When the nail sticks out

rants, raves and randomness

The high cost of cheap

Being a Filipino, I was raised on cheap. I live and breathe it everyday. Cheap goods are your friends -numerous, undiscriminating and available when you need them the most. And you can find them almost everywhere too : Dollar Tree in the US, Pound Land in the UK , Valu$ in Singapore and Daiso in Japan. Let’s face it – we all like to see our hard-earned money go a long way, don’t we? Cheaper is always better.

Or is it?

Some days ago, I stumbled into this image on Facebook:

Image

And while you may want to think that the Chinese are the enemies here, someone else also posted this:

What is going on here? I decided to do more research and found a book by Ellen Ruppel Shell, Cheap:The High Cost of Discount Culture.

I’m a cheap ass.

Once a year, we drive 2 hours to the nearest Costco and buy non-perishable goods in bulk. I also can’t refuse the lure of a nearby 100 yen shop – if there happens to be one near me, I have to drop by. On my rare weekend off, I usually visit flea markets and bazaars. Price has become everything for me. And I am not alone.

People are attracted to price – this has become the ultimate “arbiter”. The cheaper, the better. Back home, people flock SM malls and fill their shopping baskets to the brim with cheap goods. But who can blame us? With rent and gas increasing on a regular basis, one has to resort to living cheap to make ends meet. Surely, you cannot expect us to patronize locally(Japan)-made rice cookers that cost ten times more than the Chinese bootlegs! We have so many bills to pay, other more important things to spend on. This is a necessary love affair with cheap, one that has made SM the largest mall chain in the Philippines and Henry Sy among the richest in the world.

But where did cheap start?

Elle Ruppel Shell looks backwards to find the answers. Cheap started with mass production. And during those times, what US needed the most was,not surprisingly, guns.

Making a really fine piece took more than 300 hours of labor and the resulting labor of $40 – about 3 times what the average person of the time made in a month.

Shell, Ellen Ruppel. Cheap. The High Cost of Discount Culture. The Penguin Press. 2009.

President George Washington proposed a bill to create public facilities to make and supply the military with weapons. The successful bidders were Simeon North and Eli Whitney. Simeon North broke down the process of manufacturing guns and distributed the tasks among a group of semi-skilled workers. Instead of having a gunsmith and an apprentice manufacture guns, he “de-skilled” gun manufacturing turning it into a more efficient enterprise and thereby planting the seeds of mass production.

However, changes enforced by North wasn’t adopted until much later.

Real industrialization didn’t happen overnight. It began after the War of 1812 and took about forty years to really take off,” said Merit Roe Smith, historian of MIT.

Shell, Ellen Ruppel. Cheap. The High Cost of Discount Culture. The Penguin Press. 2009.

By the end of the 19th century, mass production accounted for more than 50% of America’s production. This lead to reduced prices and higher efficiency and decline of craftsmanship. When people started to move away from farms towards the cities, they created a new type of demand. John Wanamaker decided to cash in on this growing demand by setting up men’s clothing stores, adopting a policy : “One price and goods returnable.” This store became successful. He opened another store and then another, making a name for himself. Finally, in 1875, he bought an abandoned railroad depot and set up the “Grand Depot for Merchandise”, one of the first department stores. It offered a “spectrum of mass-produced goods” that “nearly every socioeconomic bracket could afford”. Of course, Wanamaker had his critics : he put smaller shops out of business, very much like what SM is doing now to many of our local shops.

But Wanamaker also had a good invention : the price tag, claiming “Equal before God, equal before price.” Wanamaker “leveled” the playing field by making all shoppers of socioeconomic brackets equal before the cash register, at a time when prices depended on one’s haggling abilities, if not “sophistication”.

Wanamaker wasn’t the only one to use low price to seduce his customers. Frank Woolworth opened his own store, the mother of all convenience stores, where people could pick up and inspect the goods by themselves instead of asking the shopkeeper to get the items behind the counter. During those days, Europe was way ahead of the US in manufacturing and consequently, cheaper. In search of cheap goods to sell back home, Woolworth traveled to Europe where he bought low quality items in bulk and shipped them home, selling them  for pocket change. In the process, Woolworth became versed with mass production and taught them to his American suppliers.

