Tuesday, November 4, 2008

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.

1 comment:

Kimber said...

Thanks for your assessment of the great lack of VALUE that Walmart gives the average consumer. I have found the same problems with shopping there that you list in your article.

My husband HATES Walmart. He would rather drive half an hour "more" to get to any department store other than Walmart in order to shop.

Our gripes with Walmart are numerous, but I do just want to share a handful to see if these might be the same things you or others have noticed.

-limited brand offerings. Usually one brand (THEIR choosing) plus their less than stellar quality store brand

-Roll up prices directly preceeding the roll back prices. Roll backs never go back to the original price or less

-Stock incorrectly priced. Long waits to verify the price of the item on the shelf.

-Stressed clerks that get resentful if you question incorrectly priced stock.

-No apology for incorrectly priced stock.

-Sale price tags over the top of the original tag price. When you peel it off (usually at home, out of curiosity, where you are likely to keep the item in spite of your huge frustration) the price was raised a good bit. That is not my idea of a sale!
-Poor marketing. High priced foods will sit and ROT before they would consider lowering the price and actually selling the food to someone who might want it but who wants to buy it at a fair price. (Case in point...pumpkins were sold for 4.50 per pumpkin prior to the end of October. Walmart pumpkins were higher priced than any other store's pumpkins in our area and their gigantic outdoor display remained a gigantic outdoor display...never dwindling because of the always low prices which were not at all low. October was over and the price was the same. After the first week of November the price was lowered to 3.50 Who really wants a decorative pumpkin in mid November? Well into the 2nd week of November all the pumpkins disappeared for a couple of days from the front of the store. They appeared lined up on the floor of the main aisle for 1 cent each after storage in some back room. This to us was pure idiocy. The real shame was that they sold no pie pumpkins. A pie pumpkin for a penny would have been a bargain the second week in November, but that just goes to show that they do not always SELL want people want to BUY)

I have the same problem with going in intending to buy only from my list and then being tempted to buy just this or that which I might really need. Sigh...

My husband used to joke that we should take one of his bimonthly paychecks and sign it directly over to Walmart because at the end of each month, that was the place which acquired the bigger share of it. As much as he HATES shopping there, he finds the same pull to spend for things we don't need.

This week I have to go to Walmart. I'm not going to buy. I'm going to return the shirt with the flaw in the material which I had overlooked prior to putting it in my cart. I'm returning the Starter sweat pants that were shoddily made and were incorrectly marked for size. I'm returning the decorative lotion pump (Made in China) which squirts lotion out from every area except the spout. I'm returning the bag of vacuum belts which are NOT the correct size for my vacuum even though the bag SAYS they will fit my vacuum. I know that I'll be issued a store credit on a card that I can only use at Walmart. They won't actually give me back the money that I spent on these goods. Instead they lock me into shopping in their store to retrieve the lost value I had for purchasing items from them in the first place. And I'll wander the aisles, spend up the value on the card and then will leave frustrated again for not being able to find brands I want or quality offered for the price I am forced to pay.

We ordered a DVD from Netflix about Walmart after seeing a comment your wife made on her Blog. What an eye opener!

We are trying to do better to purchase what we can locally and to give our business to the business owners of our own community, but there are times we just can NOT find what we need and Walmart tugs our thoughts toward the ease we would have to find it in their aisles. Well, IF we happen to want the brand they just happen to sell that week.

Warm Regards,

Kimber