PikeNet Dispatch, January 31, 2006
Vol 11 No. 9 (911), "More than 9,000 subscribers"

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Could "The Wal-Mart Effect" Impact Real Estate?


"Always Low Prices. Always" ... Have you ever heard of the "Wal-Mart effect"? This is "shorthand for a whole range of impacts resulting from Wal-Mart's way of doing business," according to Charles Fishman's fascinating new book
The Wal-Mart Effect

Of course, some people define the Wal-Mart effect negatively (low wages) and some people define it positively (low prices). But almost everybody has an opinion. With 3,811 stores, "more than half of all Americans live within five miles of a Wal-Mart store. Ninety percent of Americans live within fifteen miles of a Wal-Mart... Every seven days more than one hundred million Americans shop at Wal-Mart, one third of the country."

And everyone agrees that Wal-Mart has created its own "ecosystem in which its suppliers and competitors, and their suppliers and competitors, and their customers, all operate...This ecosystem isn't a metaphor; it is a real place in the global economy where the very metabolism of business is set by Wal-Mart."

So could real estate services become a victim of the Wal-Mart effect? Could a dominant customer (or customers) exert downward pressure on pricing, like Wal-Mart does to its suppliers? OK, I'm being inflammatory; it's unlikely.

But here's an interesting finding. Bain & Company did a study of 38 public companies doing more than 10% of their business with Wal-Mart. According to a Bain partner, "For every percentage point of increased business these companies were doing with Wal-Mart, their operating margin declined to some extent." Uh-oh.

Is there a message here for corporate service providers? Could profit margins narrow as larger corporate clients demand more cost savings? How can you reduce their costs? Would increased volume make up for your reduced profit margins? What do you think?

-- Peter Pike

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