutes away therefore you wasted 40 minutes. You take the total shopping time of the one store and must subtract the total shopping time of the multiple stores.

You say: “I dispute that it is any quicker to get your shopping done in a big-box retailer than on the high street.”

You assume (and so far as I can tell on purely anecdotal accounts) that shopping at multiple stores is takes LESS time than shopping at Wal Mart. This is certainly counter-intuitive AND it ignores the fact that Wal Mart functions AS the ‘high street’ (for the purposes of shopping which are at issue here) for many communities. If you understood that your argument becomes the non-sensical: “I dispute that it is any quicker to get your shopping done in a Wal Mart than in the Wal Mart.” Unless you mean by high street something other than “the area where the shops in question are clustered” which I will admit is quite possible. (Though it is also possible that some other perhaps ‘society’ connotations are completely irrelevant to your argument as presented).

I see no reason to believe that it is takes less time to shop in separate shops in the city. I have shopped in Wal Marts all over the U.S. and I have shopped in smaller markets in San Francisco, Boston, Chicago and Los Angeles. You apparently believe differently and also rely heavily on the enjoyment of shopping which I contend is not shared by all people.

Since imitation is the sincerest form of flattery…

Shorter d-squared: I have political reasons for liking cities. Therefore I will count things that work best in cities as ‘efficient’ and I will count things that work better in suburbs as ‘inefficient’.

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dsquared 07.01.04 at 12:31 am

Sebastian, what we have here is a failure to communicate.

It is expensive to bring goods to places where people live. This is an expense which usually shows up on the income statement of retailers who locate their stores near where people live.

It is also expensive (IMO probably but not necessarily more so) to bring people from where they live to where the goods are. This expense, however, does not show up on the income statement of retailers who locate their stores elsewhere than where people live.

At the level of the whole economy, you would surely agree, it should not be considered an improvement in productivity if we were to change between moving goods to people and moving people to goods, ceteris paribus.

But that is what the statistics will measure if you are not very careful, since personal sector consumption statistics do not differentiate between personal sector expenditure on “genuine consumption” and expenses incurred by the personal sector but which are actually part of the production process of a retailer.

Please feel free to precis the above argument as this is often a good way to understand something.

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Jake McGuire 07.01.04 at 12:40 am

Some of my recent shopping trips:

1) 30mm and 26mm sockets, Sunday evening, 10:30pm. Went to Home Depot (big-box retailing) because they were open at the time.

2) Polska Kielbasa, six-pack of Spaten Oktoberfest, French rolls; to watch MotoGP Sunday afternoon. Drove to Safeway (large supermarket) because small stores won’t have the selection.

3) 512MB DDR333 DIMM. Drove to CompUSA, which is only quasi-big-box, because they were open Saturday, and nearby.

4) Slightly further back: a pair of sunglasses, a floppy hat, a five-quart jug of motor oil, an oil filter, a twelve-pack of bottled water, two 7 pound bags of ice, a roll of paper towels, and a bag of beef jerky. This one was actually at Wal-Mart, fwiw.

For my shopping patterns, big-box retailing is more convenient than small-shop retailing, and that’s including driving time. And I live close to small shops.

Regarding your allocating expenses arguments – surely the expense of going to where the goods are shows up in a smaller top line of remote retailers. After all, no one is going to spend $1.25 on a 20-oz bottle of soda at Wal-Mart, while they will happily do so at a gas station or corner store.

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dsquared 07.01.04 at 12:46 am

Regarding your allocating expenses arguments – surely the expense of going to where the goods are shows up in a smaller top line of remote retailers.

By jingo I think he’s got it!

If the entire cost saving were passed on to the consumer, this would be true. But that’s an unlikely competitive outcome and one which is not consistent with the observable economics of big box retailing. More likely, some of the cost saving is passed on and some isn’t, and the bit which isn’t looks like an improvement in productivity.

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Jack 07.01.04 at 12:57 am

The focus on retail productivity is no doubt why McKinsey is always telling the UK government that the key to increased productivity is relaxing planning laws. A question answered.

