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Archive for Monday, February 23, 2004

Wal-Mart: Public enemy No. 1?

Critics say low prices not worth underpaid workers, loss of jobs

February 23, 2004

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The call went out from the White House soon after Sept. 11, 2001, and tickled the ears of the shopping-aisle rank and file. "Consume," was the message, "and show capitalism to be unbowed." Plenty of Americans went out and spent money, urged on by a new call as the holidays neared.

One big beneficiary: Wal-Mart.

That year, the discounter rang up $1.25 billion on the day after Thanksgiving, setting a single-day record for retail sales that it has since eclipsed, and adding to its list of superlatives. It's now the world's largest corporation in terms of sales -- nearing $250 billion a year, comparable to the economy of Sweden. It is America's largest private employer. Its profit? Up a healthy 8.4 percent in the fourth quarter of 2003, the company reported Thursday.

But juggernauts invite scrutiny, and Wal-Mart has felt searing lights from many angles -- most recently the very public forum of a U.S. presidential campaign.

Outlining the travails of American workers, several Democratic candidates have been piling on a scorn that previously seemed reserved for Enron. And earlier this month, U.S. Rep. George Miller, D-Calif., issued a report citing the "hidden price" to taxpayers of what it calls the inadequate wages and benefits of many in Wal-Mart's workforce.

'Business enigma'

So does Wal-Mart deserve its punching-bag status?

"It's a complex issue," said economist Dale Neef, author of "Managing Corporate Reputation and Risk." "It's almost more about its size, and its effectiveness" at maximizing profit.

Beloved by many consumers, respected by some business strategists, vilified by labor groups and antiglobalization activists, Wal-Mart has become "the greatest business enigma of our time," said Richard Hastings, retail-sector analyst for Bernard Sands, an advisory firm in New York.

Consider the track record on which Wal-Mart's reputation is built.





Aggressively maintaining its "always low prices, always" mantra, the Arkansas-based discounter is known to play hardball with suppliers, pressing them to operate with the slimmest of profit margins by leveraging the sheer volume of wholesale goods it buys. Lately, Wal-Mart has reportedly cut suppliers some slack on prices, though observers debate whether the move reflects an awareness of market realities or just a bid to deflect criticism that its tactics force U.S. jobs overseas.

Praise and disdain

In its business-to-business dealings, the tough, expansionist chain is, in fact, often credited with "a fundamental integrity," as a retail-industry insider told Fast Company magazine in December.

And where it meets the public, its happy-face logo is hardly contrived. Wal-Mart stocks a staggering range of products -- priced, as they say, to move. Buyers of hubcaps, Ho-Hos, and hunters' camouflage celebrate the store. And they're not alone.

Last spring, Wal-Mart won praise from Christian groups for banning Maxim and other racy "laddie mags." In November, a veterans' group lavished its Corporate Patriotism Award on the chain for its moves to support National Guard enlistees who work at its stores, and the community of veterans at large. A Los Angeles economist recently opined that the city's bid to ban Wal-Mart Supercenters would keep much-needed tax revenue out of the coffers and a low-cost shopping option out of poor neighborhoods.

Other assessments, though, are scathing -- beginning well before this election season. Labor-rights advocates slam Wal-Mart, a rebuffer of unions, with charges that it overworks low-wage employees, practices sex discrimination, knowingly uses illegal immigrant labor (charges Wal-Mart denies), and lays waste to downtown commercial districts. They derisively cite "dead peasant" life-insurance policies taken out on workers, with Wal-Mart as beneficiary.

Whose responsibility?

Still, while not defending any illegal acts, Hastings and others say some of that ire may be misplaced.

"Those are complaints that should be directed toward government," Hastings said. "It is not the purpose of Wal-Mart to provide 'public goods' like clean air and clean water, and make sure that everyone has a well-paying job." Whether healthcare should be the responsibility of industry or government, he said, "is an argument that needs to take place, (but) Wal-Mart (should) not be put at the center of that argument."

The potentially disruptive side effects of Wal-Mart's sway over supplier chains merit watching -- but, again, by government, Hastings added.

To the degree the company operates within the law, Wal-Mart's success has a fairly simple explanation. "Wal-Mart's competitors over the past 20 or 25 years made a lot of stupid mistakes and put themselves out of business," Hastings said. Wal-Mart management, he said, didn't. "It gobbled up market share, and ran a more tightly controlled enterprise."

That efficiency, Neef said, carries a cost. "You can only get so much productivity before you start squeezing labor costs," he said. "Once you start doing that you're going to make somebody unhappy. If consumers benefit, it's usually at the expense of workers."

Labor practices

Last month, at an industry conference in New York, Wal-Mart Chief Executive H. Lee Scott called for a coordinated effort by Washington and the retail industry to work toward fair trade and get health-care costs under control. Wal-Mart has said a large chunk of its workforce forgoes insurance coverage through the company because it has other coverage.

In a new public-relations offensive, Wal-Mart is trying to shore up its image as a caring employer. But some critics don't buy it -- nor the idea that Wal-Mart's ascent is a result of its managerial prowess.

"The same relentless focus on cost-cutting that makes it an outstanding example of managerial innovation may also make it a more unconscionable employer than many others," Jim Hoopes, professor of business ethics at Babson College in Wellesley, Mass., said in an e-mail. "Corporate life for low-end workers is a lot harsher everywhere than it was a quarter-century ago," wrote Hoopes, "(but) my impression is that there are few, if any, companies facing an equivalent number of legal actions for ... unfair labor practices," even pro-rated for size.

Economic foundation

Where Hoopes blames Wal-Mart for contributing to workers' woes, however, others cite American consumer behavior for driving an economic cycle in which Wal-Mart is simply a participant. It's not just that U.S. consumers love bargain retailers. Many also believe heavy spending will lift their social standing.

"The postwar economy was built around mass consumption -- the notion that through broad participation in mass market we could create a more egalitarian America," said Lizabeth Cohen, a historian at Harvard University and author of "A Consumers' Republic: The Politics of Mass Consumption in Postwar America." But in a global economy, that notion no longer holds, she said.

Experts question whether any force on the horizon will end Wal-Mart's dominance. But at least one challenge looms: Toymakers, hit last Christmas by low-priced sales of their wares by Wal-Mart and other discounters, are considering sending fewer hot-selling toys to Wal-Mart in favor of full-retail toy stores.

Hastings, for his part, sees Wal-Mart adapting, adding more service components -- as Home Depot has in specialty retail.

In some ways, criticism could be good for Wal-Mart, said Hoopes, who added that he suspects there is a disconnect between its corporate management and store managers struggling to meet goals -- with managers poised to take the fall when practices don't appear to reflect founder Sam Walton's values.

"It may be that the corporate level could use some pretty serious self-examination," he said, "as to how well it is meeting its ethical responsibility to enable the front-line (workers) to live up to its 'values.'"

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