Wal-Mart success proves it's price that matters most

I’M WRITING this column in West Virginia, USA having just come back from shopping in Wal-Mart, the extraordinarily successful supermarket chain that makes our own look slow and tiny - not to mention expensive! I had to keep blinking at the price labels. With my notion of prices tied to British expectations, Wal-Mart’s just look as though the staff can’t do their sums. Surely there is a mistake here I thought time and again, but of course it was me that was wrong.

Wal-Mart is rather more than a chain of shops. It is a force for change. It has vociferous critics but I think it is a force for good.

The greatest service it delivers is radically discounted quality goods as its procurement policies are so accomplished. It used to buy only from local US suppliers but Wal-Mart is now an international phenomenon buying 10 billion in goods from China alone. Can you believe the firm employs 1.4 million staff and serves 100 million customers every week? And serves at a Rolls-Royce level.

Wal-Mart has two big obvious advantages over its UK cousins - it has lighter planning regulations and it is not hampered by European Union import restrictions.

Wal-Mart’s origins were humble. It was no more than an ordinary store in the depths of remote Bentonville, Arkansas, 40 years ago. Its owner, Sam Walton, turned his hobby - driving bargains - into something that is slowly changing the world. The size of the operation is still an advantage. It can commission reforms in its suppliers to win sensationally good prices. I saw Levi’s jeans for $7 and top brand DVDs for less than $20. My guess is foods are half of what we pay. I bought a great pair of trainers for $9.

Many of its critics say it is drunk on its own power and that it will falter and fail. I never understand what this word "power" means. Wal-Mart has no ability to coerce customers. We flock there partly for the assurance of low prices and high quality but also because shopping has been made fun. No doubt the colossus will run out of steam. It may even go defunct. Only two years ago Kmart, another giant US retailer, went under. William Low disappeared in Scotland ten years ago and Safeway has just been gobbled up by Morrisons. In the marketplace everything is flux.

The decision by Dixons to shut 106 of its under-performing stores in town centres this week illustrates that the customers prefer what the planners are so reluctant to accept, namely large stores with ample parking. Edinburgh is about to receive a jolt when pricing is introduced to enter the city centre. IKEA and Costco are well ahead of the game choosing sites south of the ring road. The entire economic geography of the arc of the Lothians will alter with the pricing of the valuable commodity of road space.

Can we not learn lessons from the United States? Why do we so often try to deter or deflect a future that could be embraced with pleasure?

Some believe Wal-Mart’s dynamism crushes local stores and obliterates local suppliers.

In one sense this is true. Those who cannot compete on price or quality do cease to trade. That is what markets are for. Closer studies of communities with the Wal-Mart footprint find the reality more subtle. Yes, smaller supermarkets abandon the fight but lots of specialist stores open up. The town near my Wal-Mart has seen a grocery shop become an antiques mall and a shoe shop become a French caf to give just two examples. Suppliers often transform their production lines - often with the help of Wal-Mart technicians. Those that perform, then prosper.

In the UK, our retailers are constricted by the whims of councillors who often respond to the present shopkeepers’ lobbying rather than leave it to the market.

It is an agreeable romance that we will all hop on to trams and shop dutifully only in Princes Street. It is a fantasy. For most of us, ease of parking is crucial. Wal-Mart’s slogan is compelling "Always Low Prices, Always". This has created a sort of snobbery. Yes, it is highly attractive to blue collar workers and their families. The haughtier professionals may sneer and prefer, in public at least, to praise the old fashioned department stores but Wal-Mart’s service, range, quality and prices always prevail. You can’t buck the market.

What fascinates me is Wal-Mart’s leap beyond its own frontiers. It is now a major retailer in Mexico and Canada. In so far as it bought Asda in Britain, it is here too. Asda stores are very well run but as yet they give little flavour of the startling bargains of a real Wal-Mart when it hits town. Its larger stores exceed 220,000 square feet. They spend 1 billion a year in buying new sites but British planning culture is still reluctant to co-operate with these phenomenal arrivals.

Wal-Mart has had some failures. It crashed in Germany and is still struggling to be appreciated in other nations. Yet what I find impressive is that the firm’s top leaders are ready to admit failures or omissions and say they are eager to learn. They regard themselves as trying to serve their customers and trying to guess what will please or amuse.

I would like to suggest a few transfer deals. Let Wal-Mart second some of its staff to our slow-witted and expensive public agencies. Perhaps it is too easy a target but Sam Walton’s buying practices would have won a working Scottish Parliament for perhaps 10m compared to the 750m+ it will come in at.

I suspect Wal-Mart could run all of America’s dreadful public schools far better than municipal bodies... and all of Edinburgh’s schools too.

The gigantic supermarket is portrayed as ruthless and inflexible in refusing to recognise trade unions. I applaud their policy. Part of their secret is in avoiding the paralysing nature of bureaucracy. Combating this dead weight is its only hope of survival in the long run. Local managers need the discretion to buy locally and reflect regional preferences. A command economy based in Arkansas will simply die as no oxygen will reach the corporate brain, as we see in everything the Scottish Executive touches.

At the Institute of Economic Affairs, we like to claim some credit for opening up our supermarkets. Almost 40 years ago we persuaded Edward Heath to lift "Retail Price Maintenance". This reform allowed the sector to flourish. Good though our top retailers are, Wal-Mart makes them look amateur in many ways.

Will Wal-Mart become a monster devouring every small store? Will it elbow out all the competition? My guess is yes, at first. But no market is secure. Innovation always trips up expectations. Who imagined the internet would become a shopping force? I wonder if the Fair-Trade teams might not create an unstoppable force with the magic ingredient of ethics?

Sam Walton did not live to see a store opened in Moscow but Russia is now converted to capitalism. Only North Korea and Scotland hold on to a belief in socialist planning and bureaucracy. If you are bored rigid by the nonsense spoken in next month’s run up to the Euro-elections, tease any canvassing team by asking: "Why are food prices in Europe double what they are in America?" They will wriggle. They will squirm. The USA is a common market. The EU is a common bureaucracy.

• John Blundell is director general of the Institute of Economic Affairs.