Both Woolworth and Wanamaker believed in the same thing: that in selling everyday commodities, “price generally trumps value“. And they were right. This thinking has survived and continues to permeate our society until now.

Through mass production, luxuries are suddenly made affordable : clocks, clothes and almost all items for everyday life . Instead of shelling out more to buy real china, we drop by our nearest 100 yen shop to buy these cheap plastic plates for a dime a dozen. And utensils too- because boy oh boy, now you can afford them all at the same time. Don’t you feel rich,being able to buy more for [a lot] less?  “Browsing experience,” a commenter writes,” is [itself] a part of that good retail therapy.” “Cheap thrills”, “more bang for your buck”, “value for money”, “bounce for the ounce”- these are all what matter now. Gone are the days when  price was only one consideration, out of many: it is now the ONLY consideration.

So what if they’re of low quality? You may think. That’s beside the point!

You are not alone in thinking this way, attested by the rise of large retailers and discounters: Walmart, Tesco,Kmart, Daiso, Cando, SM.

Retailers Logos

Retailers’ Logos

 In the name of Price

We Filipinos aren’t always like this.  There was a time when we thought of “inheritance” or “investment” when we bought something. During my parents’ generation, people  bought and thought ahead – they saved to buy narra (hard wood) furniture with their children in mind. I grew up at a time when people were willing to pay more, not less. Our 14″ Sony TV lasted more than a decade – definitely giving us our money’s worth, if you think in today’s terms. And when things broke down, we had them repaired. Toys were glued back together, shoes were brought to the shoe repair shop, the clothes were mended and passed on to our younger cousins.

Now the culture of “repair” and “mending” is disappearing. If it breaks, just throw it away and get a new one!

We know this is only a lamp, but this wind and this cringing IKEA customers the world over, heirlooms gradually become obsolete. Why settle for dusty hand-me-downs when the stylish and new cost a pittance?

Shell, Ellen Ruppel. Cheap. The High Cost of Discount Culture. The Penguin Press. 2009.

We’ve switched from long term to short, from superior quality to inferior. And for what? So we can buy more. Because more is better.

When price is king, everything else suffers.

Fortunately, my husband is a smart buyer, believing that “you get what you pay for” so you might as well open that purse just a bit wider. He has fewer things- true- but they are mostly  of high quality and have a longer life span.  And when he buys, he splurges.  And if options are available, he’d rather buy local than buy something made in China. I thought he was just being overly patriotic. But he warned me of these  $1 chopsticks popular among tourists, which he believes, without proof, were made with dangerous materials. “You don’t know what kind of paint they use!”  The Made-in-Japan chopsticks cost $7 a pair, but what’s the $6 difference to your health?

Oh what the heck!  I am rethinking my priorities. When I bought a 4,000 Yen (40$) cover for my Nexus, he was bewildered : “It’s not like you to buy something that expensive,” he said.

“Well,” I replied, “I’m sick and tired of buying the cheap ones that break every couple of days.”

“You’re learning!” he said.

Sometimes, I wonder if my cheap addiction is a Filipino thing, a product of third-world upbringing,  the SM Generation. In Italy, I once complained to a Venetian friend about the prices of food, particularly, one meal that cost as much as a ten regular meals. My friend, a true Italian that he was, replied that he’d rather have ONE very good meal than ten shitty ones.

Point taken. How many times did I have to buy these kitchen wall hooks with suction cups before they seem to magically lose the ability to suction? And the 100-yen kitchen timers that stop working once you drop them? In the end, I calculated it costs more money to keep buying cheap goods and replacing them over and over again than paying a bit more and get the branded ones just once. So I invested some money on hooks and bought myself a branded timer. But quality doesn’t always win. I still buy cheap. Cheap is an addiction not easily overcome. Not especially when they come in beautiful colors and fancy designs.

