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Watching Wal-Mart

8 Apr, 2004 By: Thomas K. Arnold

Just up the coast from our Orange County, Calif., offices, in the blue-collar Los Angeles suburb of Inglewood, voters overwhelmingly rejected plans by Wal-Mart to construct a supercenter inside the city limits.

Opponents successfully argued that not only would Wal-Mart put smaller businesses out of business and thus replace higher-paying jobs with lower-paying ones, but also that the mega-chain was demanding a free pass from city officials, with no environmental impact reports or even public hearings.

Wal-Mart certainly packs a mighty punch, but then again, I'm not telling the studios or any other retailer out there anything new. It wasn't some studio mogul's idea for Wal-Mart to begin selling recent hit theatricals in wire dump bins for just $5.88 each. Nor was it a stroke of genius from Hollywood to price thousands of great catalog films at less than $10 when DVD was just a few years old and study after study showed consumers would have just as willingly shelled out $15 or even $20 for many of those same films.

No, Wal-Mart isn't playing the low-price game to move more units — of DVDs or whatever. Wal-Mart sells for less than anyone else because it can — and the other guy can't. And if consumers, drawn in by those low prices, then shop at Wal-Mart exclusively and the other store goes out of business, then so be it. Once the competition is gone, Wal-Mart will be free to raise prices and make a bigger profit — safe and secure in the knowledge that higher prices won't deter shoppers, because there isn't any other place left.

I was looking at the recent Fortune 500 list and was struck by several things. Not only is Wal-Mart again the biggest company in the country, based on 2003, but several other big retailers are also in the Top 30. There's Home Depot at No. 13, Kroger at No. 19, Target at No. 23 and Costco Wholesale at No. 29.

Only one studio — or, rather, studio parent—is in the same vaulted company: Time Warner, at No. 27. The rest are all trailing behind: The Walt Disney Co. at No. 60, Viacom at No. 64, and so on.

That's scary, knowing that most of your top customers are bigger than you and thus in a position to throw their weight around.

I'm sure there are some studio executives who long for the old days when videos were primarily channeled to the public through a network of independent video stores and it was the studios that were in the driver's seat. And yet I remember that back then the push to consolidation was embraced — and even propelled — by the studios and their actions, first by bypassing distribution and selling direct to the big mass merchants and then by catering to Blockbuster's 1997 plea for cheaper product by moving to revenue-sharing.

I guess if there's a moral to this story, it would be this: Be careful what you wish for.

But far be it for me to tell anyone, “I told you so.”

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