Browsing the blog archives for January, 2016.

Walmart Store Closings

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Walmart announced on Friday that it’s closing 269 stores globally, including 154 in the U.S. 102 of them are small, Walmart Express stores, but the list also includes 23 Neighborhood Markets and 12 Supercenters. This type of move isn’t uncommon for large corporations and shouldn’t be interpreted as a sign of failure. Firms should constantly search for ways to reallocate their resources to the most profitable ventures. Facing aggressive expansion by Family Dollar and others, Walmart’s Express stores never took hold. Walmart will increase its emphasis on ecommerce as part of the effort.

This move is a stark reminder that business success is difficult to sustain. In fact, 88% of the largest U.S. companies in 1955 disappeared completely by 2014. This constant churn is a healthy process entrepreneurs and economists call “creative destruction.” Just when you think a company has a corner on the market, things change and new, leaner, more focused competitors move in. I’m not saying that Walmart will go under anytime soon, but idea that large, dominant firms cannot be challenged simply isn’t true.

Of course, Walmart has been demonized in recent years. Whether it’s for grinding suppliers, underpaying employees, or running small competitors out of business, Walmart has become the poster child for everything wrong with corporate America and globalization. I don’t intend to go through all of the charges in this post. Overall, I see Walmart as a good firm that has created lots of opportunities for American workers and consumers over the years. At times it seems to drift into cronyism, but that’s a topic for another day.

My point today is that Walmart execs considered all costs and revenues when it decided to close these stores. Rising wage rates, increased healthcare costs, and burdensome regulations are part of the equation. It’s impossible to identify how much these costs affected the closings, but they did. The protestors might think they’re winning when they “force” Walmart to hike wages or meet their other demands. But when costs rise, companies have to cut back somewhere, and this often translates into jobs. It’s economic reality.

As an aside, Walmart will help most of the 10,000 U.S. employees affected by the closings transfer to nearby stores. This is still a net loss of 10,000 jobs because store transfers alleviate the need for new hires. Nonetheless, it’s good for those who are already employed.

Companies like Walmart and McDonald’s don’t have money trees and cannot be expected to solve the country’s social problems. If you’re a corporate critic, be careful when you demand that they pay higher wages and incur other costs to promote the “common good.” You might get what you ask for.

Sources:

http://news.walmart.com/news-archive/2016/01/15/walmart-continues-sharpened-focus-on-portfolio-management

http://www.aei.org/publication/fortune-500-firms-in-1955-vs-2014-89-are-gone-and-were-all-better-off-because-of-that-dynamic-creative-destruction/

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An Outside View of the US

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I always learn a lot when I spend time outside of the US, often from unexpected sources. This week I’ve been in Nairobi meeting with business leaders and academics from Africa and other parts of the world, and also chatting for some everyday Kenyans on the street.

Kenya ranks in the middle of Africa’s 50+ nations in terms of per capita income—below $2000—but is showing some signs of development. The people are generally friendly. Infrastructure development is spotty, and the country still has a ways to go economically.

On one occasion, a local asked where I was from. I told him I was an American. He smiled and commented, “Oh, the land of Obama. He visited Kenya last summer.” I asked what Kenyans thought of our country and our president, and he replied, “We like Obama. He will do a lot for us [Kenya] and make things [fairer] around the world. We like Americans, but there is a lot of racism in your county. Why do most white people there hate black people?” I explained that most while people aren’t racist; how else would we have elected a black president? He smiled and continued, “But we hear that racism is a serious problem in the US, with lots of crime against black people. Even police are killing black people, like in Kenya in the past. Obama says he’s going to change the laws.” I spent the next few minutes trying to unravel his misperceptions, but three specific parts of his comments are worth unpacking.

First, this man said, “we hear” numerous times. I asked where he and other Kenyans get their information and he mentioned TV and the Internet. As for TV, Kenyans have access to CNN-International, the BBC, and Sky News (UK). In my view, CNN-I is largely anti-American. Whether it’s a special report of the lack of universal healthcare in the US, the spiraling gun violence “caused” by unenlightened gun-toters, or general malfeasance in corporate America, CNN-I never seems at a loss for reasons to question the American way of life and its institutions. The BBC is leftist as well, but more credible and not anti-US per se. Sky News is the only balanced alternative, but it’s clearly in third place in terms of reach. It’s no wonder why those whose view of the US is molded by American news outlets see the country in a negative light.

Second, this man compared alleged US racism to Kenya’s past. Kenya became a republic in 1963. It is true that colonialism in Kenya—like the rest of Africa—had racial overtones. The idea that law enforcement officials in the US are killing innocent African-Americans because of their race, like some Europeans did on occasion to Africans in the past, is appalling. I recall the case that Dinesh D’Souza made for Obama as an anti-colonialist, and I couldn’t help but to connect some dots here.

Finally, this man referred to Obama’s effort to change the law, specifically in terms of gun control. While the President is careful to avoid such terminology—only Congress can change the law—it is clear that he seeks to do so and that many outside of the US see through his rhetoric. Ironically, in promoting live coverage of the President’s speech on the topic, a BBC anchor actually used the same “change the law” phrase.

My conversation tells a lot about how the US is viewed outside of our borders. I try not to criticize American leaders while in other countries. I promote American ideals and counter media bias as best I can, but it’s an uphill battle. There seem to be few clear, consistent, and articulate proponents of liberty and free enterprise in the US and abroad these days. American foreign aid used to be seen an attempt to spread freedom; it’s now seen as legitimate global wealth redistribution.

I’ll close with another encounter I had. A Kenyan street vendor I met pointed to his injured hand and said that medical treatment to fix it is available in the US even if you can’t afford it. He referred to the work that Operation Smile has done with kids with a clef palate. As he put it, “You’re lucky to be born an American.” Indeed, free societies not only create wealth, but their people look for ways to share it voluntarily to make the world a better place.  Perhaps there is some hope after all.

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