The Battle of the Titans—Wal-Mart vs. Target

It’s almost embarrassing for a man to develop the reputation as a consummate shopper. Men are supposed to hate shopping, an activity that is accepted as being dominated by the female gender. Scientists are still attempting to discover the existence of the elusive shopping gene that is rumored to be embedded somewhere in the female psyche, a finding that will go far to substantiate the theory of evolution. On that basis I should be enrolled in the scientific search as an anomaly, the rare male who apparently has somehow inherited that very same gene that drives women to enjoy shopping more so than, well, you know what. (Well, maybe I wouldn’t go that far). Nevertheless, as an indication of what is really an addiction to shopping, like the true devotee, I enjoy the hunt even more so than the find.

As a result of my obsession, I have been savoring the thought of what, to any real shopper, might be considered an embarrassment of riches. The two giants in the business of “super stores,” Wal-Mart and Target, have each been building a new store located within about a five-minute drive from each other, and only a ten-minute drive to each from Boca Pointe. A direct comparison of the two new establishments is not yet possible since the Target store will not be completed for a few months. However, Wal-Mart opened just two days before this article was submitted for publication, and as a faithful disciple, I donned my new store shopping outfit, my trusty shopping shoes, camera, notebook and pen, and proceeded to investigate whatever magic might exist.

Magic might be a most appropriate word to describe Wal-Mart’s accomplishments over the years. There are perhaps more outspoken critics of Wal-Mart than there are defenders, yet, in the broadest sense, the magic is in the numbers, some of which are astounding. Wal-Mart is the largest private employer in the world and the fourth largest utility or commercial employer, trailing the Peoples’ liberation army of China, the National Health Service of the United Kingdom and the Indian Railway.

In an article in the Washington Post, a year and a half ago by George Will, wrote, “The median household income of Wal-Mart shoppers is under $40,000. Wal-Mart, the most prodigious job creator in the history of the private sector in this galaxy, has about as many [more now] employees [1.9 million as of 2007] as uniformed personnel. A McKinsey company study concluded that Wal-Mart accounted for 13 percent of the nation’s productivity gains in the second half of the 1990’s which probably made Wal-Mart about as important as the Federal Reserve in holding down inflation.”

George Will is a Conservative, and from his perspective points out that “By lowering consumer prices, Wal-Mart costs about 50 retail jobs among competitors for every 100 jobs Wal-Mart creates.” Will continues, “Wal-Mart and its effects save shoppers more than $200 billion a year, dwarfing such government programs as food stamps and the earned income tax credits.” Wal-Mart is the nation’s largest grocery retailer with an estimated 20 percent of the business, as well as the world’s largest toy retailer.

Despite quite controversial labor practices involving its anti-union stance, low wages, and inadequate health coverage, apparently Wal-Mart has few problems attracting new employees. However, its ability to hold onto employees in dismal—70 percent of employees leave within a year. The public seems to overlook these shortcomings, choosing to look out for its own pocketbook, since each week, a staggering 100 million customers, nearly one third of the population of the United States visit Wal-Mart stores, with prices as the primary attraction. For example, in groceries it saves the consumer from 11 percent to 17 percent depending on which numbers you choose to believe.

Wal-Mart Stores division, its largest business subsidiary consists of four retail formats in the United States: Discount Stores, Supercenters, Sam’s Club, and Neighborhood Markets. The latter are similar to the traditional food supermarket averaging about 42,000 square feet, comprising the smallest size stores and the fewest number (about 100).

There are about 590 Sam’s Clubs a chain of warehouse clubs similar to Costco. However, that is where the similarity ends, since Costco is significantly more popular and more successful. (Are you aware that a number of years ago a Sam’s Club opened on Copans road east of Powerline Road next to an existing Wal-Mart? It ultimately closed because it could not compete with Costco.)

The Discount Stores units average 100,000 square feet and are typified by the one that just closed on Palmetto Park Road. The first of these was opened in 1962 by the now legendary Sam Walton, who, if he still lived, would be the richest man in the world. There are close to 1,000 U.S. stores in this category.

The most explosive growth however, has come from the Supercenters, a concept originated as “hyperstores” by the European retail giant Carrefour. These monster stores average abut 197,000 square feet stocking everything a discount Store carries but also includes a full-service supermarket. The first Wal-Mart Supercenter opened in 1988, and now, 20 years later, number about 2,500 in the U.S. That number has increased by one with the opening a month ago of a new Supercenter located in Coconut Creek at the northeast corner of Hillsborough Boulevard and U.S. 441.

With only a one-day window of opportunity to shop and review the new store before the deadline of this article, my visit was rather disappointing. If you mentally divide the store, with about two thirds consisting of a Discount Store and the balance as a supermarket you have, with minor exceptions, a traditional Wal-Mart and an equally traditional supermarket—basically, the same old. The only major difference is the existence of a Nail Salon as well as that of a Subway franchise (that I never even noticed).