In the world of Cheap, design has become a stand-in for quality.

Shell, Ellen Ruppel. Cheap. The High Cost of Discount Culture. The Penguin Press. 2009.

And despite knowing more about the true nature of cheap, I am still lured and seduced, my purse pried open.

But quality is only one of our concerns. Cheap poses problems, not only to the individuals but the community who patronizes it.

 Because chains did away with the local proprietor, funneled money away from local community and traded skilled employees for stock boys and “order takers”, they were seen as waging a direct assault on the American way of life”. KWKH owner William K “Old Man” Henderson of Shreveport Louisiana, warned listeners of the “ruinous and devastating effect of sending the profits of business out of our local communities to a common center, Wall Street. We have appealed to the fathers and mothers – who entertain the fond hope of their children becoming prosperous business leaders- to awaken to a realization of the dangers of chain stores’ closing this opportunity. We have insisted that the payment of starvation wages such as the chain-store system fosters must be eradicated.”

Shell, Ellen Ruppel. Cheap. The High Cost of Discount Culture. The Penguin Press. 2009.

Simply put, they put small farmers out of business and discourage start-ups…..

The modern, mechanised facility is a far cry from the days of milking by hand. But in other respects Marybelle, a family-run dairy business set in the heart of the Suffolk countryside, has deliberately retained old-fashioned traditions, such as low-intensity care of its award-winning pedigree Jerseys and Holsteins and an enviably short supply chain.

But Strachan, a third-generation farmer, is clearly not a happy man as he struggles to understand Tesco’s decision as the UK’s largest retailer to slash the price of milk from £1.39 to £1 for a four-pint carton in the latest battle to win shoppers. Like many of the UK’s 10,500 dairy farmers he worries that the escalating price war will put the financial squeeze on his own business, at a time when stability is returning after price cuts two years ago.

“I am cross as it makes no sense to me,” he says from the dairy in Rendham. “It is not as though consumers have been complaining about milk being too expensive. It’s a good value product given everything that goes into it, and what Tesco is doing is sending out the wrong message to shoppers – to everyone. They are devaluing milk for, apparently, their own gain.” Smithers, Rebecca. The Guardian. Supermarkets’ milk price war leaves a sour taste for dairy farmers. March 7, 2014. Web. May 21, 2014. < http://www.theguardian.com/business/2014/mar/07/supermarkets-milk-price-war-dairy-farmers-tesco-cuts >

At last, it is said, competition watchdogs have found the “smoking gun” they have spent years hunting for: hard evidence that the big supermarkets use their muscle to bully suppliers and extract unreasonable price cuts.

Finch, Julia. The Guardian. How suppliers get the sharp end of supermarkets’ hard sell. August 25, 2007. Web. May 20, 2014. < http://www.theguardian.com/business/2007/aug/25/supermarkets >

On Wednesday, Labour MP Shane Jones let rip, accusing the Australian-owned supermarket giant Progressive Enterprises of bullying suppliers and demanding they hand over cash if they wanted to keep their products on the shelves of Countdown supermarkets.

Dudding, Adam. Stuff. Business Day. Behind the supermarket bargains. February 16, 2014.Web. May 21, 2014. < http://www.stuff.co.nz/business/industries/9727417/Behind-the-supermarket-bargains >

…while the “common center” grows even bigger and bigger.

A friend back home, whose family engages in supplying chicken, once told me why they stopped supplying to SM. SM requires its suppliers to pay a lot of fees, it’s almost impossible to make any profits : inventory, storage and listing fees, just to name a few. To make matters worse, though SM is centralized, some fees are charged on a per-branch basis. Apparently, this kind of “bullying” is happening elsewhere too. Here are some of the tactics used by supermarket giants to squeeze their suppliers:

Unilateral changes to agreed terms

Written contracts setting out the terms of what has been ordered and what they intend to pay for goods supplied are not usual. The grocers may then unilaterally change pre-agreed terms in their favour at the time of delivery. This makes it difficult for suppliers to plan and invest in innovation and allows grocers to change their orders to a take-it-or-leave it offer.

