8.15.2009
8.11.2009
A new species of giant carnivorous plant has been discovered
by Matt Walker
A new species of giant carnivorous plant has been discovered in the highlands of the central Philippines.
The pitcher plant is among the largest of all pitchers and is so big that it can catch rats as well as insects in its leafy trap.
During the same expedition, botanists also came across strange pink ferns and blue mushrooms they could not identify.
The botanists have named the pitcher plant after British natural history broadcaster David Attenborough.
They published details of the discovery in the Botanical Journal of the Linnean Society earlier this year.
Word that this new species of pitcher plant existed initially came from two Christian missionaries who in 2000 attempted to scale Mount Victoria, a rarely visited peak in central Palawan in the Philippines.
With little preparation, the missionaries attempted to climb the mountain but became lost for 13 days before being rescued from the slopes.
On their return, they described seeing a large carnivorous pitcher plant.
That pricked the interest of natural history explorer Stewart McPherson of Red Fern Natural History Productions based in Poole, Dorset, UK and independent botanist Alastair Robinson, formerly of the University of Cambridge, UK and Andreas Fleischmann of Ludwig-Maximilians University in Munich, Germany.
All three are pitcher plant experts, having travelled to remote locations in the search for new species.
So in 2007, they set off on a two-month expedition to the Philippines, which included an attempt at scaling Mount Victoria to find this exotic new plant.
Accompanied by three guides, the team hiked through lowland forest, finding large stands of a pitcher plant known to science called Nepenthes philippinensis, as well as strange pink ferns and blue mushrooms which they could not identify.
As they closed in on the summit, the forest thinned until eventually they were walking among scrub and large boulders
"At around 1,600 metres above sea level, we suddenly saw one great pitcher plant, then a second, then many more," McPherson recounts.
"It was immediately apparent that the plant we had found was not a known species."
Pitcher plants are carnivorous. Carnivorous plants come in many forms, and are known to have independently evolved at least six separate times. While some have sticky surfaces that act like flypaper, others like the Venus fly trap are snap traps, closing their leaves around their prey.
Pitchers create tube-like leaf structures into which insects and other small animals tumble and become trapped.
The team has placed type specimens of the new species in the herbarium of the Palawan State University, and have named the plant Nepenthes attenboroughii after broadcaster and natural historian David Attenborough.
"The plant is among the largest of all carnivorous plant species and produces spectacular traps as large as other species which catch not only insects, but also rodents as large as rats," says McPherson.
The pitcher plant does not appear to grow in large numbers, but McPherson hopes the remote, inaccessible mountain-top location, which has only been climbed a handful of times, will help prevent poachers from reaching it.
During the expedition, the team also encountered another pitcher, Nepenthes deaniana, which had not been seen in the wild for 100 years. The only known existing specimens of the species were lost in a herbarium fire in 1945.
On the way down the mountain, the team also came across a striking new species of sundew, a type of sticky trap plant, which they are in the process of formally describing.
Thought to be a member of the genus Drosera, the sundew produces striking large, semi-erect leaves which form a globe of blood red foliage.
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8.10.2009
The Mythbusters' Guide to Gonzo Engineering
For Mythbusters Jamie Hyneman and Adam Savage, DIY isn't just for their Discovery Channel TV show—it's a way of life. Jamie and Adam guest edited the September issue of Popular Mechanics, and gave PM exclusive tours of their workshops. In this feature, the Mythbusters show us around, explaining the history of the show and demonstrating how they develop—and test—their favorite ideas.
By Jamie Hyneman and Adam Savage
On a dead-end street in an industrial corner of east San Francisco stands an unremarkable two-story building. A modest sign identifies the premises as the headquarters of M5 Industries, a special-effects company started in 1994 by Jamie Hyneman—today best known as the star of the Discovery Channel show MythBusters—and where his co-star Adam Savage was once also employed. Another, smaller sign politely urges sightseers to go away. There are no tours, autograph signings or opportunities to purchase souvenirs inside.
Except for spooky robots guarding the stairs, M5’s second-floor offices could be those of any small company, with cluttered desks, a computer room and a small kitchen. Whiteboards are everywhere, crammed with top-of-the-brain doodles, rough technical drawings and the complex logistics of planning the MythBusters shooting schedule. In recent years, special-effects work has taken a back seat to the relentless demands of the show, and M5 today functions primarily as home base for the MythBusters production team. (The show’s secondary segments, involving the team of Kari Byron, Grant Imahara and Tory Belleci, are produced at a different location.)
On this Monday morning, the crew is deep into an episode testing the question of whether golf-ball-like dimples on a car body could reduce aerodynamic drag and improve fuel economy. Compared to crashing two semi trucks head-on (episode 41) or trying to tip over a remote-control city bus (episode 115), today’s challenge might seem straightforward. But Jamie and Adam still have to clear some daunting engineering hurdles—while sticking to the show’s breakneck production schedule.
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MythBusters attracts nearly 2 million viewers per episode, making the six-year-old series one of the most enduring hits on cable television. Its two stars have become global celebrities, much in demand for speaking engagements and conferences. So visitors to the workshop may wonder: Where is the entourage? Where is the army of shop workers to do the grunt work? A handful of production coordinators handle the office telephones, but the usual Hollywood scrum of personal assistants, publicists, cappuccino wranglers and the like is nowhere in evidence.
Jamie, it turns out, is already at work in the machine shop downstairs. I find him at a worktable, using calipers to measure the diameter of a bowling ball. He switches to a golf ball, taking measurements that he transfers to a pad, muttering numbers to himself. He and Adam intend to experiment on a real car, but like all good eggheads, they also want laboratory data. They’ve booked time at a nearby NASA wind tunnel, where their first test will try to establish just how much those dimples really do reduce aerodynamic drag on a golf ball.
Unfortunately, they’ve learned that an actual golf ball is too small to produce accurate data. Solution: Jamie has decided to drill dimples into the surface of a bowling ball to create a giant, scaled-up model of a golf ball, one big enough to test in a wind tunnel. Which leads him to the question he is now pondering: Just how deep are those dimples in a golf ball, anyway?
First, Jamie tries to set ball bearings into the golf-ball depressions. When none fit, he switches to washers and discovers that an 8-32 washer is a perfect match. He scales the tiny washer to a larger one and clamps it to the 5/8-inch spade bit that he’ll use to drill the dimples in the bowling ball. After tracing the new curve onto the bit, he grinds away extra material—a custom tool in 10 minutes.
He hauls out an old bowling ball that the MythBusters shot out of a homemade cannon (episode 118). They sanded the ball to fit in the cannon, so it’s not smooth enough to repurpose—a favorite MythBuster strategy—but it’ll do as a test piece. Using a sheet of thin plastic, Jamie makes a template to mark where the dimples should go and tries a few test depressions. Satisfied with the technique, he yells upstairs to see if his lone intern is back with a fresh ball. Nope. Jamie grimaces. He has 51/2 hours to finish the build.
Meanwhile, Adam breezes into the wood shop and sets a plastic remote-control model car down on a workbench; trailing behind is Huxley, Adam’s medium-size mutt. Since the NASA wind tunnel is too small to accommodate a full-size car, Adam is going to use the toy to make a mold for two model cars—one with dimples, one without. He moves to a table saw and cuts a piece of Trupan, a lightweight fiberboard that he’ll use to fill some of the mold’s casting volume. Huxley doesn’t bark or bolt at the sound of the saw—a real MythBuster dog. In less time than it takes to read this sentence, Adam test-fits the workpiece in the model and adjusts the saw fence three times. He cuts the rest of the pieces so quickly that it seems remarkable he has all his fingers.
On TV, Jamie, 52, comes across as the cerebral engineer, while Adam, 42, plays the role of the manic artist. In person, that distinction is even more pronounced. Adam races into every task, often working by eye and tweaking the design as he goes. And no build is considered finished until he has added some trademark visual flourish. His internal throttle is always on full. “There’s nobody faster than Adam,” says Alice Dallow, the director of the show’s Jamie and Adam segments. “He figures it out on the fly.”
The south half of the ground floor of m5 is a wide-open space filled with obscure fasteners, actuators, batteries, welders, stacks of plywood—all the tools you can imagine, even an automated CNC milling machine. It’s a serious bit of kit, a dream shop for any backyard tinkerer.
The space is meticulously laid out and organized. Everything is labeled. Most tools rest on open shelves for quick retrieval. It’s neat, almost surgically antiseptic. Jamie talks about the place as though it’s a church, which probably resonates with anyone who has a favorite shop. “It’s a living, breathing organism,” he says. “Its character has been formed by the experiences inside.”
The south wall is dramatically defined by metal shelves that rise to the 20-foot ceiling. On those shelves are 600 labeled crates—Foliage, Suits and Booties, Tank Parts. One container, way up high, is labeled Blendo. Tucked inside is the killer robot that started it all.
When Adam worked for M5, he and Jamie collaborated on the mischievously named Blendo and entered it twice in an annual San Francisco event called Robot Wars. The now-defunct competition featured robots dueling to the death, the nerd version of a steel-cage match. Blendo’s outer skin is an inverted wok; two opposing blades jut menacingly from the base. The bot spins as it moves; in the ring, it shredded opposing machines, flinging shrapnel into the crowd. Both years, after Blendo won its first two matches, organizers awarded it the heavyweight prize—and then prohibited it from completing the competition because of concerns about safety. But in 2002 when Discovery Channel producers were casting a new show called MythBusters, somebody remembered Blendo. Jamie got a call. “I figured the odds of the show turning into anything were lower than the odds of getting hit by lightning,” he says. “So, excited? Well, no, not really. I rarely get excited.”
In retrospect, Jamie’s first choice for a co-host—Adam—seems surprising. After all, Adam had lasted only a few years at M5. As much as Adam’s speed was a huge asset in the notoriously fast-paced special-effects industry, the two men sometimes butted heads over the mess the Adam whirlwind leaves behind.
While they’re not best friends—“We don’t hang out,” Jamie says—they have learned to appreciate each other. “There’s nobody that either of us would rather work with,” he continues, “because we know we’re both capable in our own style.” Adam adds: “We can drive each other nuts, but there’s a commonality between us that makes collaborating such a pleasure. We both work very hard to get a concept into our heads, and then we work very hard to trade back and forth what we’re thinking through a process called arguing.”
“That back and forth is comparable to a couple of dogs that have gotten hold of a towel and then start yanking on it,” Jamie says. “The process shakes out a lot of things we would otherwise miss, and by the time we’re done arguing and batting things back and forth, we’ve got the solution.”
Jamie is extremely methodical, a classic engineer type, taking in information, turning it over in his mind and then outputting a response. “He thinks everything through before he starts,” Dallow says. “And his build will be as simple as you can possibly imagine. He’s not interested in fancy color schemes.”
Jamie is the Spock of the team; logic trumps all with him. He shows little emotion—unlike Adam, who sometimes wears a T-shirt that reads, “I’m the excitable one.” It’s not that Jamie lacks passion; he’s just deadpan about it. A discussion about a favorite project—say, the life-size robots parked under the stairs—can turn into an entertaining and instructive lecture. He built the wheeled bots, which look straight out of a 1950s sci-fi movie, in just three weeks for a GE commercial. Their signature feature is what Jamie calls a superjoint, which simulates an elbow joint. (He’s applied for a patent on the design.) With two cordless electric-drill motors (“one of my favorite powerplants”) mounted in line with the upper arm and hooked to the side gears of a differential gearbox, he designed an arm that functions like the real thing. Spin both motors in the same direction to raise the forearm; reverse one motor to rotate the hand. “It’s twice the power for any movement without adding any weight,” he says.
Jamie finds inspiration at swap meets and hardware stores, keeping a “rolling inventory” of material that may prove useful. To solve particularly tough problems, however, he goes into Jamie-land—a metaphorical room of a certain size and shape. “I get on a treadmill and start walking,” he says. “It’s like hitting a switch. Once I’m in that room, I re-create the parts I’m working on. I pull in one part after another and move them around, trying things. An hour later, it’s like I don’t know what happened. I just wake up, soaking wet from the exertion. The problem was solved but I was totally unaware of time passing.”
He grew up in Indiana, studied Russian linguistics at Indiana University (“it was interesting at the time”), owned a Caribbean dive shop and worked as a boat captain. Although landing in the special-effects industry might seem like the hand of fate, it was planned. “I went to the library and researched different industries,” he says. “The effects industry seemed to be the perfect place for my natural mechanical aptitude and the skills I’d picked up along the way. Plus, it was possible to earn a living doing something fun. Everyone should do what they find fun, because if you do, your passion leads to success.”
Adam’s home workshop reflects the inspiration he finds in “a certain amount of visual cacophony.” With limited space at his urban address, he jams an alarming number of tools and old props into a 10 x 12 room off an underground, single-car garage. In the suburbs the space would be a good-size walk-in closet.
At first glance the workshop looks like the lair of a classic pack rat, but closer inspection reveals an order to the madness. Below a workbench are 22 Sortimo organizers filled with “all the fasteners I’ll need forever.” Shelves cover every wall and even the lone window. Spools of wire hang behind the door. “I hate looking for things,” he says. “A good shop has to have first-order retrievability, so I don’t have to move anything to get to what I need.”
The shelves hold an eclectic mix of artifacts, like a vintage stopwatch and a medieval armored glove, as well as some unfinished projects. In his limited spare time, Adam painstakingly re-creates movie props. He built a working R2-D2 and a copy of the Maltese Falcon. He’s currently reproducing the Zorg ZF-1 egg gun from the movie The Fifth Element and is relishing the art of gunsmithing. (“I’m almost done with it,” he says. “I’ve been working on it for, like, 12 years.”) His off-hours work seems to favor his artistic side, like the King Kong statue he’s painting, but he thinks it’s wrong to separate art from engineering. “Someone who designs a really good carburetor is going through the same process as a painter,” he says.
