My Turn: Locals competitive with 'big box' stores

Posted: Sunday, July 13, 2003

Several people have recently written the Empire to decry "high prices" in Juneau versus those on the internet or found down below in stores. One lady noted "outrageous prices" and her need to buy elsewhere because most of her earnings end up in the high real estate market.

I agree that no Juneauite should be "ripped off" simply so that local merchants and their employees can earn a living. There probably is, however, a difference between the perception of higher prices and their causes, and the reality of both.

She is correct that real estate here is much higher in Juneau than elsewhere, and she, as all of us, need more pay to offset these costs. Indeed, commercial rent on South Franklin Street typically exceeds that of merchants on Park Avenue in New York! Whether a merchant rents or purchases their place of business, it costs MUCH more to do business here than at a comparable Lower 48 site. Then too, wages and salaries of employees in Juneau are higher, because they too must pay those higher real estate costs referenced by the single mom. Also, since most local merchants themselves live in Juneau, they need a higher "bottom line" to pay for their own houses. Those costs must be absorbed in ALL local pricing in order to stay in business.

I buy things on the internet and down below, not necessarily because there are huge price differences, but because many items simply aren't available locally. Most other items often would end up costing about the same as in Juneau after shipping costs are added, except for sales tax savings. This comparability exists despite substantially less "overhead" costs down below.

Existing local merchants were able to maintain their competitiveness in pricing even after Kmart came to town. Indeed, Kmart was unable to survive the competition with our other two "big box" stores. This was not due to any price-gouging, but simply because Juneau is an expensive place and is well served by the existing merchant mix, including our two remaining "big boxes." Frankly, it would seem that a 30,000 population is insufficient to support three "big-box" stores and the existing retail merchant mix. Otherwise, Kmart would still be here. It would seem if a third "big box" were to arrive in Juneau it would probably need to target at least one of the existing "big boxes" to put out of business.

I realize that Walmart considered the old Kmart site, and I was delighted that they decided not to enter the Juneau market. The Walton (Walmart) family, each of the five being tied as the fourth-richest person in the world (about $20 billion each), achieved their 100-plus billion dollars from Walmart. By buying in huge quantities, reducing overhead through paying employees minimum wages, and what most consider marginal business practices, the fortune keeps growing.

In recent years Walmart has averaged more than 5,000 lawsuits per year coming from consumers, competitors, and employees. The most frequent cases allege illegal labor practices such as requiring unpaid overtime. Walmart is also notorious for predator pricing (selling goods at or below cost until the local competition, including other "big boxes," mall-anchors, and grocery stores are all overwhelmed and finally close). Just like fish - big eats little. I, for one, will not purchase in their stores no matter how attractive the price, and thus help the big fish get fatter still.

Juneau merchants have to have competitive prices to stay in business. I doubt few local merchants enjoy a pre-tax net profit more than about 5 percent to 7 percent. Grocery stores and the like operate with huge gross sales and a net profit of even much lower single digits. I would opine that if every business in town lowered their prices by 5 percent or 10 percent they would all be bankrupt in a year. Then we could invite Walmart for another look, and all those bankrupt merchants and all their employees could work for Juneau's only store (Walmart) at minimum wages. Juneau could then make its contribution towards the $15 billion annual (last five-year average) net profit for the Waltons, and never have to worry any more about greedy Juneau merchants charging "outrageous" prices!

Jack Cadigan of Juneau is a retired Coast Guard captain and local business owner.

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