It is amazing how Wal Mart worship looks like central planning worship. No complaints about the lack of choice. No complaints about the heavy handed treatment of employee dissent. No complaints about the ugliness of the surroundings. So efficient and better for everyone.

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dsquared 07.01.04 at 1:07 am

Yep. Btw, what connects McKinsey and WalMart … that would be Archie Norman MP, former leading light of McKinsey in London, former leading light of the Conservative Party and one of a small number of people in the world (no really) that I regard it as acceptable to use the “c-word” to refer to.

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Cranky Observer 07.01.04 at 2:25 am

> You assume (and so far as I can
> tell on purely anecdotal accounts)
> that shopping at multiple stores is
> takes LESS time than shopping at
> Wal Mart. This is certainly
> counter-intuitive

The problem being that there is an entire branch of industrial engineering [1] devoted to misleading people’s perceptions in commercial environments. Joel Gerrard touched briefly on it in “Edge Cities”: shopping centers are designed with obscured sightlines so that shoppers don’t know how big they are, because if they did know that they would be tempted to go back to their cars to drive to the other end, and once in their cars they might go home.

The typical Wal-Mart / Target / Meijers is designed to help you lose track of time. I used to have my “3 Rules of Shopping at Meijers”, in fact, of which the first was: if you go in for one and only one item, and you know exactly where it is, you might get out in 10 minutes. Otherwise your minimum visit will be 40 minutes. No one that I ever recited it to disagreed, once they thought about it.

Cranky

[1] that’s what I would call it, anyway, since I am sure no Architect(tm) would ever admit to working on such matters ;-)

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Lance Boyle 07.01.04 at 2:51 am

The first automobiles were incapable of high speed as we know it, though they did present lots of clear and present danger.
An evolutionary mechanism was thus initiated that hit a kind of peak around 1973 with the “oil embargo”, when national speed limits were rolled back and the mortality statistics showed a pronounced decrease. That speed limits have increased has nothing to do with human values, as in humanity as a collective entity, and everything to do with human greed, as in the selfishness of individual human beings. Add in the taboo fact that traffic kills more children in the US than any other single cause, and the inhumanity of that evolution gets stark.
We begin these processes and tabulate only the benefits and the most egregious obvious short-term deficits. But there are longer-term problems with anything as complex as the infrastructure around something like the automobile as mass transit.
Efficiency-above-all is a process that Wal-Mart represents.
From the catch-and-grab of the Pleistocene through the hunter-gatherers and early agrarians to the monoliths of the modern big box emporia, the evolution’s visible. But like the steadily increasing speed limit, it demands sacrifice.
The roads and highways are places of fantastic danger now, to children and animals as well as those traveling on them. That’s not a human evolution.
The ultimate in efficiency is stasis, non-existence. No expenditures, no resource consumption, no problems, economic or social. Wal-Mart is about two steps away from that perfect expression of the efficient retail establishment. Slaves at one end, drones at the other. Any more efficient and there wouldn’t be any humans involved at all.
That this rush toward efficiency means you get a good deal on light bulbs while the local hardware goes out of business is only a tangible bit of the equation.

The short version: like the steadily increasing speed limit – which we took right to the bearable limits of human dexterity and tolerance for collateral damage – and then steadily increased year by year, we have taken the hive-model of collective centrality steadily toward border with the inhuman.
It’s more efficient to have one giant super-discount hardware store, which employs entry-level locals desperate for work at any wage, and buys much of its product from the cheap corners of the Third World. But it’s still more efficient not to do anything at all.
Life is messy and inefficient in the short run, the way swamps are messy and inefficient. In the long run it’s vital. Sterility is death.

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q 07.01.04 at 3:05 am

lance-
you are, as usual, spot on.

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isabel 07.01.04 at 3:30 am

Well, folks, this is a very timely post. A Wal-Mart is opening up in my town soon and I’m very interested in seeing how it pans out. The WM is being built on a former industrial site not far off a major highway. The town also has a Main Street that has been working to come back to life for a number of years now.