Growing up outside New York City, Adam had free rein with his father’s hardware-store charge account. He worked alongside machinists and welders, picking up skills on the job. He studied drama at New York University, worked with robotic sculptor Chico MacMurtrie and finally landed in San Francisco’s special-effects community. His reputation for quick problem-solving and construction—“I like screwing it up twice and still doing it better than the guy who did it once”—led to the gig building props for Jamie at M5. After M5, Adam worked at a toy company and then joined Industrial Light & Magic, the special-effects outfit founded by George Lucas. Then came Jamie’s call to join MythBusters.
Back at the worktable, with a cameraman filming over his shoulder, Adam coats the inside of the mold with wax and then with a layer of mold-release spray. The delicate model-car mold is the only one available; if Adam damages it, the shoot is over. So he very carefully ensures that every corner is covered. The two-part polyurethane resin generates heat as it reacts, which could distort the mold. He has to make two models with it, so he pours in a small amount of the resin to form an insulating layer. After a few minutes, he puts on a breathing filter and mixes the resin with glass microballoons, a filler material. He pours in the mixture, sets in the Trupan blocks and puts the mold aside. Cut!
As fun as it is to watch Jamie and Adam produce mechanical oddities, it’s interesting to see how the MythBuster team has reinforced the value of science, engineering and the art of building things. In recent years science and math education in American schools has suffered as shifting priorities have reduced opportunities for students to perform hands-on experimentation.
By investigating urban legends and half-baked engineering “truths”—proving some, debunking others—Jamie and Adam have played an important role in changing attitudes about science. The show’s genius is that beneath the kinetics and risky stunts—spectacular car crashes, explosions and other dangerous merriment—is a cleverly veiled science show that instructs as it entertains, which any teacher will tell you is a real feat. “I like to think,” Jamie says, “that there’s a whole do-it-yourself sort of mentality that is growing.”
If the decades ahead produce another Thomas Edison or Steve Jobs, odds are that he or she will have grown up watching MythBusters. The workshop’s office is covered with drawings made and sent by children. “We’ve shown that it’s a lot easier to get hands-on experience than people think,” Jamie says. “You can memorize how to do something, but unless you internalize the information, it’s just a pile of data sitting on a table. Hands-on experience is what allows you to make it part of your brain; it brings that data to life.”
It’s 3:30 pm—just 2 hours from the deadline for wrapping up the day’s shoot. Adam’s mutt Huxley naps, while his equally relaxed owner adjusts the chuck of a lathe in the machine shop. His next task—drilling dimples into one of the cast car models. He’s making a sleeve that he hopes will fit over a drill bit and quickly produce the right dimples. “I very much enjoy cutting a couple of thousandths off a piece.”
The intern has delivered a new bowling ball, so now Jamie is back at the drill press, dimpling the 10-pounder. It takes almost an hour of drilling the holes to just the right depth and repositioning the ball, a sequence Jamie performs 321 times without stopping. While it sounds like assembly-line drudgery, Jamie doesn’t mind. “I enjoy the opportunity to turn off my mind,” he says. In fact, I hear him humming. Could it be “Zip-A-Dee-Doo-Dah”?
Meanwhile, Adam finishes the drill-bit sleeve and sets to work on the 24-inch-long car casting. He drills a couple of dimples, but the results are not quite right. He tries a few without the sleeve and learns that he can get the desired result without the piece he’s spent half an hour crafting. “Sometimes you go down a path, and it’s not the right one,” he says. “So you have to start all over again. It’s like throwing money into a bad poker hand. You have to know when to stop.” Adam’s demeanor wouldn’t suggest he has the patience for this repetitive work, yet he plows right through it. “It’s like cleaning up a room,” he says. “You pick up one thing at a time.” In 45 minutes, he drills 732 dimples.
Now it’s 4:30. The only thing left to do is the painting. Jamie sets his ball under the painting booth and goes to work with a spray can, moving slowly, precisely. Adam takes his turn, moving his spraying arm quickly back and forth past one of the model cars. “The trick is to spray past the object you’re painting,” he says. “See? It’s easy.” His hand is a blur.
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Lament for a Dying Field: Photojournalism
By DAVID JOLLY
PARIS — When photojournalists and their admirers gather in southern France at the end of August for Visa pour l’Image, the annual celebration of their craft, many practitioners may well be wondering how much longer they can scrape by.
Newspapers and magazines are cutting back sharply on picture budgets or going out of business altogether, and television stations have cut back on news coverage in favor of less-costly fare. Pictures and video snapped by amateurs on cellphones are posted to Web sites minutes after events have occurred. Photographers trying to make a living from shooting the news call it a crisis.
In the latest sign of distress, the company that owns the photo agency Gamma sought protection from creditors on July 28 after a loss of €3 million, or $4.2 million, in the first half of the year as sales fell by nearly a third.
Gamma was founded in 1966 by the photographers Raymond Depardon and Gilles Caron. With Sygma, Sipa and, earlier, Magnum, it was one of the independent agencies that helped make Paris a world capital for photojournalism, attracting some of the best photographers the field has produced.
A Paris commercial court gave Gamma’s owner, Eyedea Presse, six months to reorganize itself. The company employs 56 people in its Paris headquarters, 14 of them photographers.
Olivia Riant, a spokeswoman for Eyedea, said there would “inevitably” be job cuts to make the agency viable.
“The business model is not working today,” she said. “So without some changes, it won’t work tomorrow.”
“The problem is that news photography is finished,” Ms. Riant said. “Gamma wants to go back to magazines and newsmagazines. We will stop covering daily news events to more deeply cover issues.”
Gamma’s history shows how the market has changed. The agency was acquired in 1999 by Hachette Filipacchi Médias, a unit of Lagardère S.C.A., which bundled it with others to provide photos for its magazine empire. But the business did not prosper, and it was sold in 2007 to Green Recovery, an investment fund that buys and overhauls distressed companies.
Gamma’s rivals have fared little better: Sygma was acquired by Corbis in 1999, and Sipa by Sud Communication in 2001.
Photojournalism, often said to have begun with the American Civil War photographer Mathew Brady, experienced a golden age lasting from before World War II through the 1970s. Magazines like Time, Life and Paris Match — and virtually all of the world’s major newspapers — had the budgets to put legions of shooters on the ground in competition for the best pictures.
Today, from the point of view of the news image buyer in a magazine or newspaper, it comes down to a calculation for the photo editor: At a time of shrinking advertising revenue and layoffs, can I afford to send a photographer at a cost of $250 a day or more plus expenses? If not, I may be able to illustrate the story adequately with a “live” photo from one of the newswires or with an archival photo, both options available for a fixed monthly subscription.
“This is not a new trend; it’s the continuation of an old one,” said John G. Morris, a former photo editor whose résumé includes years at The New York Times (which publishes the International Herald Tribune), Life magazine and The Washington Post. “I’m 92 years old, and I’ve survived a lot of crises in photojournalism,” he said. “I find the present situation depressing, but I’m crazy enough to be hopeful. There have never been more images out there, and we need more help in sorting out all the information.”
Eyedea Presse said its problems were compounded by a provision of French labor law that requires agencies take on photographers full-time after using a certain amount of their work, a serious competitive disadvantage when the competition overseas employs a much greater percentage of freelancers.
“We held out as long as we could, but this business model just isn’t viable anymore,” Stéphane Ledoux, the Eyedea chief executive, said after the court hearing. “They’ve killed French photojournalism by requiring the agencies to make salaried employees of the freelancers.”
French photographers acknowledge the problem, but they say agency managers exaggerate it to justify job cuts.
The major newswires — The Associated Press, Agence France-Presse and Reuters, along with regional powerhouses like Kyodo in Japan and Xinhua in China — dominate news photography. But the business of marketing and selling digitized pictures is led by two global companies: Getty Images, founded in 1995, and Corbis, founded in 1989 by the Microsoft chairman Bill Gates. The stock photo companies rose to prominence by buying up hundreds of image archives and making them available for sale online. While they do continue to sponsor photojournalism — Getty Images employs 130 photographers around the world — the companies are, in effect, services for managing digital property rights.
If Eyedea Presse were to be liquidated, its archives of nearly 33 million images, including those from Gamma, Rapho and Keystone, would be a valuable addition to any of the major players.
At Getty, 70 percent of revenue is generated by the sale of stock images, its chief executive, Jonathan Klein, said by telephone. With the addition of resources it calls on through a partnership with Agence France-Presse, Mr. Klein said the agency was gaining market share at the expense of the newswires.
“Photojournalism means the photographers can tell the story themselves in pictures, and there were places where they could publish those photos,” Mr. Klein said. “In the print world, many, if not most, of those places have since disappeared.”
Still, he said, there are reasons to be optimistic, because “thanks to the Web, there are now billions of pages for photographers to show their work,” he added. “That’s led to more photos being used, but at a lower price point.”
Jean-François Leroy, organizer of the Visa pour l’Image photojournalism festival, which runs in Perpignan for two weeks beginning Aug. 29, pointed to a declining emphasis in the media on serious subjects — what he called the “disease of the press” — as another problem.
“Photographers are producing plenty of great stuff, but now the media seem interested only in celebrities,” he said. When Michael Jackson died, it wasn’t part of the news, it was the news. How many photographs of his funeral did we really need?”
Mr. Leroy said he would advise budding photojournalists to think very carefully about their commitment to the calling. Twenty years ago, a photojournalist made enough money to live on, he said. “I’m not pretending you would get rich, but you were able to live decently,” he said. “That is not the case now.”
Lorenzo Virgili, a veteran photographer in Paris, said the average salary of a freelance photographer was about €1,700 a month, and that unpaid postproduction work on the computer was taking up ever more time.
Some photographers have taken to working for nongovernmental organizations, large institutions or companies to continue doing what they love, Mr. Virgili said. But that arrangement is ultimately unsatisfactory, he said, because “as a journalist you have a professional ethic, and by working for them you risk compromising your neutrality, you lose your independence.”
Ten years ago, Dirck Halstead, who spent 29 years as a White House photographer for Time magazine, wrote in Digital Journalist: “When I speak of photojournalism as being dead, I am talking only about the concept of capturing a single image on a nitrate film plane, for publication in mass media.” Visual storytelling has itself been around since the Stone Age, he noted, and “will only be enhanced” by the changes now taking place.
Revisiting that column last month, Mr. Halstead wrote that, if anything, conditions today were worse than he had predicted. To be a photojournalist today, he wrote, “You have to be crazy.”
“Those people who will do anything to come back with a story will be out there shooting for a long time,” he concluded.
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Cashing In On Tattoo Regret
By Nathan Olivarez-Giles
After a decade, adult-film star Alexis Amore is looking to remove the Playboy bunny tattoo below her belly button. She also wants to get rid of a crown and the letter "a" on her wrists.
"I got them when I was really young," said the petite 30-year-old. "I'm a little bit older and a little bit wiser now. And it's not very classy to have tattoos on your wrists and stomach."
Amore, who goes by her stage name, is in the months-long process of getting rid of her ink at the Dr. Tattoff tattoo removal clinic in Beverly Hills.
The actress is just one of the dozens of people who walk through Dr. Tattoff's doors each day.
As more and more people offer up their arms, chests and ankles for tattoos of all kinds, the market for getting rid of them is growing. And Dr. Tattoff Inc. is hoping to cash in on those regrets.
The company, which also has tattoo-removal clinics in Encino and Irvine, uses lasers to burn away the ink. Its three locations get about 25 customers a day each, said John Keefe, Dr. Tattoff's chief executive. By year-end the firm hopes to have an additional five locations outside California, and it wants to start issuing publicly traded stock next year.
"Tattoos are becoming more common in the workplace and in society," Keefe said. "My suspicion is that along with that, the tattoo regret factor will only grow as people get older."
Keefe declined to release the firm's revenue total but did say Tattoff is a multimillion-dollar business. He estimated that tattoo removal could become a $10-billion-a-year industry. And this is catching the eye of investors and firms that would like to help Dr. Tattoff expand.
Tattoos are big business, and it costs more to remove a tattoo than to get one.
Most tattoos run about $100, depending on the size of the piece, the colors used and the skill of the tattooer. It usually costs about $750 to $1,500 to remove one, Keefe said, because it requires five to 10 treatments at about $150 a pop.
But whereas a dozen or so tattoo parlors can be found in most big cities, tattoo removal clinics are much harder to find -- which means huge potential for Dr. Tattoff, said Steve Kann, managing director at Bridgewater Capital Corp., an Irvine investment bank.
Kann does no business with Dr. Tattoff but has taken a look at its business plan. "The numbers they're generating on their three locations are really impressive numbers, top line and bottom line," he said. "I think you could have one or two or three locations in every major metropolitan area in the country and you're going to do substantial business with every location."
But before going public, Dr. Tattoff has some work to do, he said.
"They should get bigger, they should get more locations and they should do more revenue," Kann said. "Laser tattoo removal has been out there and available for a while, but nobody has really gone out there and branded it with any sort of franchises or chain."
As the market for stock issued by companies new to public trading has dwindled during the recession, Dr. Tattoff's business hasn't, which is a surprise for both Kann and the company's principal owner and dermatologist, Dr. Will Kirby.
"You would think people wouldn't use their discretionary income to spend on tattoo removal, but our volume and revenue are at an all-time high right now," Kirby said.
A Harris online poll of 2,302 U.S. residents last year showed 14% of the respondents -- mostly people between 21 and 39 -- have tattoos, and 1 in 5 of those living in the West had one.