Although the exterior landscaping of the store is attractive, from a design, color, and layout standpoint, both the exterior and interior are uninspiring to say the least. The Discount Store section is little different from the 1993 built store it replaced. The Supercenter environment is equally unexciting. Typical of Wal-Mart, the entire store is practically colorless with traditional (cheap looking) fixtures and displays. The focus of the store is the electronics section with a large display of flat screen TV sets. Perhaps, this lackluster design policy helps keep prices low, yet I suspect that the new Target store will take a totally different approach, since that company prides itself in its innovative approach to design.

I must admit that a walk thru of the grocery section did seem to justify the claim that prices were somewhat lower than, say a Publix. In addition, some sections of Wal-Mart (cheeses and some bakery items) provided a broader assortment than Publix. On the other hand, there was a paucity of prepared foods. While Publix has a good assortment (and very good quality) of early fruit like peaches and nectarines, Wal-Mart had only a few boxes of very hard (probably frozen) peaches.

Wal-Mart prides itself as always providing low prices. Don’t count on it. I brought with me a prescription for a generic drug, one that I had called Costco beforehand for price. The Wal-Mart clerk checked and said that they were out of stock, but the price was about $21. I’ll end up filling that prescription at Costco for $8.42.

What I term the Battle of the Titans between Wal-Mart and Target is probably more similar to the battle between Goliath and David since Wal-mart is so much larger. When Target opens in a few months, the battle will commence, and I’ll report on my observations then. However, I strongly suspect that for Boca Pointers, the winner will be Target.

Alternative Energy—Our Only Alternative—Part I

Anyone with a sense of history would have to conclude that the 20 th Century was the century of oil. Without oil the world’s powerful move to industrialization would not have been possible; oil provided the fuel for wars, literally and figuratively; empires were built on oil; oil (at least cheap oil) was the primary commodity that propelled the United States into its position as the economic powerhouse of the world; and global geopolitics were drastically impacted as energy sources became scarce. However, oil has also created a challenge: despite the progress it embodied, it has also triggered that law known as “unintended consequences.”

It is no secret that the world, and especially the United States, has fallen into an “oil addiction” trap—the consequences of that dilemma are proving to be significant, to say the least. The average American uses more than twice the amount of oil than the average European—26 barrels to 12 barrels annually; we have 5 percent of the word’s population and consume 25 percent of the world’s oil. As China and India grow their economies, and a large middle class emerges, within a generation, 80 million (some predict 140 million) more cars will be on the world’s roads, meaning more demand for oil. In addition, the world’s population is expected to increase by over 40 percent, from over 6.5 billion today, to some 9.2 billion by 2050—again, significantly more oil will be required to support that number. According to an official Shell Oil statement, by 2025, “demand for oil will be somewhere between 100-120 million barrels per day [25 percent to 50 percent] more than the just over 85 million barrels at the present time.” While demand for oil will escalate dramatically, oil supplies are dwindling.

None of the above takes into account the very real threat of the impact that “peak oil” will have when it occurs (if it has not already transpired it will eventually). For those that might still question the validity of the Peak Oil concept, consider these statements by Sada al-Husseni, former executive vice-president and head of exploration and production at Saudi Aramco, the Saudi oil company: “We are already three years into level production [of some 85 million barrels of oil per day, just equaling demand.] As long as demand continues to grow, oil prices can only go up. The reason is, in some countries, production is going down [Peak Oil], and we are not discovering any more of those huge oil wells that we used to discover in the Fifties and Sixties.” And you thought we had heard the last of Peak Oil.

As our Saudi “friend” implies above, additional unintended consequences have resulted from the widening gap between the growing demand for oil and the inability to discover adequate replacements. In mid-1960, on a worldwide basis, 48 billion new barrels of oil were discovered, but only 12 billion barrels were consumed that year. That obviously resulted in the prevalence of very cheap oil. Twenty years ago, in 1988, an equal number, 23 billion barrels of oil were both discovered and consumed. In 2005, only 5 to 6 billion barrels were found, yet consumption had risen to 30 billion barrels. Is it any wonder that we are on the cusp of $100 dollar barrel oil?

Now, let’s not go into delusional mode. It should be self evident that Planet Earth has a number of serious problems. We have wars, global warming, a possible worldwide recession (if the U.S. goes, so goes the rest of the world), the probability of impending Peak Oil, water shortages—how much worse can it get? In addition, the phrase “alternative energy,” is defined in a manner completely the reverse of what it should be in an ideal world. I have no wish to denigrate the academic superiority of our valued dictionary sources, but consider the characterization of that term as supplied by MSN Encarta: “a naturally generated energy source: any form of energy obtained from the Sun, wind, waves, or another natural renewable source, in contrast to energy generated from fossil fuels.” I suggest we suspend reality for the moment, reverse the definition, and contemplate the kinder, gentler, safer world we would inhabit if energy generated from fossil fuels was considered to be our planet’s alternative energy source, and naturally generated (alternative) energy sources were so ubiquitous as to be thought of as traditional.