Personally, I would have preferred something unique and more interesting than a WM being built on that site. The town is NE NJ and, therefore, there are plenty of WM-equivalents around at which to shop. From what I’ve seen at town meetings and read in the local news, it appears that town management is working with the WM site developers to bring in new businesses, many of which will compete with existing Main Street businesses. Private town citizens are working on projects such as Main Street New Jersey, which helps revitalize main business streets like ours. Town management seems to be giving that effort lip service and the occasional $1,000.

I am delighted to shop at Main Street, even if: I do have to go to several stores; the prices are higher than WM and its equivalents; and it takes a little more time and planning (and I’m not sure that this last is the case; but if it is, that’s okay by me). I can park in town and go to the library; go to the post office; get a bite (from a myriad of choices); buy gifts (for a myriad of recipients); buy a suit; pick up house & garden items, including any unusual items the big stores don’t carry, but the small ones do or will order for you; sit in the park; and, most of all, enjoy the small town atmosphere wherein I know many of the business owners and run into neighbors and friends. Basically, I am delighted that there’s a new children’s boutique in town because I can get good quality, though more expensive, gifts there, gift wrapped and with excellent service. If it’s something I can’t get in town, I get it over the internet before I go to a big box store or, even worse, the mall.

When WM’s first started opening up in NJ, I bought a few things at a few different locations, wondering what the big deal was about WM. I was underwhelmed. The merchandise is poorly stocked, making it difficult to find the size, color, etc. you want. Help is difficult and sometimes impossible to find. Customer service is non-existent. The merchandise quality is low. Someone’s posted about dumping costs on the consumer. Well, I submit that WM shoppers save WM the cost of having decent help and well-organized merchandise because the shoppers do that work for WM.

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nick 07.01.04 at 3:42 am

Furthermore it is beyond dispute that it is CHEAPER to shop at Wal Mart.

I dispute it. The Wal-Mart experience adds all sorts of unplanned crap to your shopping cart, and even the stuff you go into Wal-Mart wanting to buy… well, it ain’t built to last.

So, it’s only cheaper if one is looking in isolation at each individual visit to Wal-Mart, rather than an extended period of purchases.

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Brad DeLong 07.01.04 at 7:05 am

OK. But how important are these factors–how much of WalMart’s lower costs are worker speedup, how much are using your customers as unpaid employees to pick things up at the warehouse, and how much is reduced service? Without guesses as to the magnitudes of these factors–and what they do to sectoral estimates of productivity growth–you might as well be a… management consultant.

:-)

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Mark 07.01.04 at 7:20 am

One solution is to put tolls on every road and highway. It would concentrate the mind wonderfully to have to pay for every kilometre of bitumen that is travelled on.

The answer to the question “Do I drive to the outskirts of town, or just to the corner store?” changes considerably if the distance being driven has a tangible cost associated with it.

Non-toll public provision of roads is an implicit subsidy to big-box retailers.

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John 07.01.04 at 8:16 am

Brad at least one of the magnitudes you want can be estimated reasonably well and is large. Extra time spent driving by Americans roughly cancels the gap between US and Australian income per person.

The link is below If I could find angle brackets on French Keyboard, I would do it properly, but as it is, youll have to cut and paste:

http://www.crookedtimber.org/archives/001262.html

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dsquared 07.01.04 at 12:16 pm

They’re usually in the place where you would expect to find the backslash, between the “W” (which would be the “Z” on an AngloSaxon keyboard and the left shift key.

It must be particularly frustrating typing on an AZERTY keyboard when your name has a Q in it :-)

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Jane Galt 07.01.04 at 12:35 pm

I stand corrected, and that will teach me to make assumptions. But I stand by my assertion that Americans are not incorrectly valuing their leisure. I live in NEw York City (and hence clearly personally value walkable living), and people here are pretty good at sorting out the alternate value of their leisure; investment bankers and corporate lawyers don’t shop at Walmart or Costco, and journalists whose parents have cars do. I’ve lived in three pre-WWII land use cities — New York, Chicago, and Philadelphia–and in all three, middle class people go to Walmart et al only if they’re buying a big ticket item, they’re doing work in their house, or they’re buying in large quantities, such as for a party. Poorer people, for whom the savings were more meaningful and the value of leisure low, went more often. The people I know in the old line suburbs go more frequently, but don’t do much of their grocery or clothing shopping there; they go for things like laundry bins. And the people in new style suburbs go very frequently, but the Wal-Mart isn’t any farther from them than any other shopping, and a lot less far than it would take me to walk (or even take the subway) to a sporting goods supplier, toy store, office supply store, or a craft store.