Slotting allowances and pay-to-stay- fees (also known as “listing fees”)

The grocers may demand a “slotting allowance” – a cash fee – up front to provide shelf space for a new line. They are paid per item, per store. Alternatively they may demand listing fees, to cover the cost of the administration behind introducing new lines.

Supermarkets may also demand a pay-to-stay fee – a cash “rent” on shelf space allotted. They may ask suppliers to submit bids for space on shelves, at the end of aisles or in freezer units.

Category management

Grocers may appoint “category captains” – usually a large, branded goods supplier – to advise on which products are offered to shoppers, how shelves are laid out, goods are priced and which are promoted. The Competition Commission has pointed out that category captains can manage the ranges stocked to their own benefit and can learn about their rivals’ plans, prices and new products from their rivals.

Exclusive dealing arrangements

EDAs restrict the number of retailers a supplier can deal with. It can mean a supplier agrees to sell only to one supermarket and promises not to sell to a rival. They are most often used with own-label products.

Marketing contributions

Supermarkets often demand payments towards advertising certain products and/or to cover the cost of price promotions.

Discounts

Supermarkets ask for discounts to suppliers’ prices as a matter of course, and suppliers expect them to. They are usually related to the volumes that are expected to be sold, called over-riders, or promotional activity planned.

Damage/waste payments

Suppliers may be asked for payments to cover problems ranging from poor stacking of pallets to putting bar code stickers in the wrong place.

Other payments

Supermarkets can ask suppliers for payments towards refitting stores or for stock to fill the shelves of new stores.

Finch, Julia. The Guardian. How suppliers get the sharp end of supermarkets’ hard sell. August 25, 2007. Web. May 20, 2014. < http://www.theguardian.com/business/2007/aug/25/supermarkets >

And let’s not even talk about the “starvation wages” Mr Henderson mentioned.  Wanamaker, almost a century ago, claimed that he was passing on the savings to his customers, creating “opportunities” for a better life. These “savings” came with a hefty price – Wanamaker couldn’t afford to pay good salaries to many of his employees. And Woolworth? He hired only the cheapest labor, saying, “It may look hard to some of you for us to pay such small wages but…one thing is certain : we cannot afford to pay good wages and sell good as we do now and our clerks ought to know it.” [Shell, Ellen Ruppel. Cheap. The High Cost of Discount Culture. The Penguin Press. 2009.]

Wages paid by retail stores

Wages paid by retail stores

Image from Weissmann, Jordan. The Atlantic. Who’s Really to Blame for the Wal-Mart Strikes? The American Consumer. November 22, 2012. Web. May 21, 2014. < http://www.theatlantic.com/business/archive/2012/11/whos-really-to-blame-for-the-wal-mart-strikes-the-american-consumer/265542/ >

Living on Wal-Mart wages

Living on Wal-Mart wages

Image from Wal-Mart: Analyzing Wages and Job Security. < http://goodlabourworks.pbworks.com/ w/page/ 14909527/ Examining%20Wages%20and%20Job%20Security >.  From the same website :

In the case of the Sunset Development, No, Wal-Mart will NOT provide a sufficient wage to workers. The Rental Calculations for the Sunset area provide more indepth information on calculations of rent.

The Following Conclusions can be made:

Before Taxes, A Wal-Mart worker makes $924
Average Rental Costs in the Sunset Area is $673.13
This leaves a worker with = $250.87 for other living expenses

This leaves a Wal-Mart “full-time” employee $62.71 PER WEEK.

And SM back home? No better.

“All of Sy’s businesses employ and exploit contractuals who are made to work hard yet receive meager wages and minimal benefits and have no job security nor union rights to speak of. Contractual salesladies, bank tellers and construction workers – these are the people who contributed immensely to the rise in Sy’s profit,” said Nenita “Nitz” Gonzaga, KMU vice-chairperson for women affairs.

