The High Cost Of Low Cost

Each semester I participate in the senior project, the HUM410. I work with students as they write a paper grappling with a paradox. Business students, and athletes, usually focus on failure as it relates to success, or some other simple paradox. However, it seems that more and more of my students are focusing on the high cost associated with the consumer’s desire for low cost products.

I must admit they often miss the connection between personal responsibility and this paradox, but they do recognize the reality of big business’s desire to race to the bottom.  An article in this morning’s paper helped me think about this.

Gordon Oliver writes a column entitled Strictly Business. I enjoy reading it and his thoughts are often similar to mine. Today he pointed out a phenomenon in Clark County that illustrates the diminishing wage structure and buying power currently occurring in my neck of the woods.

Nordstrom and Albertson are large corporations but both are making decisions that will significantly impact what goods and services are supplied to Clark County consumers and at what price. Nordstrom has been in the Vancouver Mall since the Mall’s inception, but is now closing that store, as well as its store at the Lloyd Center. At first glance, its sad, and reflective of the competition between Clark County and tax free purchases in Oregon, but Gordon Oliver takes a different perspective that I think is important.

Oliver states, “ Nordstrom’s apparel, shoes and other merchandise are a price-point or two above the budgets of most middle income households.” This is true, but historically Clark County has supported this Nordstrom well. He then counters with, “Wal-Mart finds it market at the other end of the demographic scale, catering to households with below-average incomes.” No surprise there, but Oliver argues the fact that if Nordstrom is going away and Wal-Mart is opening two new stores in our community then this may give an indication of the reducing buying power of people in Clark County.

Risa Johnson Leverenz commented on that with these closings Clark County has been taken down an economic notch. The fact that Wal-Mart is expanding in our county, and has led to Albertsons closing two stores , and a locally own business, St. John’s IGA store, demonstrates the buying decisions of the county consumer.  The owner of IGA, Koistra, was heart broken, and I don’t blame him.

Who is to blame for this scenario? Is it Wal-Mart, “Wal-Mart and Amazon offer low prices that allow us to stretch our tight budgets. But our gain comes at a price to the community. Even in the low-paying retail sector, Walmart stands out for its low wages . . . As for Amazon, a study by the Institute for local self-reliance using U.S. census data concluded that the company needs just 14 employees to generate $10 million in earned revenue, compared to 47 employees for a brick and mortar retailer.” The fact is both of these stores have analyzed their markets and have responded to the market demand, low cost.

Therefore, who is at fault for lowering wages and high-end stores closing? It really is the Smithian invisible hand, which represents the consumer. We drive the market with our buying habits. If we want local businesses then we need to support them, but if we want low prices, then we just need to keep doing what we are doing, buying books from Amazon and going to Wal-Mart. It is that simple.

And that is my thought for the day!


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