I suppose you could take American land-use patterns as part of this leisure time misvaluation, on the assumption that we’re all too stupid to know that we’d really prefer to live in a semidetached within walking distance of an eight-shop high street. But though I’ve never understood myself why Londoners would prefer to commute an hour and a half than live in a tall building, I try to assume that when people choose where they live, its because they prefer it that way, not because they’re nuts.

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Cranky Observer 07.01.04 at 12:46 pm

> Furthermore it is beyond dispute
> that it is CHEAPER to shop at Wal
> Mart.

I find it interesting that all measures of quality have been left out of this discussion. Having worked for several consumer goods mfgrs, I can report that the Model 200 Frobulator that you buy at Wal-Mart is not the same as the Model 200 you buy at Lowes, which in turn is not the same (although to a lesser degree) than the one your plumber buys at a professional tool store. Same box, same outer casing, but the guts are quite different.

So, just because something seems to have a price tag 30% lower at Wal-Mart doesn’t mean you are getting a better value. Often the opposite in my experience.

Cranky

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JT 07.01.04 at 2:36 pm

Only one mention in this very interesting discussion about the pressure WalMart puts on manufacturers/producers of goods. My wife works in consumer marketing and the price pressure WalMart places on the firms she works for (which sell goods through WalMart — to spell it out) is relentless. These price pressures also eventually lead to matching price reductions to other major retaillers. I’d like to see some accounting for this in the argument.

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rea 07.01.04 at 4:28 pm

“in real life, I grew up in Oklahoma City during the oil boom”

Well, that’s somewhat surprising–here I had you catagorized in my mind as a Welshman rather than an Okie.

As somebody else who grew up in OKC during the oil boom, let me ask you–where exactly is the “high street” in Oklahoma City? My recollection is that it didn’t have one, or anything resembling one. If you didn’t shop at shopping malls, strip malls, or “big box” retailers, you didn’t shop at all.

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dsquared 07.01.04 at 4:35 pm

I am a Welshman, but one who went to school in OKC during those hazy crazy days (my interest in financial matters was sparked by having a junior savings account at Penn Square Bank, the source of the syndicated oil loans which led to the Continental Ilinois collapse).

OKC didn’t really have a main street, true enough, but it was pretty much dotted with Safeways, Otascos and TG&Ys. I wouldn’t count these as “big box” retailers if the term is to have any meaning at all.

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Michael Greinecker 07.01.04 at 4:53 pm

“Michael: Really? Anyone with a modest knowledge of general equilibrium theory knows that the concept of an aggregate capital stock is dependent on the assumption made about the rate of profit? Are you sure?”

Aggregation is usually problematic. Profits are determined endogenously so this isn´t a bsic assumption of GET.

“And the reason that the CCC is relevant to the measurement of GDP is quite simply that GDP is the wrong measure to be using if one is concerned with “productivity”. This is simply because it is a “gross” (of depreciation) measure, which is clearly inappropriate for the purpose. And you can’t fix this problem without knowing what the capital stock is that you propose to depreciate, which you can’t know unless you’re prepared to specify a “natural” rate of profit, which you can’t justify doing in general equilibrium theory …

Think about this one again …”

You can define a index of and capital and measur its depreciation. Of course the information you get may be of little use, but that´s not the same thing as being meaningless.

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dsquared 07.01.04 at 5:15 pm

Of course the information you get may be of little use, but that´s not the same thing as being meaningless.

Indeed, but the depreciation rate one would want to use for this purpose would be meaningless rather than useless. Since one wants to have profits counted in GDP, the only way you could create this “index” would be by making an arbitrary assumption about the rate of profit.