Among those with tattoos, 84% had no regrets. Among the remorseful, the main reasons cited were because they were too young when they got the tattoo, because it is permanent and they are marked for life, because they don't like it and because tattoos fade over time.
Kirby figures that opening five more Dr. Tattoff clinics by year's end, an admittedly ambitious plan, would help lay the footing for a successful stock offering next year that could provide more cash for growth.
The company was supposed to issue an initial public stock offering last fall but held back on the move as the recession hit. "I'm hoping the economy recovers quickly," Kirby said. "We just need the market for IPOs to come around."
Dr. Tattoff isn't the only company waiting for the right time to issue publicly traded stock. As many as a dozen California firms are watching for the right time to go public -- which may be coming soon, said Jackie Kelley, an IPO analyst for consulting firm Ernst and Young.
So far this year, 15 IPOs have been issued, seven in June, Kelley said. Only two of the 15 companies to have gone public this year are trading below their first-day stock price, she said.
"The investors seem to be there if the deals are right," Kelley said. "Investors looking to invest today aren't going to take the same level of risk they were a couple years ago."
When Dr. Tattoff issues its first public stock, the 5-year-old company will make sure the deal is enticing to investors, Keefe said. Although there are many tattoo removal clinics, most run independently or as a part of an overall health services clinic with other priorities, he said.
The clinic uses laser equipment, operated by Kirby or a registered nurse he's trained, to remove tattoos.
Each color of ink requires a different laser frequency to match the tattoo's color and essentially burn it off the skin.
Some colors are tougher to zap out than others, and the deeper the ink is in the skin, the more treatments it will take to remove. Black ink is the easiest to erase, and yellow is the toughest, Kirby said.
For Amore, who is getting three separate tattoos removed, treatments cost $400 each. So far, she has had three sittings, and by the time the process is all over, she could have had as many as 10, which would end up costing $4,000.
About half of the customers are college educated and about 50% make more than $50,000 a year, Kirby said. And about two-thirds of Dr. Tattoff's customers are women between 25 and 35, he said.
"When I first started doing this I thought it was going to be a lot of bikers and gang members," Kirby said. "A lot of things go out of fashion over time. Tribal arm bands used to be cool, whereas now they're just cheesy. We also see a lot of Tasmanian devils and a lot of Tweety Birds and things like that."
Link
Tough times in the adult industry
The business, centered in the San Fernando Valley, is being undercut by a growing abundance of free content on the Internet.
By Ben Fritz
On a recent Saturday night, Savannah Stern earned $300 to hang out for seven hours at a party in Santa Monica wearing nothing but a feather boa.
The veteran of more than 350 hard-core pornography productions took the job to earn extra cash and to network. But the word at the 35th anniversary party for Hustler magazine was not heartening, especially among the roughly 75 other women working there.
"At least five girls I haven't seen in a while came up to me and said, 'Savannah, are you working?' " said Stern, who started in the industry four years ago and, like most adult performers, uses a stage name. "I had to say, 'No, not really,' and they all said, 'Yeah, I'm not either.' "
The adult entertainment business, centered in the San Fernando Valley, has weathered several recessions since it took off with the advent of home video in the 1980s. But this time the industry is not dealing with just a weakened economy. A growing abundance of free content on the Internet is undercutting consumers' willingness to pay for porn, and with it the ability of many workers to earn a living in the business.
For Stern, 23, the rapid decline of job opportunities in the porn business over the last year has been dramatic. She has gone from working four or five days a week to one and now has employers pressuring her to do male-female sex scenes for $700, a 30% discount from the $1,000 fee that used to be the industry standard.
Less than two years ago, Stern earned close to $150,000 annually, sometimes turned down work and drove a Mercedes-Benz CLK 350. Now she's aggressively reaching out for jobs and making closer to $50,000 a year.
As for that Mercedes? She's replacing it with a used Chevy Trailblazer -- from her parents.
"The opportunities in this industry really are disappearing," Stern said. "It's extremely stressful."
Industry insiders estimate that since 2007, revenue for most adult production and distribution companies has declined 30% to 50% and the number of new films made has fallen sharply.
"We've gone through recessions before, but we've never been hit from every side like this," said Mark Spiegler, head of the Spiegler Girls talent agency, who has worked in porn since 1995.
"It's the free stuff that's killing us, and that's not going away," said Dion Jurasso, owner of porn production company Combat Zone, which has seen its business fall about 50% in the last three years.
Porn is hardly the only segment of the media industry struggling with these issues. But its problems appear to be more severe. Whereas online piracy has forced big changes in the music industry and is starting to affect movies and television, it has upended adult entertainment.
At least five of the 100 top websites in the U.S. are portals for free pornography, referred to in the industry as "tube sites," according to Internet traffic ranking service Alexa .com. Some of their content is amateur work uploaded by users and some is acquired from cheap back catalogs, but much of it is pirated.
Sites like Pornhub, YouPorn and RedTube attract more users than TMZ and the Huffington Post. The porn sites are even bigger than Pirate Bay, the top portal for illegal downloads of movies, TV shows and music.
Frustratingly for porn producers and distributors in the Valley, none of these sites appears to be making much money. Suzann Knudsen, a marketing director for PornoTube, said the site's parent, Adult Entertainment Broadcast Network, uses it to attract customers for paid video on demand.
"PornoTube isn't a piggy bank," she said. "Its true value is in traffic."
The adult entertainment business, which was previously in the vanguard of home video, satellite and cable television and digital distribution, now finds itself leading the rest of the entertainment industry in losses from them.
"The death of the DVD business has been more accelerated in the adult business than mainstream," said Bill Asher, co-chairman of adult industry giant Vivid Entertainment, who estimates that his company's revenue is down more than 20% this year.
"We always said that once the Internet took off, we'd be OK," he added. "It never crossed our minds that we'd be competing with people who just give it away for free."
There are plenty of other signs of the porn industry's pain. Attendance at the Adult Entertainment Expo, an annual trade show in Las Vegas that's open some days to the public, was down 20% this year. Pay-per-view programming, a key revenue source for the industry, has fallen about 50% from its peak three or four years ago, according to a person familiar with the cable and satellite TV business.
Reliable revenue and employment figures for the adult industry don't exist, since no analysts or economists track it. Adult Video News estimated in 2006 that it was worth $13 billion, but Paul Fishbein, editor of the trade publication, said the number was "an educated guess."
"Almost all of the companies in our industry are privately held, and they keep the cards close to their chests," said Diane Duke, executive director of the Free Speech Coalition, an industry trade group.
The effects of the downturn have been felt most severely by the thousands of people who work in the adult entertainment business.
Kelly Labanco doesn't need industry estimates to know what's happening. The makeup artist, who has worked in porn for five years, is landing half as many jobs as she did a year ago and has seen her pay drop from a high of $250 an hour to less than $100.
"A lot of companies say they don't even need makeup artists now and the girls can do it themselves," said Labanco, who has returned to her previous job doing freelance music publicity to pay the bills.
Even the industry's biggest events aren't worth what they used to be for working people like Labanco. Last year, she and a friend did makeup for a week at the Adult Entertainment Expo and earned $8,000. This year: $1,200.
Caroline Pierce, an adult film performer who lives in Las Vegas but flies to Los Angeles for work, said many companies have pressured her to do more scenes for less money.
"Instead of paying you $800 to do one, they'll pay you $1,200 for both," she explained.
As economic pressures increase, many performers have also changed their minds about what they are willing do on-screen. Previously, women earned hefty bonuses for unusual sex scenes. That's often no longer the case.
"A few years ago the girls we got were OK, but not stellar models, and we were sometimes paying $2,500," said porn director Matt Morningwood, referring to a website he shoots for that features one woman and multiple male partners.
"Nowadays some of the top-tier models will do that scene for us and you're looking at maybe $1,800. I'm happy for the production, but I feel bad for exploiting the girls' situation."
The only growth market most executives see is mobile devices, since they let consumers watch porn anywhere and in relative privacy.
Major companies that serve as a gateway to content on cellphones in the U.S. such as Verizon don't allow explicit adult content. But like cable and satellite companies in the 1990s, they may change their minds when they see the potential profit.
"Anyone betting against porn being a meaningful driver of traffic and revenue on mobile networks would be making a bad choice based on history," said Charles Golvin, an analyst at Forrester Research.
Adult performers with big followings probably will continue to prosper, since they often work under a guaranteed contract and have loyal fans who buy all their work. Business managers for Belladonna and Tera Patrick, two of the industry's biggest stars, said their clients were using their celebrity to make money in other ways, like dancing in exotic clubs and licensing their name to sex toys and lingerie.
"The economy has forced us to look in other directions such as tangible goods," said Evan Seinfeld, who co-manages Patrick, his wife, and runs her production company, Teravision.
But for the "middle class" of the industry, those opportunities don't exist.
"It seems at this point that if you haven't established a well-known name, it's really hard to keep working," performer Alexa Jordan said.
Savannah Stern is adjusting to that reality. She's shooting scenes for her own subscription website and planning a tour of exotic dance clubs to earn money from her name while she can. After that, she hopes to go to college for an interior design degree and work in her family's real estate development and contracting business.
"I wish I would have never gotten into it," Stern said of her career in porn. "When you get used to a certain lifestyle, it's really hard to cut back and realize this may not be forever."
Link
8.09.2009
Only 20 years left of Australia's Great Barrier Reef ?
By Cher Thornhill
A recent report by marine scientist Charlie Veron claimed that global warming will destroy the World Heritage site within just 20 years.
The former chief scientist of the Australian Institute of Marine Science says that CO2 levels have risen so much it is now impossible to save the natural structure.
'There is no way out, no loopholes,' he said. 'The Great Barrier Reef will be over within 20 years or so.'
And the marine expert is not alone in his gloomy predictions - nor the most extreme.
Sir David Attenborough warned at a meeting of wildlife experts in July that all of the world’s tropical reefs face ‘imminent destruction’ unless CO2 levels are slashed.
Hopes that cutting emissions will be enough to save our natural world have been dashed by marine experts. They say we must now find ways to remove gas already in the atmosphere.
As well as their exceptional beauty, coral reefs are one of the richest eco-systems in the sea, providing homes to over a million species.
Their abundant life is a valuable source of food for millions of people and provides thousands of jobs by supporting a huge tourism industry.
But the precious structures, built by a battery of tiny organisms called corals polyps, are especially vulnerable to man’s impact on the environment.
Slow increments in levels of CO2 are gradually making the oceans more acidic and dissolving coral in the process.
And temperature rises caused by the same emissions are bleaching the coral, as the beauty fades.
Sir David, who chaired the meeting at the Royal Society in early July, said: 'Coral reef is the canary in the cage as far as the oceans of the world are concerned.
'They are the places where the damage is most easily and perhaps most quickly seen.
'Anybody who has had the privilege of diving along a coral reef will have seen the natural world at its most glorious and its most diverse and most beautiful.
‘Anybody who has done that would be appalled at the thought… that the reefs should die and be covered with brown slime and turn to a gravel pit.'
Up to 20 per cent of the World’s coral has been lost since the 1980s.
Experts believe CO2 levels have risen from 280 parts per million before the industrial revolution to 387ppm today.
The scientists who attended the Royal Society meeting agreed that levels must be capped well below 350ppm to ensure coral reefs survive in the long term.
The spectacular structure, which is so vast they can be seen from outer space, has been shortlisted for an online contest to select the seven natural wonders of the world.
An expert panel nominated 28 sites - including the Amazon rainforest, the Dead Sea and Grand Canyon - as contenders for the crown.
Link
A recent report by marine scientist Charlie Veron claimed that global warming will destroy the World Heritage site within just 20 years.
The former chief scientist of the Australian Institute of Marine Science says that CO2 levels have risen so much it is now impossible to save the natural structure.
'There is no way out, no loopholes,' he said. 'The Great Barrier Reef will be over within 20 years or so.'
And the marine expert is not alone in his gloomy predictions - nor the most extreme.
Sir David Attenborough warned at a meeting of wildlife experts in July that all of the world’s tropical reefs face ‘imminent destruction’ unless CO2 levels are slashed.
Hopes that cutting emissions will be enough to save our natural world have been dashed by marine experts. They say we must now find ways to remove gas already in the atmosphere.
As well as their exceptional beauty, coral reefs are one of the richest eco-systems in the sea, providing homes to over a million species.
Their abundant life is a valuable source of food for millions of people and provides thousands of jobs by supporting a huge tourism industry.
But the precious structures, built by a battery of tiny organisms called corals polyps, are especially vulnerable to man’s impact on the environment.
Slow increments in levels of CO2 are gradually making the oceans more acidic and dissolving coral in the process.
And temperature rises caused by the same emissions are bleaching the coral, as the beauty fades.
Sir David, who chaired the meeting at the Royal Society in early July, said: 'Coral reef is the canary in the cage as far as the oceans of the world are concerned.
'They are the places where the damage is most easily and perhaps most quickly seen.
'Anybody who has had the privilege of diving along a coral reef will have seen the natural world at its most glorious and its most diverse and most beautiful.
‘Anybody who has done that would be appalled at the thought… that the reefs should die and be covered with brown slime and turn to a gravel pit.'
Up to 20 per cent of the World’s coral has been lost since the 1980s.
Experts believe CO2 levels have risen from 280 parts per million before the industrial revolution to 387ppm today.
The scientists who attended the Royal Society meeting agreed that levels must be capped well below 350ppm to ensure coral reefs survive in the long term.
The spectacular structure, which is so vast they can be seen from outer space, has been shortlisted for an online contest to select the seven natural wonders of the world.
An expert panel nominated 28 sites - including the Amazon rainforest, the Dead Sea and Grand Canyon - as contenders for the crown.
