The Cost of "Saving" (Part 2)

Note: This is the second of two articles I wrote for the Casey County News. Read the first one here: The Cost of Saving (Part 1)

In Part 1 of this article, I made the argument that any “savings” we gain in the short term by making our purchases outside of Casey County are offset by the long term economic damage that we inflict upon our community by indulging in that behavior.

Of course, if we all had plenty of money we might be perfectly willing to spend more of it at home rather than mortgaging our future just to save a few bucks upfront, but the reality is that we don’t all have plenty of money and the future is still the future after all; our problem is the present. We have real needs that cannot wait, and – all philosophical arguments aside – we need to save money right now, even if we know that by doing so we will ultimately lose later on down the road.

A valid point. And if we were really saving money right now, it might even be worth the risk. But are we? To find out, let’s take a look at what a City of Liberty resident actually “saves” by shopping at Wal-Mart, the world’s largest retailer and self-heralded low price leader.

First, think about the price we pay just to have the opportunity to shop at Wal-Mart. By today’s averages, every round-trip to Danville and back will cost you about $12 in gas, 50 miles in wear & tear on your vehicle, and a full hour of your time.

To put that in perspective, by making only 2 trips a month, over the course of a year you will spend almost $300 in fuel, drive 1,200 miles (the same as a road trip to Denver, CO), and expend a full 24 hours of your non-refundable life. And all of that before you even get a chance to open your wallet.

Next, we have to consider just how much extra money most people will spend by being immersed in a “one-stop shopping” world. Everyone’s situation will be different, but by studying the spending habits of my own family, I’ve noticed that when we purchase our groceries at Wal-Mart, we spend about $150 on average. When we buy groceries in Liberty, we spend about $80. The interesting thing is that either way, we still run out of food at about the same time.

How does that happen? What did that other $70 pay for?

Much of it is spent on impulse buys. Things we didn’t need, didn’t plan to purchase, and could certainly have lived without, but were so “cheap” we just couldn’t pass them by. It is a rare individual who is disciplined enough to make a list and stick to it under the constant bombardment of temptation that is experienced while shopping in a Wal-Mart store. But even if you can, you probably still aren’t saving any money.

That’s because Wal-Mart executes a sales strategy that utilizes what are known as “loss leaders”. A loss leader is an item that is priced so low it seems almost too good to be true. These items are indeed priced much lower than what other retailers can compete with, and because Wal-Mart offers so many of these loss leaders, we automatically assume that everything else in the store is also priced less than we could find anywhere else. But that isn’t necessarily true.

According to a 2005 study by Zenith Management Consulting, “only 15% to 20% of the items Wal-Mart sells are actually priced lower than competing retailers. [The other] 80% to 85% of the items Wal-Mart sells are more expensive than at other retailers”.

The reason this strategy works is that we as consumers no longer question whether or not Wal-Mart actually has the best prices or not. We have been conditioned to believe that they do. Wal-Mart tells us that they have the lowest prices, and then to reinforce that message they vigorously promote their loss leaders as proof, knowing that most people will never actually take the time to comparison shop on anything else that they sell.

And if Wal-Mart’s $11 billion in profits last year is any indication, they are correct; we won’t check. If we did, however, what we would find is that we probably could have gotten exactly what we wanted from one of our neighborhood retailers right here at home for a better price and a lot less time & trouble.

In the end, it makes no difference whether we look at the long term economic picture or the short term details; the math works out the same either way: We all save when we buy local.