How Walmart profits while pricing below cost


#1

Originally published at: https://boingboing.net/2017/09/15/how-walmart-profits-while-pric.html


#2

This mechanism also specifically eats the margins that kept the mom and pops and specialty stores open that the big boxes destroyed. A craft store/hardware store/kitchen supply store with personality can afford to sell some unique and niche stuff, if supported by the people coming in to buy the basics in a steady flow. The big boxes bundle up all the basics from a bunch of different niches, but use the loss leader not to subsidize personality, knowledgeable staff, and unique product, but just big ticket, generic shit.


#3

Safeway does this with alcohol prices. Sale days and higher wine costs go hand in hand.


#4

I wonder if stuff is still below cost when the competition is gone?


#5

Thankfully there’s usually good competition when it comes to the kinds of goods Walmart sells. Either way i avoid shopping there whenever possible as their quality is awful and i really do not like how poorly they treat their employees.


#6

It’s worse than that. When all the competition is gone, they close the store, forcing you to drive to the Wal-Mart in the next town for groceries (and eliminating even the shitty remaining jobs in your town).


#7

Has no one heard of loss leaders before? Walmart didn’t invent this strategy, nor is it new.


#8

Yep. Nothing new. I knew this 20 years ago when I worked for them. Actually helps some people when they price staples so low. IIRC baby formula has a negative margin a lot of the times (at least back when I worked there, we could see the margins on every item via a hand held scanner).

It isn’t just Walmart, lots of places do it. When I sold computer parts, we would make next to nothing on CPUs, knowing that most people would add on the other items that had a higher margin (though still, razor thing margins back then.)


#9

There is a hardware store about a mile from my house that has this perfected.

The owner makes a point of having a good stock of all the minor hardware bits and small tools that are needed for home fixit jobs, and can listen to the customer’s explanation - “I need something kinda like this, to connect this to that” - to identify the part needed.

He’s got a sign on the inside of the door that you can’t miss while leaving. “How long would it have taken you to drive to Lowe’s, find what you need, pay for it and drive home compared to how long it took you here today?”

Makes a very good living indeed.


#10

I wonder how much of this article from fourteen years ago still holds today?


#11

It doesn’t hurt that they take their other costs, like wages, and push those costs onto the public wherever possible.

I love that my tax dollars are paying for public benefits for Walmart workers’ healthcare subsidies, food stamps, WIC, etc while the Waltons are the richest family in the country.


#12

This applies to video game consoles as well. Sony, Microsoft, Nintendo; they all sell their consoles and handhelds at a loss and then make up the difference by selling the games for $60 a pop. Things like additional controllers and other accessories are equally as expensive.


#13

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#14

Mostly accurate, Sony & MS typically sell at a loss with the intent of reducing the cost over time until they can sell the console at a profit. Nintendo on the other hand is well known for nearly always selling their new consoles at a good profit, which is why they typically design their consoles to be less powerful than their rivals.


#15

I’m not a fan of Walmart so when I do go it’s for a specific item. Seems when I check out I’m the only one without a cart full of random stuff.


#16

This. When I worked in grocery stores in college in the early 90’s everyone knew what loss leaders were. Low cost, negative margin staples that get people into the store. Who cares if you are losing $0.10/lb on flour if people are walking out with $200 in groceries at 10% margin. Walmart’s business model isn’t innovative in any way, they just are very good at what they do (volume sales, low operational costs, supply chain bullying).


#17

And this one from 11 years ago:


#18

And don’t forget this aspect of Walmart’s profitability: shirking the cost of healthcare for its army of employees.


#19

#20

I enjoy buying stuff from retailers, the big ones, when I know they are making close to zero profit. And I purposefully do NOT buy other higher margin stuff. Just because I can. Capitalism, right? The only time my family goes to walmart is to return something that grandma bought the kids there. If we can only get store credit or something, it will turn into toilet paper or something other commodity.

Costco, on the other hand, is usually not grouped into the same retail category as walmart, right? From what I understand, Costco tacks on an across-the-board 15% premium to all the goods they sell. And then, they can hire full time and provide health insurance to their workers. I often ask the checkout person at Costco how long they’ve been working there, like I asked one lady there last year. She said 20 years, and indeed, her name tag, I noticed a moment later, indicated that she had started there in 1996, when the store opened. There’s just something kinda cool about that.