“Sy should be ashamed of raking in a huge profit from his businesses which are all contractualization camps. His businesses’ good performance amidst the global economic crisis should not be celebrated because it rests on the severe exploitation of numerous workers, especially women workers,” she added .

Kilusang Mayo Uno. It’s SM, Siil at Murang paggawa, Women workers blast rise in Henry Sy profits. August 5, 2011. Web. May 21, 2014. < http://www.kilusangmayouno.org/ news/2011/ 08/it%E2%80%99s- sm-siil-murang-paggawa-women-workers-blast- rise-henry-sy-profits  >

What happened to Henry Ford’s legacy, paying workers enough so they could afford to buy the products of their own hard work (that is, a Ford)?

But we all know it doesn’t end there. In the face of price wars and cut-throat competition, suppliers are also being forced to cut costs by all means. How?

By overlooking safety standards and putting workers at risk :

By environmental degradation:

If there is a heaven for shrimp, it is almost certainly looks like Thailand. The country’s 2,700 miles of warm, protected coastline is an ideal habitat for both wild and domesticated species. Shrimp hatch in the ocean, drift toward land with the ties and get tangled in roots and sediment on the shoreline, where, safe from predators, they grow into juveniles and then return to open water to further mature. Thais have farmed shrimp for centuries on a very small scale, taking advantage of the creatures natural life cycle by holding it safe in coastal ponds until harvest. Shrimp was also farmed in alternate seasons from rice in paddies, again on a relatively small scale. None of this changed the landscape or made much of a difference in quality of the shrimp. But it didn’t make for high efficiencies, either. Shrimp was still a luxury.

In the late 1970s, shrimp farmers turbocharged the age-old shrimp farming process by adding to their ponds post-larval shrimp caught in the wild or raised in hatcheries. They supplemented natural feeds with nutrient slurries, chemicals and antibiotics. Efficiencies skyrocketed and the shrimp rush was on.  The World Bank, the Asian Development Bank and other lenders poured hundreds of millions of dollars into shrimp, as did private investors. Racked with debts, the Thai government encouraged this development. By the mid-1980s farmers up and down Thai peninsula had converted their rice paddies-and thousands of square acres of coastline-into teeming shrimp operation, veritable seafood gold mines.  While traditional shrimp farms yielded less than 450 pounds per acre, the new factory-style outfits harvested as much as 89,000 pounds per acre. Production grew and then exploded- from 33,000 metric tons in 1987 to an astonishing 240,000 metric tons in 1995.

But the part didn’t last long. As corporate and government interests took tighter hold, pushing demands higher, ponds started to break down and fail. What followed was ruinous debt, environmental degradation, horrifying human rights abuses and violence that left millions destitute.

To grow them, coastal or other farmland is swamped or flooded with salt water, to create a brackish pond, and surrounded by a slippery blue plastic apron to prevent frisky shrimp from escaping. Some inland farmers truck salt water in from the coast, while others just dump salt into freshwater ponds. under best conditions, these ponds are well tended, adequately monitored, and not too tightly packed. More typically, the ponds are dangerously overcrowded and indifferently managed, plagued by overfeeding, plankton blooms and inadequate water circulation. Shrimp are carnivorous and require feed- usually fish meal- in amounts more than double their adult weight. Often, groundwater aqui fers, domestic water supplies and adjacent rice paddies and farm fields are contaminated with this meal and with massive volumes of waste from the shrimp itself. Waste water pumped from ponds pollutes canals, rivers and other water sources with pesticides, antibiotics and disinfectants. Built-up waste mixed with chemicals scraped from the bottom of the pond is piled into ugly-and toxic-hillocks. As with any creatures in extremely crowded and filthy conditions, farmed shrimp are highly susceptible to infection, and despite massive inputs of antibiotics, many sicken and die. As a result, roughly half a million of the more than million acres of shrimp farms lie abandoned. Meanwhile land is permanently contaminated. Paddies tainted by salt and filth are no good for growing rice or much of anything else. And on the coast, the same mangrove forests that once sheltered nourished shrimps have been systematically eradicated to make way for the farmed shrimp.