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JRoth 07.01.04 at 6:01 pm

A lot of reference to land use patterns, and a lot of pure crap about their real-world effects. Interesting.

Anecdote that it is, sebastian, I can’t of course deny that you live in a downtown that is 10 minutes’ drive from a WalMart. I will say, however, that that is an astonishing bit of geography. Unless this WalMart was built on a brownfield, it’s not clear to me how a downtown, urban residential area, first ring subrurb, and second ring suburb can all be traversed (any time of day?) in ten minutes. Regardless, there are clearly people who live on the other side of town, who have 15, 20, & 30 minute drives, since the retailers once located on that side of town are now gone.

Example: Greene County, PA – coal & sheep country. No WMs exist in GC, but they have been built in locations nearby. Although they are not convenient for residents in and around the county seat, they have drawn off enough business (from those already outside town) to kill what was, only 20 years ago, a fully-functioning downtown. So these people now have a choice of where to drive 30 minutes to buy underwear. And this is measured as an increase in GDP.

And on the fantasy that, if you already live in the burbs, WM is ultra-convenient. My father is w/in 2 miles of the nearest WM in northern NJ. This, of course, translates to over ten minutes to actually get into the door of WM – longer on Saturdays or weekday evenings. 12 MPH. The minimum time for him to buy a non-convenience food product is 30 minutes round trip. Urbanite that I am, I can get that same item (actually, better) with a 15 minute total trip to either of 2 nearby grocers. That trip, of course, is on foot, meaning that I have improved my health on the trip. For all this convenience, my father pays higher land prices, has no better schools (I know, I studied there and have taught here), and is more likely to be in a car accident than I am to be a crime victim.

Ah, but it’s his revealed preference, right? Well, not really: he was tranferred there, with mostly equivalent housing choices. Thanks to postwar planning and distorted economic incentives, he doesn’t have the option of living in a town that still has a proper high street.

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Sebastian Holsclaw 07.01.04 at 6:37 pm

Jroth. San Diego. I take the 163 to the 8 to the 15 exit Aero Drive. Total time 10 minutes, though I do drive too fast for some.
Hooray freeway system.

D-squared.

I can’t tell which transportation costs you are talking about. You complain that somehow Wal-Mart is throwing the transportation costs at the consumer. This is wrong. I work for a company that ships using third-party private carriers. The price to deliver to outlying Wal-Marts would be higher than delivering to the middle of most cities if we were shipping the same amount. (If we ship X products to Wal-Mart and X products to Donwtown grocery it would cost more to get to Wal-Mart.) In reality it turns out to be cheaper to ship to Wal-Mart not because it is easier to ship there, but because they buy larger amounts of product which drives the unit cost of shipping down dramatically. My supply-chain guy always says something along the lines of: if we ship one bottle we lose money, if we ship one hundred bottles shipping eats most of our profit, if we ship ten thousand bottles shipping is not a significant expense.

So because Wal-Mart buys more, shipping costs are actually lower. If they were competing with a buyer who purchased as much product as they do, Wal-Mart’s shipping costs would be higher than their competitors. But they purchase in enough bulk to make up for the added mileage.

Unless I have totally missed your point, this deals with your explicit pricing issue. But it seems to be exactly the opposite of the assumptions of your “by jingo I think he has got it” post.

You seem to allude to added costs of travel on the part of the consumer but you aren’t clear on how that intersects with price. And that is specifically why I mention housing prices. If one of the benefits of living downtown is that you can walk to the store, one of the detriments in living in the burbs is that you cannot. This is reflected in the price of housing. If, as you say, this evens out across the economy as a whole, you have to look at the lower price of burb housing PLUS the added cost of driving in order to shop and see if that is reflected ‘accurately’ in the price. I don’t see how you would tease out that one little aspect of housing prices, but that is where it is reflected in the economy. Suburb housing is dramatically cheaper because it isn’t as convenient. Why do you feel the need to count that inconvenience twice?

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isabel 07.01.04 at 7:18 pm

“and even the stuff you go into Wal-Mart wanting to buy… well, it ain’t built to last.” and “I find it interesting that all measures of quality have been left out of this discussion….Same box, same outer casing, but the guts are quite different.”