Link
The Mysterious Chemical That Eases Pain, But Also Causes It
By Annalee Newitz
Endocannabinoids are the body's natural form of THC, a chemical in marijuana that can ease pain. Now a new study shows this chemical is a double-edged sword, making people more sensitive to pain too. Could endocannabinoids be used for torture?
Endocannabinoids interact with canniboid receptors the same way the chemical THC in marijuana does. According to a study published this afternoon in Science, the endocannabinoid system is more complex than previously believed. Sometimes a spike in endocannabinoids in the spinal cord releases neurotransmitter chemicals that make people more likely to feel pain.
A release about the article from Science puts it this way:
"Often, in cases of chronic pain, neuron-to-neuron communication is bumped up in a specific area of the spinal cord. Endocannabinoids (which are the body's version of the THC in marijuana) have been thought to suppress this type of pain signaling, but Alejandro Pernía-Andrade and an international team of colleagues now show that the opposite may be true. They found that in rats and mice, painful stimuli can release endocannabinoids in the spinal cord, which act on a group of neuronal receptors called the CB1 receptors. This action reduced the release of key neurotransmitters that shuttle from one neuron to another, with the overall effect of making the neurons more excitable and thereby sensitizing the animals to certain forms of pain, or even to simple touch. In another experiment, on human volunteers, the authors found that the drug rimonabant, which blocks CB1 receptors, decreased pain sensitivity that had been induced in patches of the volunteers' skin."
We're a long way from being able to control this pain/not-pain system, but knowing that it's there means more research into it is inevitable. Already endocannabinoids are a target for a lot of hopeful pharmaceutical companies, who hope to manipulate the substance to treat everything from chronic pain to obesity.
My question is whether this substance could also become the target of military research too, since being able to control whether a person feels pain or not is a classic torture technique. And doing it cleanly, with drugs, could be classified as "humane" under many systems of regulation. Plus, what's a better way to play pharmaceutical good cop/bad cop than to administer a drug that causes pain - then eases it?
Link
Endocannabinoids are the body's natural form of THC, a chemical in marijuana that can ease pain. Now a new study shows this chemical is a double-edged sword, making people more sensitive to pain too. Could endocannabinoids be used for torture?
Endocannabinoids interact with canniboid receptors the same way the chemical THC in marijuana does. According to a study published this afternoon in Science, the endocannabinoid system is more complex than previously believed. Sometimes a spike in endocannabinoids in the spinal cord releases neurotransmitter chemicals that make people more likely to feel pain.
A release about the article from Science puts it this way:
"Often, in cases of chronic pain, neuron-to-neuron communication is bumped up in a specific area of the spinal cord. Endocannabinoids (which are the body's version of the THC in marijuana) have been thought to suppress this type of pain signaling, but Alejandro Pernía-Andrade and an international team of colleagues now show that the opposite may be true. They found that in rats and mice, painful stimuli can release endocannabinoids in the spinal cord, which act on a group of neuronal receptors called the CB1 receptors. This action reduced the release of key neurotransmitters that shuttle from one neuron to another, with the overall effect of making the neurons more excitable and thereby sensitizing the animals to certain forms of pain, or even to simple touch. In another experiment, on human volunteers, the authors found that the drug rimonabant, which blocks CB1 receptors, decreased pain sensitivity that had been induced in patches of the volunteers' skin."
We're a long way from being able to control this pain/not-pain system, but knowing that it's there means more research into it is inevitable. Already endocannabinoids are a target for a lot of hopeful pharmaceutical companies, who hope to manipulate the substance to treat everything from chronic pain to obesity.
My question is whether this substance could also become the target of military research too, since being able to control whether a person feels pain or not is a classic torture technique. And doing it cleanly, with drugs, could be classified as "humane" under many systems of regulation. Plus, what's a better way to play pharmaceutical good cop/bad cop than to administer a drug that causes pain - then eases it?
Link
Can Jazz Be Saved?
By TERRY TEACHOUT
In 1987, Congress passed a joint resolution declaring jazz to be “a rare and valuable national treasure.” Nowadays the music of Louis Armstrong, Duke Ellington, Charlie Parker and Miles Davis is taught in public schools, heard on TV commercials and performed at prestigious venues such as New York’s Lincoln Center, which even runs its own nightclub, Dizzy’s Club Coca-Cola.
Here’s the catch: Nobody’s listening.
No, it’s not quite that bad—but it’s no longer possible for head-in-the-sand types to pretend that the great American art form is economically healthy or that its future looks anything other than bleak.
The bad news came from the National Endowment for the Arts’ latest Survey of Public Participation in the Arts, the fourth to be conducted by the NEA (in participation with the U.S. Census Bureau) since 1982. These are the findings that made jazz musicians sit up and take notice:
• In 2002, the year of the last survey, 10.8% of adult Americans attended at least one jazz performance. In 2008, that figure fell to 7.8%.
• Not only is the audience for jazz shrinking, but it’s growing older—fast. The median age of adults in America who attended a live jazz performance in 2008 was 46. In 1982 it was 29.
• Older people are also much less likely to attend jazz performances today than they were a few years ago. The percentage of Americans between the ages of 45 and 54 who attended a live jazz performance in 2008 was 9.8%. In 2002, it was 13.9%. That’s a 30% drop in attendance.
• Even among college-educated adults, the audience for live jazz has shrunk significantly, to 14.9% in 2008 from 19.4% in 1982.
These numbers indicate that the audience for jazz in America is both aging and shrinking at an alarming rate. What I find no less revealing, though, is that the median age of the jazz audience is now comparable to the ages for attendees of live performances of classical music (49 in 2008 vs. 40 in 1982), opera (48 in 2008 vs. 43 in 1982), nonmusical plays (47 in 2008 vs. 39 in 1982) and ballet (46 in 2008 vs. 37 in 1982). In 1982, by contrast, jazz fans were much younger than their high-culture counterparts.
What does this tell us? I suspect it means, among other things, that the average American now sees jazz as a form of high art. Nor should this come as a surprise to anyone, since most of the jazz musicians that I know feel pretty much the same way. They regard themselves as artists, not entertainers, masters of a musical language that is comparable in seriousness to classical music—and just as off-putting to pop-loving listeners who have no more use for Wynton Marsalis than they do for Felix Mendelssohn.
Jazz has changed greatly since the ’30s, when Louis Armstrong, one of the supreme musical geniuses of the 20th century, was also a pop star, a gravel-voiced crooner who made movies with Bing Crosby and Mae West and whose records sold by the truckload to fans who knew nothing about jazz except that Satchmo played and sang it. As late as the early ’50s, jazz was still for the most part a genuinely popular music, a utilitarian, song-based idiom to which ordinary people could dance if they felt like it. But by the ’60s, it had evolved into a challenging concert music whose complexities repelled many of the same youngsters who were falling hard for rock and soul. Yes, John Coltrane’s “A Love Supreme” sold very well for a jazz album in 1965—but most kids preferred “California Girls” and “The Tracks of My Tears,” and still do now that they have kids of their own.
Even if I could, I wouldn’t want to undo the transformation of jazz into a sophisticated art music. But there’s no sense in pretending that it didn’t happen, or that contemporary jazz is capable of appealing to the same kind of mass audience that thrilled to the big bands of the swing era. And it is precisely because jazz is now widely viewed as a high-culture art form that its makers must start to grapple with the same problems of presentation, marketing and audience development as do symphony orchestras, drama companies and art museums—a task that will be made all the more daunting by the fact that jazz is made for the most part by individuals, not established institutions with deep pockets.
No, I don’t know how to get young people to start listening to jazz again. But I do know this: Any symphony orchestra that thinks it can appeal to under-30 listeners by suggesting that they should like Schubert and Stravinsky has already lost the battle. If you’re marketing Schubert and Stravinsky to those listeners, you have no choice but to start from scratch and make the case for the beauty of their music to otherwise intelligent people who simply don’t take it for granted. By the same token, jazz musicians who want to keep their own equally beautiful music alive and well have got to start thinking hard about how to pitch it to young listeners—not next month, not next week, but right now.
Link
'Round, 'round get around, I get around
By Dave Barry
I may be 51 years old, but, darn it, I'm still a "rock and roll kind of animal." So when a friend named Gene offered me some tickets to a Beach Boys concert, I jumped at the chance. As a result, I strained my back and had to lie down for six days.
But after the pain subsided I was very excited, because I'm a huge Beach Boys fan. I'll never forget the first time I saw them in person, back in 1964, at a fantastic concert in New York. ... Wait, no, it was Philadelphia, and it might have been 1967. And come to think of it, it wasn't The Beach Boys; it was the Bee Gees. Or maybe the Turtles. It was definitely a plural name. Although now that I think of it, I'm not 100 percent sure I was there.
But never mind the details. The point is that I've loved the Beach Boys' music since WAYYY back when I was in junior high school, and America was happy and carefree because the Civil War was finally over. I went through puberty with the Beach Boys (not LITERALLY, of course; we all had separate rooms). Their songs expressed a new kind of feeling that was stirring deep within the bowels of my loins; a feeling of vulnerability, of tenderness, and - yes - of sexual desire.
For cars, I mean. When the Beach Boys sang, "She's real fine, my 409 ... my four-speed, dual-quad, Posi-Traction 409," they were giving voice to the fantasy of every pimple-speckled male at Harold C. Crittenden Junior High. We LUSTED for Posi-Traction! Whatever it was!
I still know all the words to all the Beach Boys' car songs. When I'm driving, and the radio plays "Shut Down," which is about a drag race, I sing along at the top of my lungs: "He's hot with ram induction, but it's understood; I got a fuel-injected engine sittin' under my hood." The truth is that I have no idea what kind of engine I have sittin' under my hood. I could have a food processor sittin' under there. But the Beach Boys still make me feel like Mr. Stud Piston.
And the Beach Boys were not just limited to car songs. They took on the important social issues, too, in songs such as "Be True To Your School" (actual lyric: "Rah rah rah rah sis boom bah!") and "I Get Around" (actual lyric: "I'm a real cool head! I'm makin' real good bread!").
They don't make music like that these days. In fact, sometimes they don't even make MUSIC. I saw a TV show recently wherein a group of "hip-hop" DJs competed to see who was the best at making sounds with a record turntable. They'd put the needle on a record, then they'd spin the turntable forward and backward violently, thereby creating unique, by which I mean ugly, noises. I used to do that when I was 7, and my mom would yell, "STOP FOOLING WITH THE RECORD PLAYER!" But these guys were SERIOUS; they had expressions of intense concentration on their faces, as though it took vast artistic skill to simulate the sound of deranged squirrels fighting in an amplifier. A panel of judges looked on, frowning thoughtfully, as though they were listening to Beethoven's Fifth Symphony (actual lyric: "Dum dum dum DUM"). I wanted to scream at the TV screen: "A turntable is NOT A MUSICAL INSTRUMENT, you morons! It's an APPLIANCE, like a toaster-oven! Or an accordion!"
So, OK, I'm too old to appreciate "hip-hop." But I'm smack dab in the middle of the Beach Boys' demographic, to judge from the crowd at the concert I attended. Many of us are grayer than we once were, and our loins are larger. But we still know how to "party hearty." We had our cell-phone ringers set on "vibrate" and were ready to ROCK AND ROLL when the Beach Boys stormed onto the stage.
OK, "stormed" is a little strong. "Shuffled" is more accurate. Because the Beach Boys have gotten older, too. Although some of them apparently have gotten YOUNGER. A couple of the ones I saw definitely had not been born yet when they made their first record.
But even though some of the older Beach Boys could enter the Ernest Hemingway Look-alike Contest, they still SOUND like the Beach Boys, and that was all that mattered. Within 15 minutes the crowd was on its feet (it would have been on its feet sooner, but it has to be careful with its back). The Beach Boys sang a medley of their car songs, and I sang right along with them, and when, together, we sang the technical part of "Little Deuce Coupe" ("She's ported and relieved, and she's stroked and bored") there was genuine emotion in my voice. But without question the highlight came when the entire crowd - not just us older folks in our 50s, but also the young people in their late 40s - joined together to sing "Barbara Ann," all of us united for the moment by our inability to remember that one verse that goes something like:
"Tried Betty Sue
Did the boogaloo
Went to the zoo
And I saw a tiger poo"
It was a great night. And even though I didn't get home until almost 10:20 p.m., I was so excited that I stayed awake until almost 10:27. Round round get around, I get around.
This classic Dave Barry column was originally published April 25, 1999.
8.06.2009
Filmmaker John Hughes has died.
The 59-year old director died in Manhattan of a heart attack. He brought us such iconic eighties films as Sixteen Candles, The Breakfast Club, and Pretty in Pink. IMDB, Wikipedia, Slashfilm, TMZ, Variety. Above, a montage of scenes from his films, created by a fan to the tune of the Who's "Baba O'Riley."
7.31.2009
The Wal-Mart You Don't Know
By Charles Fishman
A gallon-sized jar of whole pickles is something to behold. The jar is the size of a small aquarium. The fat green pickles, floating in swampy juice, look reptilian, their shapes exaggerated by the glass. It weighs 12 pounds, too big to carry with one hand. The gallon jar of pickles is a display of abundance and excess; it is entrancing, and also vaguely unsettling. This is the product that Wal-Mart fell in love with: Vlasic's gallon jar of pickles.
Wal-Mart priced it at $2.97--a year's supply of pickles for less than $3! "They were using it as a 'statement' item," says Pat Hunn, who calls himself the "mad scientist" of Vlasic's gallon jar. "Wal-Mart was putting it before consumers, saying, This represents what Wal-Mart's about. You can buy a stinkin' gallon of pickles for $2.97. And it's the nation's number-one brand."