As if the supply/demand equation wasn’t troubling enough, the Law of Unintended Consequences (or is this one Murphy’s Law?) deals another blow. As pointed out recently in an editorial in U.S. New & World Report, “After World War II, the oil world was dominated by the ‘Seven Sisters’ a name given to the oil companies controlling Middle East oil.” Only four of the seven have survived—Chevron, British Petroleum, Exxon Mobil, and Royal Dutch Shell. Instead of dominating the industry as in the past, these four today control only about 10 percent of oil output, and hold just 3 percent of the reserves.

These four remaining “Sisters” are now overwhelmed by what U.S. News terms the “Seven Brothers,” dubbing them the “rule makers,” the international oil companies that are the “rule takers.” The “Brothers” are composed of seven state owned national companies: Saudi Arabia’s Aramco, Russia’s Gazprom, CNPC of China, NIOC of Iran, Venezuela’s PDVSA, Brazil’s Petrobras, and Petronas of Malaysia. The United States has unwittingly allowed itself to become dependent for its very existence on several of these patently unfriendly regimes whose interests are inimical to our own. This obviously exposes us to potentially debilitating oil shocks.

See if you can guess who made the following opening remarks in a televised speech: “Tonight I want to have an unpleasant talk with you about a problem unprecedented in our history. With the exception of preventing war, this is the greatest challenge our county will face during our lifetime. The energy crisis has not yet overwhelmed us, but it will if we don’t act quickly. It is a problem we will not solve in the next few years, and it is likely to get progressively worse through the rest of the century. We must not be selfish or timid if we hope to have a decent world for our children and grandchildren.” The speaker then continued, “Our decision about energy will test the character of the American people and the ability of the President and the Congress to govern. This difficult effort will be the ‘moral equivalent of war’—except that we will be uniting our efforts to build and not destroy.”

This could (and probably should) have been President Bush speaking last night—but it wasn’t. This is part of a speech given on April 18 th, 1977 by Jimmy Carter. While most prescient and all too accurate, it is also an indictment, as is referenced in the speech, “of the ability of the President and the Congress to govern.”

Every president in the intervening 31 years has promised oil independence, yet we are more dependent on foreign oil today than we were when Jimmy Carter was in office. No president, or Congress for that matter, has been forthright enough to proclaim that Americans, as well as American businesses, must not only change their ways, but must also sacrifice old habits if we are to rid ourselves of foreign oil.

But oil is only one part of the energy problem equation. Ironically, the other major contributor to the energy quandary is a cheap, readily available energy source that can be plucked right out of U.S. soil—coal. While oil is the primary energy source for transportation purposes, and many electric power plants use natural gas, electric power needs are fed primarily by coal. Therein lies what has become known as the coal conundrum—another leg of the Law of Unintended Consequences.

About 64 percent of the world’s electric power requirements are fueled by coal—in the U.S. that number is more than 50 percent. The U.S. has more coal reserves than any other single country in the world, and one fourth of all the known coal in the world is located in the U.S. Compared to any other fuel source but one—nuclear—coal is by far the cheapest. Cheap coal equals cheap electricity, yet coal produces more CO2 emissions per kilowatt-hour of electricity than any other fossil fuel.

CO2 is responsible for more than 82 percent of U.S. greenhouse gases, and as the dirtiest fossil fuel, coal releases about 40 percent of the country’s CO2 adding significantly to global warming. Therein lies the conundrum—should the availability of cheap and abundant electricity based on coal trump the dangers of global warming, or is the future environmental health of the planet more important?

A new book by Michael Shnayerson titled Coal Riverprovides a scathing denunciation of a small slice of the problem, the devastation wrought, and the political corruption involved in the coal mining enterprises in West Virginia. The opening paragraph of the New York Times book review sums it up as follows: “Someday there will be a museum dedicated to all the dirty elements dragged out of the earth to keep us warm and spin our generators. See there, son, a grizzled Gen Xer will say over a barrel of oil, that ancient gunk nearly enslaved us to 12 th-century theocrats in the Mideast. And check out those black nuggets — coal, a fossilized time bomb hauled out of the deepest holes in the earth and then belched back into the air as a planet smothering by product. Nearly killed us, the whole lot of it.”

Another detrimental factor resulting from the cheap price of coal is the current competitive relative cost disadvantage of alternative energy sources, despite the potential opportunities they might provide in reducing our reliance on foreign energy supplies and their ability to help reduce undesirable emissions. With the above background in mind, next month’s issue will address the major alternative energy choices, how they work, and their pros and cons.