I agree w/the low merchandise quality statements re: WM products such as these. I learned about the differences between, e.g., the same model plumbing fixture sold at WM v. Home Depot v. the professional plumbing store, a few years ago during home renovation. I wonder if this is common knowledge among consumers, or do the majority of consumers just think they’re getting a great buy on the fixture at WM?

I also wonder how much it costs consumers to buy an item again when the first one breaks due to poor quality. E.g., while at Kmart for one thing, my husband remembered he needed a rake. This rake didn’t last a full season. The one his dad (a landscaper) later got him will probably outlive us. There must be some cost associated with a consumer who returns to WM/Kmart/etc. to buy replacement items.

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dsquared 07.01.04 at 7:27 pm

Sebastian, you can only be a big-box retailer by being having big outlets. If you have big outlets, then you have fewer outlets. If you have fewer outlets, then the average distance between a consumer and an outlet is greater.

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David Nieporent 07.01.04 at 7:32 pm

Perhaps Daniel doesn’t realize — his extensive experience in Oklahoma 20 years ago notwithstanding — that residential and retailing patterns in the United States do not match his intuitions. Walmarts are located where people live, nowadays. Everywhere except the urban areas keeping them out — but those people have a choice as to whether to travel to the WM or shop locally.

And what is it with several people here “proving” that WalMart takes more time than buying a quart of milk at the local convenience store? Duh. Nobody goes to WalMart for one item, unless he’s _really_ price sensitive.

And by the way, have you people not heard of stopping on your way home from work? You don’t have to drive extra at all to go shopping.

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David Nieporent 07.01.04 at 7:39 pm

Sebastian, you can only be a big-box retailer by being having big outlets. If you have big outlets, then you have fewer outlets. If you have fewer outlets, then the average distance between a consumer and an outlet is greater.

But the question is not “the average distance between a consumer and an outlet.” The question is the SUM OF THE average distances between a consumer and ALL THE OUTLETS HE NEEDS TO SHOP AT TO COMPLETE HIS ERRANDS.

Not only do you need to figure time between outlets, but you need to factor in time for wasted trips — when you go to the big boxes, you know they’re going to have what you need; you don’t need to travel to another store because they don’t carry (or are sold out of) exactly what you’re looking for.

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Sebastian Holsclaw 07.01.04 at 8:01 pm

“If you have fewer outlets, then the average distance between a consumer and an outlet is greater.”

WalMart has more outlets than many large grocery chains, but OK.

But your point is what exactly? Originally you suggested that they are passing off the cost of getting good to where consumers are onto the consumers by forcing them to commute. This ignores the fact that they simply aren’t allowed in some big cities (see the Chicago fight). Furthermore I have suggested that for similar purchases, the cost of transportion is HIGHER to outlying WalMarts but that it is made up because an even greater savings in transportation costs is found because of the increased size of the purchase.

So far as the cost to consumers in terms of travel, I suggested that is adequately reflected for the purposes of the discussion in the housing markets (cities more expensive, suburbs less) and does not need to be duplicated. Maybe I’m wrong about that, but your flip response doesn’t indicate such.

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nick 07.01.04 at 8:59 pm

But though I’ve never understood myself why Londoners would prefer to commute an hour and a half than live in a tall building…

Um, it’s because most areas of London where tall residential buildings have been permitted (for all sorts of reasons) are the parts of London where one tends to live only if there are no alternatives. It’s either ‘council flat’ or ‘Lord Archer-style penthouse’, with not much in-between. (Possibly the Barbican, but… um.)

Since the experiments with middle-income ‘high-rise’ projects in the 60s didn’t really go so well, it’s no surprise that there’s not so much enthusiasm even for the kind of glitzy apartment complexes that one sees, for instance, in Atlanta.

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dsquared 07.01.04 at 11:32 pm

David, Sebastian: John Q has provided the link above showing that Americans spend a lot more time driving than Australians (who in turn spend more time driving than Europeans). How does this fit into your theory? I’d suggest that it doesn’t, and that the reason it doesn’t is that you are wrong about the convenience of big box retailing, thus inter alia helping to provide evidence for another of my points about people’s systematic irrationality on questions of leisure time.