Therein lies the basic conundrum of doing business with the world's largest retailer. By selling a gallon of kosher dills for less than most grocers sell a quart, Wal-Mart may have provided a ser-vice for its customers. But what did it do for Vlasic? The pickle maker had spent decades convincing customers that they should pay a premium for its brand. Now Wal-Mart was practically giving them away. And the fevered buying spree that resulted distorted every aspect of Vlasic's operations, from farm field to factory to financial statement.
Indeed, as Vlasic discovered, the real story of Wal-Mart, the story that never gets told, is the story of the pressure the biggest retailer relentlessly applies to its suppliers in the name of bringing us "every day low prices." It's the story of what that pressure does to the companies Wal-Mart does business with, to U.S. manufacturing, and to the economy as a whole. That story can be found floating in a gallon jar of pickles at Wal-Mart.
Wal-Mart is not just the world's largest retailer. It's the world's largest company--bigger than ExxonMobil, General Motors, and General Electric. The scale can be hard to absorb. Wal-Mart sold $244.5 billion worth of goods last year. It sells in three months what
number-two retailer Home Depot sells in a year. And in its own category of general merchandise and groceries, Wal-Mart no longer has any real rivals. It does more business than Target, Sears, Kmart, J.C. Penney, Safeway, and Kroger combined. "Clearly," says Edward Fox, head of Southern Methodist University's J.C. Penney Center for Retailing Excellence, "Wal-Mart is more powerful than any retailer has ever been." It is, in fact, so big and so furtively powerful as to have become an entirely different order of corporate being.
Wal-Mart wields its power for just one purpose: to bring the lowest possible prices to its customers. At Wal-Mart, that goal is never reached. The retailer has a clear policy for suppliers: On basic products that don't change, the price Wal-Mart will pay, and will charge shoppers, must drop year after year. But what almost no one outside the world of Wal-Mart and its 21,000 suppliers knows is the high cost of those low prices. Wal-Mart has the power to squeeze profit-killing concessions from vendors. To survive in the face of its pricing demands, makers of everything from bras to bicycles to blue jeans have had to lay off employees and close U.S. plants in favor of outsourcing products from overseas.
Of course, U.S. companies have been moving jobs offshore for decades, long before Wal-Mart was a retailing power. But there is no question that the chain is helping accelerate the loss of American jobs to low-wage countries such as China. Wal-Mart, which in the late 1980s and early 1990s trumpeted its claim to "Buy American," has doubled its imports from China in the past five years alone, buying some $12 billion in merchandise in 2002. That's nearly 10% of all Chinese exports to the United States.
One way to think of Wal-Mart is as a vast pipeline that gives non-U.S. companies direct access to the American market. "One of the things that limits or slows the growth of imports is the cost of establishing connections and networks," says Paul Krugman, the Princeton University economist. "Wal-Mart is so big and so centralized that it can all at once hook Chinese and other suppliers into its digital system. So--wham!--you have a large switch to overseas sourcing in a period quicker than under the old rules of retailing."
Steve Dobbins has been bearing the brunt of that switch. He's president and CEO of Carolina Mills, a 75-year-old North Carolina company that supplies thread, yarn, and textile finishing to apparel makers--half of which supply Wal-Mart. Carolina Mills grew steadily until 2000. But in the past three years, as its customers have gone either overseas or out of business, it has shrunk from 17 factories to 7, and from 2,600 employees to 1,200. Dobbins's customers have begun to face imported clothing sold so cheaply to Wal-Mart that they could not compete even if they paid their workers nothing.
"People ask, 'How can it be bad for things to come into the U.S. cheaply? How can it be bad to have a bargain at Wal-Mart?' Sure, it's held inflation down, and it's great to have bargains," says Dobbins. "But you can't buy anything if you're not employed. We are shopping ourselves out of jobs."
The gallon jar of pickles at Wal-Mart became a devastating success, giving Vlasic strong sales and growth numbers--but slashing its profits by millions of dollars.
There is no question that Wal-Mart's relentless drive to squeeze out costs has benefited consumers. The giant retailer is at least partly responsible for the low rate of U.S. inflation, and a McKinsey & Co. study concluded that about 12% of the economy's productivity gains in the second half of the 1990s could be traced to Wal-Mart alone.
There is also no question that doing business with Wal-Mart can give a supplier a fast, heady jolt of sales and market share. But that fix can come with long-term consequences for the health of a brand and a business. Vlasic, for example, wasn't looking to build its brand on a gallon of whole pickles. Pickle companies make money on "the cut," slicing cucumbers into spears and hamburger chips. "Cucumbers in the jar, you don't make a whole lot of money there," says Steve Young, a former vice president of grocery marketing for pickles at Vlasic, who has since left the company.
At some point in the late 1990s, a Wal-Mart buyer saw Vlasic's gallon jar and started talking to Pat Hunn about it. Hunn, who has also since left Vlasic, was then head of Vlasic's Wal-Mart sales team, based in Dallas. The gallon intrigued the buyer. In sales tests, priced somewhere over $3, "the gallon sold like crazy," says Hunn, "surprising us all." The Wal-Mart buyer had a brainstorm: What would happen to the gallon if they offered it nationwide and got it below $3? Hunn was skeptical, but his job was to look for ways to sell pickles at Wal-Mart. Why not?
And so Vlasic's gallon jar of pickles went into every Wal-Mart, some 3,000 stores, at $2.97, a price so low that Vlasic and Wal-Mart were making only a penny or two on a jar, if that. It was showcased on big pallets near the front of stores. It was an abundance of abundance. "It was selling 80 jars a week, on average, in every store," says Young. Doesn't sound like much, until you do the math: That's 240,000 gallons of pickles, just in gallon jars, just at Wal-Mart, every week. Whole fields of cucumbers were heading out the door.
For Vlasic, the gallon jar of pickles became what might be called a devastating success. "Quickly, it started cannibalizing our non-Wal-Mart business," says Young. "We saw consumers who used to buy the spears and the chips in supermarkets buying the Wal-Mart gallons. They'd eat a quarter of a jar and throw the thing away when they got moldy. A family can't eat them fast enough."
The gallon jar reshaped Vlasic's pickle business: It chewed up the profit margin of the business with Wal-Mart, and of pickles generally. Procurement had to scramble to find enough pickles to fill the gallons, but the volume gave Vlasic strong sales numbers, strong growth numbers, and a powerful place in the world of pickles at Wal-Mart. Which accounted for 30% of Vlasic's business. But the company's profits from pickles had shriveled 25% or more, Young says--millions of dollars.
The gallon was hoisting Vlasic and hurting it at the same time.
Young remembers begging Wal-Mart for relief. "They said, 'No way,' " says Young. "We said we'll increase the price"--even $3.49 would have helped tremendously--"and they said, 'If you do that, all the other products of yours we buy, we'll stop buying.' It was a clear threat." Hunn recalls things a little differently, if just as ominously: "They said, 'We want the $2.97 gallon of pickles. If you don't do it, we'll see if someone else might.' I knew our competitors were saying to Wal-Mart, 'We'll do the $2.97 gallons if you give us your other business.' " Wal-Mart's business was so indispensable to Vlasic, and the gallon so central to the Wal-Mart relationship, that decisions about the future of the gallon were made at the CEO level.
Finally, Wal-Mart let Vlasic up for air. "The Wal-Mart guy's response was classic," Young recalls. "He said, 'Well, we've done to pickles what we did to orange juice. We've killed it. We can back off.' " Vlasic got to take it down to just over half a gallon of pickles, for $2.79. Not long after that, in January 2001, Vlasic filed for bankruptcy--although the gallon jar of pickles, everyone agrees, wasn't a critical factor.
By now, it is accepted wisdom that Wal-Mart makes the companies it does business with more efficient and focused, leaner and faster. Wal-Mart itself is known for continuous improvement in its ability to handle, move, and track merchandise. It expects the same of its suppliers. But the ability to operate at peak efficiency only gets you in the door at Wal-Mart. Then the real demands start. The public image Wal-Mart projects may be as cheery as its yellow smiley-face mascot, but there is nothing genial about the process by which Wal-Mart gets its suppliers to provide tires and contact lenses, guns and underarm deodorant at every day low prices. Wal-Mart is legendary for forcing its suppliers to redesign everything from their packaging to their computer systems. It is also legendary for quite straightforwardly telling them what it will pay for their goods.
"We are one of Wal-Mart's biggest suppliers, and they are our biggest customer, by far. We have a great relationship. That's all I can say. Are we done now?"
John Fitzgerald, a former vice president of Nabisco, remembers Wal-Mart's reaction to his company's plan to offer a 25-cent newspaper coupon for a large bag of Lifesavers in advance of Halloween. Wal-Mart told Nabisco to add up what it would spend on the promotion--for the newspaper ads, the coupons, and handling--and then just take that amount off the price instead. "That isn't necessarily good for the manufacturer," Fitzgerald says. "They need things that draw attention."
It also is not unheard of for Wal-Mart to demand to examine the private financial records of a supplier, and to insist that its margins are too high and must be cut. And the smaller the supplier, one academic study shows, the greater the likelihood that it will be forced into damaging concessions. Melissa Berryhill, a Wal-Mart spokeswoman, disagrees: "The fact is Wal-Mart, perhaps like no other retailer, seeks to establish collaborative and mutually beneficial relationships with our suppliers."
For many suppliers, though, the only thing worse than doing business with Wal-Mart may be not doing business with Wal-Mart. Last year, 7.5 cents of every dollar spent in any store in the United States (other than auto-parts stores) went to the retailer. That means a contract with Wal-Mart can be critical even for the largest consumer-goods companies. Dial Corp., for example, does 28% of its business with Wal-Mart. If Dial lost that one account, it would have to double its sales to its next nine customers just to stay even. "Wal-Mart is the essential retailer, in a way no other retailer is," says Gib Carey, a partner at Bain & Co., who is leading a yearlong study of how to do business with Wal-Mart. "Our clients cannot grow without finding a way to be successful with Wal-Mart."
Many companies and their executives frankly admit that supplying Wal-Mart is like getting into the company version of basic training with an implacable Army drill sergeant. The process may be unpleasant. But there can be some positive results.
"Everyone from the forklift driver on up to me, the CEO, knew we had to deliver [to Wal-Mart] on time. Not 10 minutes late. And not 45 minutes early, either," says Robin Prever, who was CEO of Saratoga Beverage Group from 1992 to 2000, and made private-label water sold at Wal-Mart. "The message came through clearly: You have this 30-second delivery window. Either you're there, or you're out. With a customer like that, it changes your organization. For the better. It wakes everybody up. And all our customers benefited. We changed our whole approach to doing business."
But you won't hear evenhanded stories like that from Wal-Mart, or from its current suppliers. Despite being a publicly traded company, Wal-Mart is intensely private. It declined to talk in detail about its relationships with its suppliers for this story. More strikingly, dozens of companies contacted declined to talk about even the basics of their business with Wal-Mart.
Here, for example, is an executive at Dial: "We are one of Wal-Mart's biggest suppliers, and they are our biggest customer by far. We have a great relationship. That's all I can say. Are we done now?" Goaded a bit, the executive responds with an almost hysterical edge: "Are you meshuga? Why in the world would we talk about Wal-Mart? Ask me about anything else, we'll talk. But not Wal-Mart."
No one wants to end up in what is known among Wal-Mart vendors as the "penalty box"--punished, or even excluded from the store shelves, for saying something that makes Wal-Mart unhappy. (The penalty box is normally reserved for vendors who don't meet performance benchmarks, not for those who talk to the press.)
"You won't hear anything negative from most people," says Paul Kelly, founder of Silvermine Consulting Group, a company that helps businesses work more effectively with retailers. "It would be committing suicide. If Wal-Mart takes something the wrong way, it's like Saddam Hussein. You just don't want to piss them off."
As a result, this story was reported in an unusual way: by speaking with dozens of people who have spent years selling to Wal-Mart, or consulting to companies that sell to Wal-Mart, but who no longer work for companies that do business with Wal-Mart. Unless otherwise noted, the companies involved in the events they described refused even to confirm or deny the basics of the events.
To a person, all those interviewed credit Wal-Mart with a fundamental integrity in its dealings that's unusual in the world of consumer goods, retailing, and groceries. Wal-Mart does not cheat suppliers, it keeps its word, it pays its bills briskly. "They are tough people but very honest; they treat you honestly," says Peter Campanella, who ran the business that sold Corning kitchenware products, both at Corning and then at World Kitchen. "It was a joke to do business with most of their competitors. A fiasco."
But Wal-Mart also clearly does not hesitate to use its power, magnifying the Darwinian forces already at work in modern global capitalism.
Caught in the Wal-Mart squeeze, Huffy didn't just relinquish profits to keep its commitment to the retailer. It handed those profits to the competition.
What does the squeeze look like at Wal-Mart? It is usually thoroughly rational, sometimes devastatingly so.
John Mariotti is a veteran of the consumer-products world--he spent nine years as president of Huffy Bicycle Co., a division of Huffy Corp., and is now chairman of World Kitchen, the company that sells Oxo, Revere, Corning, and Ekco brand housewares.
He could not be clearer on his opinion about Wal-Mart: It's a great company, and a great company to do business with. "Wal-Mart has done more good for America by several thousand orders of magnitude than they've done bad," Mariotti says. "They have raised the bar, and raised the bar for everybody."
Mariotti describes one episode from Huffy's relationship with Wal-Mart. It's a tale he tells to illustrate an admiring point he makes about the retailer. "They demand you do what you say you are going to do." But it's also a classic example of the damned-if-you-do, damned-if-you-don't Wal-Mart squeeze. When Mariotti was at Huffy throughout the 1980s, the company sold a range of bikes to Wal-Mart, 20 or so models, in a spread of prices and profitability. It was a leading manufacturer of bikes in the United States, in places like Ponca City, Oklahoma; Celina, Ohio; and Farmington, Missouri.
