As consumers, we welcome Walmart's (WMT) low prices.
But here's the thing about these low prices -- they're doing the U.S. more harm than good.
A new research report has found that low prices have actually caused unemployment to rise, and dealt a massive blow to the manufacturing sector.
Look no further than the 7 million manufacturing jobs the U.S. lost from 1980 to 2011, according to a recent research report from Demos. The report acknowledges this happened because of "a variety of complex factors." But Walmart had a bigger hand in this than most of us realize.
Cutting Prices Does Have Its Cost
The problem starts with Walmart's selling point: low prices.
These low prices are possible both because Walmart pays its employees low wages and because the bulk of Walmart's products are sourced from foreign factories, where raw materials and labor are cheaper.
What's more, Walmart can -- and does -- use its massive size to bully American companies whose products it sells to do the same. In fact, Levi's jeans and Master Lock "were pressured to shut their U.S. factories and moved manufacturing abroad to meet Walmart's demand for low prices," Demos said.
What's more, many well-known companies rely on Walmart for more than 20% of their revenue, according to Business Insider's calculations, including:
- Helen of Troy (which manufacturers kitchen tools under the OXO name)
- Jarden (behind the Mr. Coffee brand).
- Hanesbrands (the undergarment company known for Hanes and Wonderbra).
And they're not alone. Because these businesses are so heavily dependent on Walmart, they have no choice but to acquiesce to whatever Walmart asks of them.
So -- like Levi's and Master Lock -- if Walmart tells these companies their products must become even cheaper, they have to cut costs. Doing that requires finding cheaper raw materials (sourcing internationally) or cheaper labor (again, from overseas).
But This Can Only Go So Far
This cost cutting has tangential side effects that cost more jobs than just those folks working at factories.
Four of Walmart's top 10 suppliers in 1994 had filed for bankruptcy protection by 2006, according to Harper's Magazine, meaning disappearing factory jobs as well as the white-collar jobs at their headquarters.
Then consider Walmart's competitors, Target, Kmart, Dollar Tree, etc. To remain competitive with Walmart, they have to do exactly what Walmart does: look for cheap foreign product sources, or squeeze low prices out of their suppliers.
All of which continues to trickle down the economy, sending an increasing number of jobs abroad and allowing Walmart (now the nation's largest employer) to keep their employees' wages low.
So remember this next time you rejoice in finding a low-priced item at your local Walmart: Those "everyday low prices" may have cost you or someone you know their job.
This article was written by Motley Fool analyst Adam J. Wiederman, who owns no shares of the companies mentioned above.