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q 07.02.04 at 12:23 am

There’s too much obsessing about mileage here when productivity only matters where QoL (Quality of Life) comes in.

If every American drove a 15 year old car instead of a 5 year old car, and used the saving by working fewer days, America would be a happier place.

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Inn-spectre 07.02.04 at 7:19 am

D^2, I agree that lots of people mistakenly undervalue their leisure time.

But that doesn’t necessarily mean that Wal-Mart is pushing costs on to a consumer that mistakenly values transit time to Wal-Mart above leisure time.

For the sake of clarity and brevity, call an activity foolish if someone does it instead of leisure, because they wrongly think it’s a better use of their time than leisure.

If a Wal-Mart opens up somewhere, and a consumer foolishly goes there, has the consumer lost out? Not if the behavior the consumer would otherwise do with that time is likewise foolish. In that case, the customer wins, because he wouldn’t be using the time for leisure anyway, and he values Wal-Mart more than the other foolish activity.
If the consumer foolishly goes to Wal-Mart, but otherwise would use the time for leisure, then yes, Wal-Mart has pushed a transit cost on to the consumer.

My guess is the average case is somewhere in between; some foolish behavior will be displaced, and some extra leisure time will be eaten up. Is that a win or loss for the consumer? Impossible to tell without specifics.

As far as Americans spending more time driving than Australians and Europeans, are you really suggesting that the main reason for that is that Americans spend more time driving to superstores?

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David Nieporent 07.02.04 at 5:09 pm

John Q has provided the link above showing that Americans spend a lot more time driving than Australians (who in turn spend more time driving than Europeans). How does this fit into your theory? I’d suggest that it doesn’t, and that the reason it doesn’t is that you are wrong about the convenience of big box retailing, thus inter alia helping to provide evidence for another of my points about people’s systematic irrationality on questions of leisure time.

First, John’s link is about distances driven, not time spent driving.

Second, ignoring the above distinction, what does the comparison have to do with the price of tea in China? I only looked one level deep into John’s link, but saw nothing suggesting that this difference in distance driven had anything to do with distances driven in the two countries _for shopping_ (let alone the distances driven _to shop in big box stores_), which is the topic of this discussion.

Or, rather, is part of the topic of this discussion; the _actual_ topic of this discussion was over time spent to complete one’s shopping at big box stores — not time to get to the stores.

You’re setting up a strawman; the debate is not whether the WalMart is _closer_ than the local corner store. The debate is whether completing one’s shopping at WalMart saves time over the alternative.

How absurd is it for you to find an aggregate measure of distance driven by a national population and conclude that the subset of that population that thinks it is saving time by shopping at WalMart over the local corner stores is irrational?

Hey, I agree that anecdotal evidence is weak. If you had actual evidence of how much time people who shopped at WalMart spent on their shopping errands, I’d listen. But you don’t, and in the absence of such evidence, I think I’ll stick with the anecdotes of people who actually shop there rather than the guesses of someone who hasn’t even lived in the country in decades.

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Tom 07.02.04 at 8:52 pm

Additional data point: I live in a suburb built in the early 1960s. Several years ago a Walmart opened (on the land that used to be a drive-in theater) along the road I drive to and from work. A little over a year ago (IIRC) a closer Walmart opened, in our suburb. I’ve been from my house, through the register, and back in 20 minutes (with a new printer cartridge). In general, however, I hate Walmart, and have only been in a few times in my life. My main annoyance is the music they play, which keeps me from being able to focus on what I want to buy.

For contrast, I am a member at Costco. It is vaguely three times the distance to drive to Costco, but nonetheless shop there several times a year.

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John 07.03.04 at 9:33 am

David,

Im using separate data sets on time use and on distances. The time use data says travel time is split about evenly between shopping, commuting and recreation for the adult population as a whole.
In comparing with Australia, I assumed equal average speeds, so that the ratios of distances and times are the same. I dont think this is far off the mark, but I’m going to look at comparable Australian tiMe use studies when I get time

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