One year, Huffy had committed to supply Wal-Mart with an entry-level, thin-margin bike--as many as Wal-Mart needed. Sales of the low-end bike took off. "I woke up May 1"--the heart of the bike production cycle for the summer--"and I needed 900,000 bikes," he says. "My factories could only run 450,000." As it happened, that same year, Huffy's fancier, more-profitable bikes were doing well, too, at Wal-Mart and other places. Huffy found itself in a bind.
With other retailers, perhaps, Mariotti might have sat down, renegotiated, tried to talk his way out of the corner. Not with Wal-Mart. "I made the deal up front with them," he says. "I knew how high was up. I was duty-bound to supply my customer." So he did something extraordinary. To free up production in order to make Wal-Mart's cheap bikes, he gave the designs for four of his higher-end, higher-margin products to rival manufacturers. "I conceded business to my competitors, because I just ran out of capacity," he says. Huffy didn't just relinquish profits to keep Wal-Mart happy--it handed those profits to its competition. "Wal-Mart didn't tell me what to do," Mariotti says. "They didn't have to." The retailer, he adds, "is tough as nails. But they give you a chance to compete. If you can't compete, that's your problem."
In the years since Mariotti left Huffy, the bike maker's relationship with Wal-Mart has been vital (though Huffy Corp. has lost money in three out of the last five years). It is the number-three seller of bikes in the United States. And Wal-Mart is the number-one retailer of bikes. But here's one last statistic about bicycles: Roughly 98% are now imported from places such as China, Mexico, and Taiwan. Huffy made its last bike in the United States in 1999.
As Mariotti says, Wal-Mart is tough as nails. But not every supplier agrees that the toughness is always accompanied by fairness. The Lovable Company was founded in 1926 by the grandfather of Frank Garson II, who was Lovable's last president. It did business with Wal-Mart, Garson says, from the earliest days of founder Sam Walton's first store in Bentonville, Arkansas. Lovable made bras and lingerie, supplying retailers that also included Sears and Victoria's Secret. At one point, it was the sixth-largest maker of intimate apparel in the United States, with 700 employees in this country and another 2,000 at eight factories in Central America.
Eventually Wal-Mart became Lovable's biggest customer. "Wal-Mart has a big pencil," says Garson. "They have such awesome purchasing power that they write their own ticket. If they don't like your prices, they'll go vertical and do it themselves--or they'll find someone that will meet their terms."
In the summer of 1995, Garson asserts, Wal-Mart did just that. "They had awarded us a contract, and in their wisdom, they changed the terms so dramatically that they really reneged." Garson, still worried about litigation, won't provide details. "But when you lose a customer that size, they are irreplaceable."
Lovable was already feeling intense cost pressure. Less than three years after Wal-Mart pulled its business, in its 72nd year, Lovable closed. "They leave a lot to be desired in the way they treat people," says Garson. "Their actions to pulverize people are unnecessary. Wal-Mart chewed us up and spit us out."
Believe it or not, American business has been through this before. The Great Atlantic & Pacific Tea Co., the grocery-store chain, stood astride the U.S. market in the 1920s and 1930s with a dominance that has likely never been duplicated. At its peak, A&P had five times the number of stores Wal-Mart has now (although much smaller ones), and at one point, it owned 80% of the supermarket business. Some of the antipredatory-pricing laws in use today were inspired by A&P's attempts to muscle its suppliers.
There is very little academic and statistical study of Wal-Mart's impact on the health of its suppliers and virtually nothing in the last decade, when Wal-Mart's size has increased by a factor of five. This while the retail industry has become much more concentrated. In large part, that's because it's nearly impossible to get meaningful data that would allow researchers to track the influence of Wal-Mart's business on companies over time. You'd need cooperation from the vendor companies or Wal-Mart or both--and neither Wal-Mart nor its suppliers are interested in sharing such intimate detail.
Bain & Co., the global management consulting firm, is in the midst of a project that asks, How does a company have a healthy relationship with Wal-Mart? How do you avoid being sucked into the vortex? How do you maintain some standing, some leverage of your own?
This July, in a mating that had the relieved air of lovers who had too long resisted embracing, Levi Strauss rolled blue jeans into every Wal-Mart in the United States.
Bain's first insights are obvious, if not easy. "Year after year," Carey, a partner at Bain & Co., says, "for any product that is the same as what you sold them last year, Wal-Mart will say, 'Here's the price you gave me last year. Here's what I can get a competitor's product for. Here's what I can get a private-label version for. I want to see a better value that I can bring to my shopper this year. Or else I'm going to use that shelf space differently.' "
Carey has a friend in the umbrella business who learned that. One year, because of costs, he went to Wal-Mart and asked for a 5% price increase. "Wal-Mart said, 'We were expecting a 5% decrease. We're off by 10%. Go back and sharpen your pencil.' " The umbrella man scrimped and came back with a 2% increase. "They said, 'We'll go with a Chinese manufacturer'--and he was out entirely."
The Wal-Mart squeeze means vendors have to be as relentless and as microscopic as Wal-Mart is at managing their own costs. They need, in fact, to turn themselves into shadow versions of Wal-Mart itself. "Wal-Mart won't necessarily say you have to reconfigure your distribution system," says Carey. "But companies recognize they are not going to maintain margins with growth in their Wal-Mart business without doing it."
The way to avoid being trapped in a spiral of growing business and shrinking profits, says Carey, is to innovate. "You need to bring Wal-Mart new products--products consumers need. Because with those, Wal-Mart doesn't have benchmarks to drive you down in price. They don't have historical data, you don't have competitors, they haven't bid the products out to private-label makers. That's how you can have higher prices and higher margins."
Reasonable advice, but not universally useful. There has been an explosion of "innovation" in toothbrushes and toothpastes in the past five years, for instance; but a pickle is a pickle is a pickle.
Bain's other critical discovery is that consumers are often more loyal to product companies than to Wal-Mart. With strongly branded items people develop a preference for--things like toothpaste or laundry detergent--Wal-Mart rarely forces shoppers to switch to a second choice. It would simply punish itself by seeing sales fall, and it won't put up with that for long.
But as Wal-Mart has grown in market reach and clout, even manufacturers known for nurturing premium brands may find themselves overpowered. This July, in a mating that had the relieved air of lovers who had too long resisted embracing, Levi Strauss rolled blue jeans into every Wal-Mart doorway in the United States: 2,864 stores. Wal-Mart, seeking to expand its clothing business with more fashionable brands, promoted the clothes on its in-store TV network and with banners slipped over the security-tag detectors at exit doors.
Levi's launch into Wal-Mart came the same summer the clothes maker celebrated its 150th birthday. For a century and a half, one of the most recognizable names in American commerce had survived without Wal-Mart. But in October 2002, when Levi Strauss and Wal-Mart announced their engagement, Levi was shrinking rapidly. The pressure on Levi goes back 25 years--well before Wal-Mart was an influence. Between 1981 and 1990, Levi closed 58 U.S. manufacturing plants, sending 25% of its sewing overseas.
Sales for Levi peaked in 1996 at $7.1 billion. By last year, they had spiraled down six years in a row, to $4.1 billion; through the first six months of 2003, sales dropped another 3%. This one account--selling jeans to Wal-Mart--could almost instantly revive Levi.
Last year, Wal-Mart sold more clothing than any other retailer in the country. It also sold more pairs of jeans than any other store. Wal-Mart's own inexpensive house brand of jeans, Faded Glory, is estimated to do $3 billion in sales a year, a house brand nearly the size of Levi Strauss. Perhaps most revealing in terms of Levi's strategic blunders: In 2002, half the jeans sold in the United States cost less than $20 a pair. That same year, Levi didn't offer jeans for less than $30.
For much of the last decade, Levi couldn't have qualified to sell to Wal-Mart. Its computer systems were antiquated, and it was notorious for delivering clothes late to retailers. Levi admitted its on-time delivery rate was 65%. When it announced the deal with Wal-Mart last year, one fashion-industry analyst bluntly predicted Levi would simply fail to deliver the jeans.
But Levi Strauss has taken to the Wal-Mart Way with the intensity of a near-death religious conversion--and Levi's executives were happy to talk about their experience getting ready to sell at Wal-Mart. One hundred people at Levi's headquarters are devoted to the new business; another 12 have set up in an office in Bentonville, near Wal-Mart's headquarters, where the company has hired a respected veteran Wal-Mart sales account manager.
Getting ready for Wal-Mart has been like putting Levi on the Atkins diet. It has helped everything--customer focus, inventory management, speed to market. It has even helped other retailers that buy Levis, because Wal-Mart has forced the company to replenish stores within two days instead of Levi's previous five-day cycle.
And so, Wal-Mart might rescue Levi Strauss. Except for one thing.
Levi didn't actually have any clothes it could sell at Wal-Mart. Everything was too expensive. It had to develop a fresh line for mass retailers: the Levi Strauss Signature brand, featuring Levi Strauss's name on the back of the jeans.
Two months after the launch, Levi basked in the honeymoon glow. Overall sales, after falling for the first six months of 2003, rose 6% in the third quarter; profits in the summer quarter nearly doubled. All, Levi's CEO said, because of Signature.
"They are all very rational people. And they had a good point. Everyone was willing to pay more for a Master Lock. But how much more can they justify?"
But the low-end business isn't a business Levi is known for, or one it had been particularly interested in. It's also a business in which Levi will find itself competing with lean, experienced players such as VF and Faded Glory. Levi's makeover might so improve its performance with its non-Wal-Mart suppliers that its established business will thrive, too. It is just as likely that any gains will be offset by the competitive pressures already dissolving Levi's premium brands, and by the cannibalization of its own sales. "It's hard to see how this relationship will boost Levi's higher-end business," says Paul Farris, a professor at the University of Virginia's Darden Graduate School of Business Administration. "It's easy to see how this will hurt the higher-end business."
If Levi clothing is a runaway hit at Wal-Mart, that may indeed rescue Levi as a business. But what will have been rescued? The Signature line--it includes clothing for girls, boys, men, and women--is an odd departure for a company whose brand has long been an American icon. Some of the jeans have the look, the fingertip feel, of pricier Levis. But much of the clothing has the look and feel it must have, given its price (around $23 for adult pants): cheap. Cheap and disappointing to find labeled with Levi Strauss's name. And just five days before the cheery profit news, Levi had another announcement: It is closing its last two U.S. factories, both in San Antonio, and laying off more than 2,500 workers, or 21% of its workforce. A company that 22 years ago had 60 clothing plants in the United States--and that was known as one of the most socially reponsible corporations on the planet--will, by 2004, not make any clothes at all. It will just import them.
In the end, of course, it is we as shoppers who have the power, and who have given that power to Wal-Mart. Part of Wal-Mart's dominance, part of its insight, and part of its arrogance, is that it presumes to speak for American shoppers.
If Wal-Mart doesn't like the pricing on something, says Andrew Whitman, who helped service Wal-Mart for years when he worked at General Foods and Kraft, they simply say, "At that price we no longer think it's a good value to our shopper. Therefore, we don't think we should carry it."
Wal-Mart has also lulled shoppers into ignoring the difference between the price of something and the cost. Its unending focus on price underscores something that Americans are only starting to realize about globalization: Ever-cheaper prices have consequences. Says Steve Dobbins, president of thread maker Carolina Mills: "We want clean air, clear water, good living conditions, the best health care in the world--yet we aren't willing to pay for anything manufactured under those restrictions."
Randall Larrimore, a former CEO of MasterBrand Industries, the parent company of Master Lock, understands that contradiction too well. For years, he says, as manufacturing costs in the United States rose, Master Lock was able to pass them along. But at some point in the 1990s, Asian manufacturers started producing locks for much less. "When the difference is $1, retailers like Wal-Mart would prefer to have the brand-name padlock or faucet or hammer," Larrimore says. "But as the spread becomes greater, when our padlock was $9, and the import was $6, then they can offer the consumer a real discount by carrying two lines. Ultimately, they may only carry one line."
In January 1997, Master Lock announced that, after 75 years making locks in Milwaukee, it would begin importing more products from Asia. Not too long after, Master Lock opened a factory of its own in Nogales, Mexico. Today, it makes just 10% to 15% of its locks in Milwaukee--its 300 employees there mostly make parts that are sent to Nogales, where there are now 800 factory workers.
Larrimore did the first manufacturing layoffs at Master Lock. He negotiated with Master Lock's unions himself. He went to Bentonville. "I loved dealing with Wal-Mart, with Home Depot," he says. "They are all very rational people. There wasn't a whole lot of room for negotiation. And they had a good point. Everyone was willing to pay more for a Master Lock. But how much more can they justify? If they can buy a lock that has arguably similar qual-ity, at a cheaper price, well, they can get their consumers a deal."
It's Wal-Mart in the role of Adam Smith's invisible hand. And the Milwaukee employees of Master Lock who shopped at Wal-Mart to save money helped that hand shove their own jobs right to Nogales. Not consciously, not directly, but inevitably. "Do we as consumers appreciate what we're doing?" Larrimore asks. "I don't think so. But even if we do, I think we say, Here's a Master Lock for $9, here's another lock for $6--let the other guy pay $9."
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A gallon-sized jar of whole pickles is something to behold. The jar is the size of a small aquarium. The fat green pickles, floating in swampy juice, look reptilian, their shapes exaggerated by the glass. It weighs 12 pounds, too big to carry with one hand. The gallon jar of pickles is a display of abundance and excess; it is entrancing, and also vaguely unsettling. This is the product that Wal-Mart fell in love with: Vlasic's gallon jar of pickles.