Shell, Ellen Ruppel. Cheap. The High Cost of Discount Culture. The Penguin Press. 2009.

IKEA logging old-growth forest for low-price furniture in Russia

IKEA logging old-growth forest for low-price furniture in Russia

A new campaign is targeting IKEA, the world’s biggest furniture retailer, for logging old-growth forests in the Karelia region of Russia. An alliance of groups, headed by the Swedish NGO Protect the Forest, allege that IKEA’s subsidiary, Swedwood, is clearcutting thousands of hectares of old and biodiverse forests. But, Swedwood’s 300,000 hectare concession is certified by the Forest Stewardship Council (FSC), generally considered the world’s strongest forestry certifier. 

“It is very sad that forests that have taken centuries to mature can be lost in a few days. Thanks to IKEA’s promotion of the mass-consumption of cheap timber products, people’s appreciation of the true value of old forests is being undermined, and this threatens the rights of future generations to enjoy the benefits of our forest heritage,” Andrei Laletin with Friends of the Siberian Forests said in a press release. 
Hance, Jeremy. Mongabay. IKEA logging old-growth forest for low-price furniture in Russia. May 30, 2012. Web. May 21, 2014. < http://news.mongabay.com/2012/0530-hance-ikea-fsc-logging.html >

But how do we turn things around?

Ultimately, this all comes back to consumers. We are the ones who choose where to take our business. And for the most part, Americans have chosen cheap.

It’s hard to blame middle class families for making that decision — not a lot of people have the extra cash to make a political statement out of where they buy paper towels and diapers. But it’s led to cycle of impoverishment, where big box stores have brought down wages at smaller competitors desperate to compete, taking money out of the hands of workers, and sending it back up the corporate food chain to shareholders.

The sad part of this is it wouldn’t cost us much to pay big box retail workers something closer to a livable wage. A study from UC-Berkeley’s Center for Labor Research and Education suggested it would cost the average shopper an extra $12.49 a year if Wal-Mart paid its workers a full $12 an hour and passed most of the cost to consumers.

I think most people, shown these numbers, would gladly pay a bit more to know the person helping them find the detergent aisle doesn’t need help from the government to feed their child. The problem, though, is that consumers only pay so much attention, and only have so many choices when it comes to where they shop. Those choices are largely dominated by the big box stores.

Weissmann, Jordan. The Atlantic. Who’s Really to Blame for the Wal-Mart Strikes? The American Consumer. November 22, 2012. Web. May 21, 2014. < http://www.theatlantic.com/business/archive/2012/11/whos-really-to-blame-for-the-wal-mart-strikes-the-american-consumer/265542/ >

Cheap is not sustainable.It’s harmful to individuals, communities and to societies as a whole. By supporting cheap, we support the exploitative business models and tactics that the giant retailers employ. As a consequence, we also support the practices of their suppliers, who, in the name of cost cutting, pay extremely low wages, exploit workers and even endanger them by refusing to comply with basic safety standards. Some of these suppliers go to great lengths to produce higher and higher yields and in the process engage in environmental pollution. By supporting cheap, we are also taking money away from the community and onto the large corporations, giving them ever more power to squeeze their suppliers and make unreasonable demands. The suppliers, in turn, are forced to concentrate on what the retails want to sell, discouraging investments in research & development. And when these retailers and discounters get too big, no one else can compete – not the farmers and not the small entrepreneurs. In this way, cheap discourages innovation. But all is not lost – if we don’t support cheap, we may be able to break from its vicious cycle. After all, what is paying a little bit more for a shop clerk to support his family? For a factory worker to be able to work in building with proper safety standards? Or for some people to remain employed?

Images from the internet

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This entry was posted on May 21, 2014 by in books, Reviews and tagged , , , , , , , , , , .
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