Wal-Mart priced it at $2.97--a year's supply of pickles for less than $3! "They were using it as a 'statement' item," says Pat Hunn, who calls himself the "mad scientist" of Vlasic's gallon jar. "Wal-Mart was putting it before consumers, saying, This represents what Wal-Mart's about. You can buy a stinkin' gallon of pickles for $2.97. And it's the nation's number-one brand."
Therein lies the basic conundrum of doing business with the world's largest retailer. By selling a gallon of kosher dills for less than most grocers sell a quart, Wal-Mart may have provided a ser-vice for its customers. But what did it do for Vlasic? The pickle maker had spent decades convincing customers that they should pay a premium for its brand. Now Wal-Mart was practically giving them away. And the fevered buying spree that resulted distorted every aspect of Vlasic's operations, from farm field to factory to financial statement.
Indeed, as Vlasic discovered, the real story of Wal-Mart, the story that never gets told, is the story of the pressure the biggest retailer relentlessly applies to its suppliers in the name of bringing us "every day low prices." It's the story of what that pressure does to the companies Wal-Mart does business with, to U.S. manufacturing, and to the economy as a whole. That story can be found floating in a gallon jar of pickles at Wal-Mart.
Wal-Mart is not just the world's largest retailer. It's the world's largest company--bigger than ExxonMobil, General Motors, and General Electric. The scale can be hard to absorb. Wal-Mart sold $244.5 billion worth of goods last year. It sells in three months what
number-two retailer Home Depot sells in a year. And in its own category of general merchandise and groceries, Wal-Mart no longer has any real rivals. It does more business than Target, Sears, Kmart, J.C. Penney, Safeway, and Kroger combined. "Clearly," says Edward Fox, head of Southern Methodist University's J.C. Penney Center for Retailing Excellence, "Wal-Mart is more powerful than any retailer has ever been." It is, in fact, so big and so furtively powerful as to have become an entirely different order of corporate being.
Wal-Mart wields its power for just one purpose: to bring the lowest possible prices to its customers. At Wal-Mart, that goal is never reached. The retailer has a clear policy for suppliers: On basic products that don't change, the price Wal-Mart will pay, and will charge shoppers, must drop year after year. But what almost no one outside the world of Wal-Mart and its 21,000 suppliers knows is the high cost of those low prices. Wal-Mart has the power to squeeze profit-killing concessions from vendors. To survive in the face of its pricing demands, makers of everything from bras to bicycles to blue jeans have had to lay off employees and close U.S. plants in favor of outsourcing products from overseas.
Of course, U.S. companies have been moving jobs offshore for decades, long before Wal-Mart was a retailing power. But there is no question that the chain is helping accelerate the loss of American jobs to low-wage countries such as China. Wal-Mart, which in the late 1980s and early 1990s trumpeted its claim to "Buy American," has doubled its imports from China in the past five years alone, buying some $12 billion in merchandise in 2002. That's nearly 10% of all Chinese exports to the United States.
One way to think of Wal-Mart is as a vast pipeline that gives non-U.S. companies direct access to the American market. "One of the things that limits or slows the growth of imports is the cost of establishing connections and networks," says Paul Krugman, the Princeton University economist. "Wal-Mart is so big and so centralized that it can all at once hook Chinese and other suppliers into its digital system. So--wham!--you have a large switch to overseas sourcing in a period quicker than under the old rules of retailing."
Steve Dobbins has been bearing the brunt of that switch. He's president and CEO of Carolina Mills, a 75-year-old North Carolina company that supplies thread, yarn, and textile finishing to apparel makers--half of which supply Wal-Mart. Carolina Mills grew steadily until 2000. But in the past three years, as its customers have gone either overseas or out of business, it has shrunk from 17 factories to 7, and from 2,600 employees to 1,200. Dobbins's customers have begun to face imported clothing sold so cheaply to Wal-Mart that they could not compete even if they paid their workers nothing.
"People ask, 'How can it be bad for things to come into the U.S. cheaply? How can it be bad to have a bargain at Wal-Mart?' Sure, it's held inflation down, and it's great to have bargains," says Dobbins. "But you can't buy anything if you're not employed. We are shopping ourselves out of jobs."
The gallon jar of pickles at Wal-Mart became a devastating success, giving Vlasic strong sales and growth numbers--but slashing its profits by millions of dollars.
There is no question that Wal-Mart's relentless drive to squeeze out costs has benefited consumers. The giant retailer is at least partly responsible for the low rate of U.S. inflation, and a McKinsey & Co. study concluded that about 12% of the economy's productivity gains in the second half of the 1990s could be traced to Wal-Mart alone.
There is also no question that doing business with Wal-Mart can give a supplier a fast, heady jolt of sales and market share. But that fix can come with long-term consequences for the health of a brand and a business. Vlasic, for example, wasn't looking to build its brand on a gallon of whole pickles. Pickle companies make money on "the cut," slicing cucumbers into spears and hamburger chips. "Cucumbers in the jar, you don't make a whole lot of money there," says Steve Young, a former vice president of grocery marketing for pickles at Vlasic, who has since left the company.
At some point in the late 1990s, a Wal-Mart buyer saw Vlasic's gallon jar and started talking to Pat Hunn about it. Hunn, who has also since left Vlasic, was then head of Vlasic's Wal-Mart sales team, based in Dallas. The gallon intrigued the buyer. In sales tests, priced somewhere over $3, "the gallon sold like crazy," says Hunn, "surprising us all." The Wal-Mart buyer had a brainstorm: What would happen to the gallon if they offered it nationwide and got it below $3? Hunn was skeptical, but his job was to look for ways to sell pickles at Wal-Mart. Why not?
And so Vlasic's gallon jar of pickles went into every Wal-Mart, some 3,000 stores, at $2.97, a price so low that Vlasic and Wal-Mart were making only a penny or two on a jar, if that. It was showcased on big pallets near the front of stores. It was an abundance of abundance. "It was selling 80 jars a week, on average, in every store," says Young. Doesn't sound like much, until you do the math: That's 240,000 gallons of pickles, just in gallon jars, just at Wal-Mart, every week. Whole fields of cucumbers were heading out the door.
For Vlasic, the gallon jar of pickles became what might be called a devastating success. "Quickly, it started cannibalizing our non-Wal-Mart business," says Young. "We saw consumers who used to buy the spears and the chips in supermarkets buying the Wal-Mart gallons. They'd eat a quarter of a jar and throw the thing away when they got moldy. A family can't eat them fast enough."
The gallon jar reshaped Vlasic's pickle business: It chewed up the profit margin of the business with Wal-Mart, and of pickles generally. Procurement had to scramble to find enough pickles to fill the gallons, but the volume gave Vlasic strong sales numbers, strong growth numbers, and a powerful place in the world of pickles at Wal-Mart. Which accounted for 30% of Vlasic's business. But the company's profits from pickles had shriveled 25% or more, Young says--millions of dollars.
The gallon was hoisting Vlasic and hurting it at the same time.
Young remembers begging Wal-Mart for relief. "They said, 'No way,' " says Young. "We said we'll increase the price"--even $3.49 would have helped tremendously--"and they said, 'If you do that, all the other products of yours we buy, we'll stop buying.' It was a clear threat." Hunn recalls things a little differently, if just as ominously: "They said, 'We want the $2.97 gallon of pickles. If you don't do it, we'll see if someone else might.' I knew our competitors were saying to Wal-Mart, 'We'll do the $2.97 gallons if you give us your other business.' " Wal-Mart's business was so indispensable to Vlasic, and the gallon so central to the Wal-Mart relationship, that decisions about the future of the gallon were made at the CEO level.
Finally, Wal-Mart let Vlasic up for air. "The Wal-Mart guy's response was classic," Young recalls. "He said, 'Well, we've done to pickles what we did to orange juice. We've killed it. We can back off.' " Vlasic got to take it down to just over half a gallon of pickles, for $2.79. Not long after that, in January 2001, Vlasic filed for bankruptcy--although the gallon jar of pickles, everyone agrees, wasn't a critical factor.
By now, it is accepted wisdom that Wal-Mart makes the companies it does business with more efficient and focused, leaner and faster. Wal-Mart itself is known for continuous improvement in its ability to handle, move, and track merchandise. It expects the same of its suppliers. But the ability to operate at peak efficiency only gets you in the door at Wal-Mart. Then the real demands start. The public image Wal-Mart projects may be as cheery as its yellow smiley-face mascot, but there is nothing genial about the process by which Wal-Mart gets its suppliers to provide tires and contact lenses, guns and underarm deodorant at every day low prices. Wal-Mart is legendary for forcing its suppliers to redesign everything from their packaging to their computer systems. It is also legendary for quite straightforwardly telling them what it will pay for their goods.
"We are one of Wal-Mart's biggest suppliers, and they are our biggest customer, by far. We have a great relationship. That's all I can say. Are we done now?"
John Fitzgerald, a former vice president of Nabisco, remembers Wal-Mart's reaction to his company's plan to offer a 25-cent newspaper coupon for a large bag of Lifesavers in advance of Halloween. Wal-Mart told Nabisco to add up what it would spend on the promotion--for the newspaper ads, the coupons, and handling--and then just take that amount off the price instead. "That isn't necessarily good for the manufacturer," Fitzgerald says. "They need things that draw attention."
It also is not unheard of for Wal-Mart to demand to examine the private financial records of a supplier, and to insist that its margins are too high and must be cut. And the smaller the supplier, one academic study shows, the greater the likelihood that it will be forced into damaging concessions. Melissa Berryhill, a Wal-Mart spokeswoman, disagrees: "The fact is Wal-Mart, perhaps like no other retailer, seeks to establish collaborative and mutually beneficial relationships with our suppliers."
For many suppliers, though, the only thing worse than doing business with Wal-Mart may be not doing business with Wal-Mart. Last year, 7.5 cents of every dollar spent in any store in the United States (other than auto-parts stores) went to the retailer. That means a contract with Wal-Mart can be critical even for the largest consumer-goods companies. Dial Corp., for example, does 28% of its business with Wal-Mart. If Dial lost that one account, it would have to double its sales to its next nine customers just to stay even. "Wal-Mart is the essential retailer, in a way no other retailer is," says Gib Carey, a partner at Bain & Co., who is leading a yearlong study of how to do business with Wal-Mart. "Our clients cannot grow without finding a way to be successful with Wal-Mart."
Many companies and their executives frankly admit that supplying Wal-Mart is like getting into the company version of basic training with an implacable Army drill sergeant. The process may be unpleasant. But there can be some positive results.
"Everyone from the forklift driver on up to me, the CEO, knew we had to deliver [to Wal-Mart] on time. Not 10 minutes late. And not 45 minutes early, either," says Robin Prever, who was CEO of Saratoga Beverage Group from 1992 to 2000, and made private-label water sold at Wal-Mart. "The message came through clearly: You have this 30-second delivery window. Either you're there, or you're out. With a customer like that, it changes your organization. For the better. It wakes everybody up. And all our customers benefited. We changed our whole approach to doing business."
But you won't hear evenhanded stories like that from Wal-Mart, or from its current suppliers. Despite being a publicly traded company, Wal-Mart is intensely private. It declined to talk in detail about its relationships with its suppliers for this story. More strikingly, dozens of companies contacted declined to talk about even the basics of their business with Wal-Mart.
Here, for example, is an executive at Dial: "We are one of Wal-Mart's biggest suppliers, and they are our biggest customer by far. We have a great relationship. That's all I can say. Are we done now?" Goaded a bit, the executive responds with an almost hysterical edge: "Are you meshuga? Why in the world would we talk about Wal-Mart? Ask me about anything else, we'll talk. But not Wal-Mart."
No one wants to end up in what is known among Wal-Mart vendors as the "penalty box"--punished, or even excluded from the store shelves, for saying something that makes Wal-Mart unhappy. (The penalty box is normally reserved for vendors who don't meet performance benchmarks, not for those who talk to the press.)
"You won't hear anything negative from most people," says Paul Kelly, founder of Silvermine Consulting Group, a company that helps businesses work more effectively with retailers. "It would be committing suicide. If Wal-Mart takes something the wrong way, it's like Saddam Hussein. You just don't want to piss them off."
As a result, this story was reported in an unusual way: by speaking with dozens of people who have spent years selling to Wal-Mart, or consulting to companies that sell to Wal-Mart, but who no longer work for companies that do business with Wal-Mart. Unless otherwise noted, the companies involved in the events they described refused even to confirm or deny the basics of the events.
To a person, all those interviewed credit Wal-Mart with a fundamental integrity in its dealings that's unusual in the world of consumer goods, retailing, and groceries. Wal-Mart does not cheat suppliers, it keeps its word, it pays its bills briskly. "They are tough people but very honest; they treat you honestly," says Peter Campanella, who ran the business that sold Corning kitchenware products, both at Corning and then at World Kitchen. "It was a joke to do business with most of their competitors. A fiasco."
But Wal-Mart also clearly does not hesitate to use its power, magnifying the Darwinian forces already at work in modern global capitalism.
Caught in the Wal-Mart squeeze, Huffy didn't just relinquish profits to keep its commitment to the retailer. It handed those profits to the competition.
What does the squeeze look like at Wal-Mart? It is usually thoroughly rational, sometimes devastatingly so.
John Mariotti is a veteran of the consumer-products world--he spent nine years as president of Huffy Bicycle Co., a division of Huffy Corp., and is now chairman of World Kitchen, the company that sells Oxo, Revere, Corning, and Ekco brand housewares.
He could not be clearer on his opinion about Wal-Mart: It's a great company, and a great company to do business with. "Wal-Mart has done more good for America by several thousand orders of magnitude than they've done bad," Mariotti says. "They have raised the bar, and raised the bar for everybody."
Mariotti describes one episode from Huffy's relationship with Wal-Mart. It's a tale he tells to illustrate an admiring point he makes about the retailer. "They demand you do what you say you are going to do." But it's also a classic example of the damned-if-you-do, damned-if-you-don't Wal-Mart squeeze. When Mariotti was at Huffy throughout the 1980s, the company sold a range of bikes to Wal-Mart, 20 or so models, in a spread of prices and profitability. It was a leading manufacturer of bikes in the United States, in places like Ponca City, Oklahoma; Celina, Ohio; and Farmington, Missouri.
One year, Huffy had committed to supply Wal-Mart with an entry-level, thin-margin bike--as many as Wal-Mart needed. Sales of the low-end bike took off. "I woke up May 1"--the heart of the bike production cycle for the summer--"and I needed 900,000 bikes," he says. "My factories could only run 450,000." As it happened, that same year, Huffy's fancier, more-profitable bikes were doing well, too, at Wal-Mart and other places. Huffy found itself in a bind.
With other retailers, perhaps, Mariotti might have sat down, renegotiated, tried to talk his way out of the corner. Not with Wal-Mart. "I made the deal up front with them," he says. "I knew how high was up. I was duty-bound to supply my customer." So he did something extraordinary. To free up production in order to make Wal-Mart's cheap bikes, he gave the designs for four of his higher-end, higher-margin products to rival manufacturers. "I conceded business to my competitors, because I just ran out of capacity," he says. Huffy didn't just relinquish profits to keep Wal-Mart happy--it handed those profits to its competition. "Wal-Mart didn't tell me what to do," Mariotti says. "They didn't have to." The retailer, he adds, "is tough as nails. But they give you a chance to compete. If you can't compete, that's your problem."
In the years since Mariotti left Huffy, the bike maker's relationship with Wal-Mart has been vital (though Huffy Corp. has lost money in three out of the last five years). It is the number-three seller of bikes in the United States. And Wal-Mart is the number-one retailer of bikes. But here's one last statistic about bicycles: Roughly 98% are now imported from places such as China, Mexico, and Taiwan. Huffy made its last bike in the United States in 1999.
As Mariotti says, Wal-Mart is tough as nails. But not every supplier agrees that the toughness is always accompanied by fairness. The Lovable Company was founded in 1926 by the grandfather of Frank Garson II, who was Lovable's last president. It did business with Wal-Mart, Garson says, from the earliest days of founder Sam Walton's first store in Bentonville, Arkansas. Lovable made bras and lingerie, supplying retailers that also included Sears and Victoria's Secret. At one point, it was the sixth-largest maker of intimate apparel in the United States, with 700 employees in this country and another 2,000 at eight factories in Central America.
Eventually Wal-Mart became Lovable's biggest customer. "Wal-Mart has a big pencil," says Garson. "They have such awesome purchasing power that they write their own ticket. If they don't like your prices, they'll go vertical and do it themselves--or they'll find someone that will meet their terms."
In the summer of 1995, Garson asserts, Wal-Mart did just that. "They had awarded us a contract, and in their wisdom, they changed the terms so dramatically that they really reneged." Garson, still worried about litigation, won't provide details. "But when you lose a customer that size, they are irreplaceable."
Lovable was already feeling intense cost pressure. Less than three years after Wal-Mart pulled its business, in its 72nd year, Lovable closed. "They leave a lot to be desired in the way they treat people," says Garson. "Their actions to pulverize people are unnecessary. Wal-Mart chewed us up and spit us out."
Believe it or not, American business has been through this before. The Great Atlantic & Pacific Tea Co., the grocery-store chain, stood astride the U.S. market in the 1920s and 1930s with a dominance that has likely never been duplicated. At its peak, A&P had five times the number of stores Wal-Mart has now (although much smaller ones), and at one point, it owned 80% of the supermarket business. Some of the antipredatory-pricing laws in use today were inspired by A&P's attempts to muscle its suppliers.
There is very little academic and statistical study of Wal-Mart's impact on the health of its suppliers and virtually nothing in the last decade, when Wal-Mart's size has increased by a factor of five. This while the retail industry has become much more concentrated. In large part, that's because it's nearly impossible to get meaningful data that would allow researchers to track the influence of Wal-Mart's business on companies over time. You'd need cooperation from the vendor companies or Wal-Mart or both--and neither Wal-Mart nor its suppliers are interested in sharing such intimate detail.
Bain & Co., the global management consulting firm, is in the midst of a project that asks, How does a company have a healthy relationship with Wal-Mart? How do you avoid being sucked into the vortex? How do you maintain some standing, some leverage of your own?
This July, in a mating that had the relieved air of lovers who had too long resisted embracing, Levi Strauss rolled blue jeans into every Wal-Mart in the United States.
Bain's first insights are obvious, if not easy. "Year after year," Carey, a partner at Bain & Co., says, "for any product that is the same as what you sold them last year, Wal-Mart will say, 'Here's the price you gave me last year. Here's what I can get a competitor's product for. Here's what I can get a private-label version for. I want to see a better value that I can bring to my shopper this year. Or else I'm going to use that shelf space differently.' "
Carey has a friend in the umbrella business who learned that. One year, because of costs, he went to Wal-Mart and asked for a 5% price increase. "Wal-Mart said, 'We were expecting a 5% decrease. We're off by 10%. Go back and sharpen your pencil.' " The umbrella man scrimped and came back with a 2% increase. "They said, 'We'll go with a Chinese manufacturer'--and he was out entirely."
The Wal-Mart squeeze means vendors have to be as relentless and as microscopic as Wal-Mart is at managing their own costs. They need, in fact, to turn themselves into shadow versions of Wal-Mart itself. "Wal-Mart won't necessarily say you have to reconfigure your distribution system," says Carey. "But companies recognize they are not going to maintain margins with growth in their Wal-Mart business without doing it."
The way to avoid being trapped in a spiral of growing business and shrinking profits, says Carey, is to innovate. "You need to bring Wal-Mart new products--products consumers need. Because with those, Wal-Mart doesn't have benchmarks to drive you down in price. They don't have historical data, you don't have competitors, they haven't bid the products out to private-label makers. That's how you can have higher prices and higher margins."
Reasonable advice, but not universally useful. There has been an explosion of "innovation" in toothbrushes and toothpastes in the past five years, for instance; but a pickle is a pickle is a pickle.
Bain's other critical discovery is that consumers are often more loyal to product companies than to Wal-Mart. With strongly branded items people develop a preference for--things like toothpaste or laundry detergent--Wal-Mart rarely forces shoppers to switch to a second choice. It would simply punish itself by seeing sales fall, and it won't put up with that for long.
But as Wal-Mart has grown in market reach and clout, even manufacturers known for nurturing premium brands may find themselves overpowered. This July, in a mating that had the relieved air of lovers who had too long resisted embracing, Levi Strauss rolled blue jeans into every Wal-Mart doorway in the United States: 2,864 stores. Wal-Mart, seeking to expand its clothing business with more fashionable brands, promoted the clothes on its in-store TV network and with banners slipped over the security-tag detectors at exit doors.
Levi's launch into Wal-Mart came the same summer the clothes maker celebrated its 150th birthday. For a century and a half, one of the most recognizable names in American commerce had survived without Wal-Mart. But in October 2002, when Levi Strauss and Wal-Mart announced their engagement, Levi was shrinking rapidly. The pressure on Levi goes back 25 years--well before Wal-Mart was an influence. Between 1981 and 1990, Levi closed 58 U.S. manufacturing plants, sending 25% of its sewing overseas.
Sales for Levi peaked in 1996 at $7.1 billion. By last year, they had spiraled down six years in a row, to $4.1 billion; through the first six months of 2003, sales dropped another 3%. This one account--selling jeans to Wal-Mart--could almost instantly revive Levi.
Last year, Wal-Mart sold more clothing than any other retailer in the country. It also sold more pairs of jeans than any other store. Wal-Mart's own inexpensive house brand of jeans, Faded Glory, is estimated to do $3 billion in sales a year, a house brand nearly the size of Levi Strauss. Perhaps most revealing in terms of Levi's strategic blunders: In 2002, half the jeans sold in the United States cost less than $20 a pair. That same year, Levi didn't offer jeans for less than $30.
For much of the last decade, Levi couldn't have qualified to sell to Wal-Mart. Its computer systems were antiquated, and it was notorious for delivering clothes late to retailers. Levi admitted its on-time delivery rate was 65%. When it announced the deal with Wal-Mart last year, one fashion-industry analyst bluntly predicted Levi would simply fail to deliver the jeans.
But Levi Strauss has taken to the Wal-Mart Way with the intensity of a near-death religious conversion--and Levi's executives were happy to talk about their experience getting ready to sell at Wal-Mart. One hundred people at Levi's headquarters are devoted to the new business; another 12 have set up in an office in Bentonville, near Wal-Mart's headquarters, where the company has hired a respected veteran Wal-Mart sales account manager.
Getting ready for Wal-Mart has been like putting Levi on the Atkins diet. It has helped everything--customer focus, inventory management, speed to market. It has even helped other retailers that buy Levis, because Wal-Mart has forced the company to replenish stores within two days instead of Levi's previous five-day cycle.
And so, Wal-Mart might rescue Levi Strauss. Except for one thing.
Levi didn't actually have any clothes it could sell at Wal-Mart. Everything was too expensive. It had to develop a fresh line for mass retailers: the Levi Strauss Signature brand, featuring Levi Strauss's name on the back of the jeans.
Two months after the launch, Levi basked in the honeymoon glow. Overall sales, after falling for the first six months of 2003, rose 6% in the third quarter; profits in the summer quarter nearly doubled. All, Levi's CEO said, because of Signature.
"They are all very rational people. And they had a good point. Everyone was willing to pay more for a Master Lock. But how much more can they justify?"
But the low-end business isn't a business Levi is known for, or one it had been particularly interested in. It's also a business in which Levi will find itself competing with lean, experienced players such as VF and Faded Glory. Levi's makeover might so improve its performance with its non-Wal-Mart suppliers that its established business will thrive, too. It is just as likely that any gains will be offset by the competitive pressures already dissolving Levi's premium brands, and by the cannibalization of its own sales. "It's hard to see how this relationship will boost Levi's higher-end business," says Paul Farris, a professor at the University of Virginia's Darden Graduate School of Business Administration. "It's easy to see how this will hurt the higher-end business."
If Levi clothing is a runaway hit at Wal-Mart, that may indeed rescue Levi as a business. But what will have been rescued? The Signature line--it includes clothing for girls, boys, men, and women--is an odd departure for a company whose brand has long been an American icon. Some of the jeans have the look, the fingertip feel, of pricier Levis. But much of the clothing has the look and feel it must have, given its price (around $23 for adult pants): cheap. Cheap and disappointing to find labeled with Levi Strauss's name. And just five days before the cheery profit news, Levi had another announcement: It is closing its last two U.S. factories, both in San Antonio, and laying off more than 2,500 workers, or 21% of its workforce. A company that 22 years ago had 60 clothing plants in the United States--and that was known as one of the most socially reponsible corporations on the planet--will, by 2004, not make any clothes at all. It will just import them.
In the end, of course, it is we as shoppers who have the power, and who have given that power to Wal-Mart. Part of Wal-Mart's dominance, part of its insight, and part of its arrogance, is that it presumes to speak for American shoppers.
If Wal-Mart doesn't like the pricing on something, says Andrew Whitman, who helped service Wal-Mart for years when he worked at General Foods and Kraft, they simply say, "At that price we no longer think it's a good value to our shopper. Therefore, we don't think we should carry it."
Wal-Mart has also lulled shoppers into ignoring the difference between the price of something and the cost. Its unending focus on price underscores something that Americans are only starting to realize about globalization: Ever-cheaper prices have consequences. Says Steve Dobbins, president of thread maker Carolina Mills: "We want clean air, clear water, good living conditions, the best health care in the world--yet we aren't willing to pay for anything manufactured under those restrictions."
Randall Larrimore, a former CEO of MasterBrand Industries, the parent company of Master Lock, understands that contradiction too well. For years, he says, as manufacturing costs in the United States rose, Master Lock was able to pass them along. But at some point in the 1990s, Asian manufacturers started producing locks for much less. "When the difference is $1, retailers like Wal-Mart would prefer to have the brand-name padlock or faucet or hammer," Larrimore says. "But as the spread becomes greater, when our padlock was $9, and the import was $6, then they can offer the consumer a real discount by carrying two lines. Ultimately, they may only carry one line."
In January 1997, Master Lock announced that, after 75 years making locks in Milwaukee, it would begin importing more products from Asia. Not too long after, Master Lock opened a factory of its own in Nogales, Mexico. Today, it makes just 10% to 15% of its locks in Milwaukee--its 300 employees there mostly make parts that are sent to Nogales, where there are now 800 factory workers.
Larrimore did the first manufacturing layoffs at Master Lock. He negotiated with Master Lock's unions himself. He went to Bentonville. "I loved dealing with Wal-Mart, with Home Depot," he says. "They are all very rational people. There wasn't a whole lot of room for negotiation. And they had a good point. Everyone was willing to pay more for a Master Lock. But how much more can they justify? If they can buy a lock that has arguably similar qual-ity, at a cheaper price, well, they can get their consumers a deal."
It's Wal-Mart in the role of Adam Smith's invisible hand. And the Milwaukee employees of Master Lock who shopped at Wal-Mart to save money helped that hand shove their own jobs right to Nogales. Not consciously, not directly, but inevitably. "Do we as consumers appreciate what we're doing?" Larrimore asks. "I don't think so. But even if we do, I think we say, Here's a Master Lock for $9, here's another lock for $6--let the other guy pay $9."
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