The Bully of Bentonville

by Anthony Bianco

  Judged on its own terms, Leonard’s organizing campaign had failed: There still was not a single union member in Bentonville’s employ. However, the UFCW had awakened other unions to the threat Wal-Mart posed to organized labor generally and had galvanized liberal activist groups like the National Organization for Women into picking up the cudgels against Bentonville. Zack never did get the extraordinary nationwide remedy he coveted, but the NLRB upheld dozens of unfair labor practice allegations against Wal-Mart all across the country, begging the question of whether there was anything that Bentonville wouldn’t do to remain union-free and exposing the utter falsity of Wal-Mart’s mantra that it is “pro-associate, not anti-union.”

  In the Jacksonville case, the NLRB had ruled in the end that Wal-Mart had broken federal law by refusing to bargain with the meat cutters after they’d voted in the union. The agency ordered Wal-Mart to reestablish the meat-cutting department while it bargained with the UFCW. 16 Wal-Mart ignored the ruling, and the NLRB let the matter slide. The NLRB also charged Wal-Mart with illegally firing four of the Jacksonville meat cutters in retaliation for their pro-union vote. One of the four, seventy-one-year-old Sidney Smith, was accused of stealing the banana that he ate while waiting in line to pay for it. Wal-Mart paid Smith $7,000 and settled out of court with the other three. 17

  Back home in Louisville, Lehman is still banned from the Wal-Marts of Jefferson County. Every now and then, a Wal-Mart associate calls to arrange a clandestine meeting in a parking lot or a coffeehouse and hand over a packet of signed authorization cards. “The workers are getting them signed now, not me,” says Lehman. “I don’t think having a union is going to create any perfect working environment, but a collective bargaining agreement would really help those workers at Wal-Mart…. I think a lot of this bull-riding kind of cowboy mentality among the store managers would go away and they wouldn’t ride roughshod over the workers as much as they do. Sam’s gone, you know. The workers have to look out for themselves now.”

  WITH JON LEHMAN, INSIDE A WAL-MART SUPERCENTER

  It’s about 3 o’clock on a Friday afternoon when Jon Lehman and I walk into Wal-Mart No. 1 in Rogers, Arkansas, a few hundred yards from where Sam Walton opened his first discount outlet in 1962. We speed past the elderly greeter stationed just inside the door, leaving him no chance to do more than give us a friendly little wave. “Come on, let’s find cereal,” Lehman says.

  We find the cereal section, which is vast and quite amply stocked. “I’m impressed,” he says. “For a Friday afternoon, that’s pretty full. Cereal is the hardest counter in the store to keep full, especially on a Saturday.”

  Having established the essentiality of cereal as a measure of the quality of store management, we move on. “What would you guess is the highest profit category in groceries?” Lehman asks.

  “I really have no idea,” I answer. “Peanut butter?”

  Lehman glances at me with what I hope is mock disdain. “I mean category, not product,” he says. “Peanut butter is classified as dry grocery, OK?”

  We turn a corner and the temperature plunges. Both sides of the aisle are lined with refrigerated glass cases for as far as the eye can see. “Here it is: frozen food,” he says. “On some of this stuff they’re making 30 percent. I used to walk the frozen-food section two or three times a day to look for things that were out, like that,” he says, pointing to a nearly empty shelf that should have been heaped with barbecue-chicken-and-potato dinners. “That’s bad, but there’s a reason for it. There’s a reason that’s out of stock. Either they’ve flown out of it—it’s a great seller—or they are having a problem getting it.”

  Next, Lehman asks me to name the most profitable department in general merchandise but doesn’t give me a chance to answer. “Obviously, it wouldn’t be toys, though toys is pretty good,” he says. “It’s fabric. Actually it goes back and forth. Stationery is either number one or number two, or fabrics is number one or number two. It depends on the price of paper at the time.”

  “Which would you rather run—a discount store or a Supercenter?” I ask, knowing he had run both in his day.

  “Supercenter,” he replies.

  “Because they do more business?” I ask. Wal-Mart store managers are paid a salary, plus a bonus pegged to their store’s profits.

  “Because you get more people to get the job done,” Lehman says. “And, yeah, you can make a little more money in a Supercenter because they do tend to put up bigger numbers. I’d guess this guy is making a quarter-of-a-million a year anyway.”

  We’re walking down an aisle lined with bags of sugar. “Look at that presentation,” says Lehman, coming to a stop. “It’s almost all Great Value. It’s private label—Wal-Mart’s own brand—but it’s made by the same company that makes Domino sugar. They squeeze the national brands and expand the private label.”

  “I don’t see any Domino,” I say, scanning the shelves as we walk on.

  “Me either,” Lehman says. “Here’s another example: Great Value flour. You’re supposed to have four facings of Great Value and two facings of Gold Medal, because you are making about 22 percent more on private label.”

  We check the price of a five-pound bag: $1.84 for Gold Medal versus 89 cents for Great Value. “But you know what?” Lehman asks. “They’re making more profit on the private label even so, because their cost is so much lower.”

  Here’s the fresh-meat section, a potent symbol of Wal-Mart’s anti-union resolve.

  “A lot of this stuff comes from Iowa and Texas. Ironically, some of it comes from union processing plants,” says Lehman, hoisting a T-bone and peering at it intently. “What I look at is what they call the bloom—how red the meat is. It’s supposed to make your mouth water when you look at it, but this is pretty nasty.”

  “It doesn’t look so bad to me,” I say.

  “It’s bloody,” he replies, picking up another package. “It’s supposed to have a little pad under there to absorb all the blood.”

  I ask Lehman how much latitude he had as a store manager to set prices.

  “I could mark items down, but I could not mark items up from Wal-Mart book retail. I could mark down at any time to meet the competition, but you had to answer to people sometimes. In the end, my district manager might say, ‘Why did you go to two for a dollar on that or why did you charge $30 for that, it’s supposed to be $34.95?’ ‘Well, Target had it for $33 and I had to beat ’em.’”

  “Could you add things to your product line on your own?”

  “You’re only supposed to add items that are from approved vendors, but I don’t know of a store that hasn’t experimented with local items,” he says. “I had a little Amish guy in the area whose family made Amish candy, cookies, and cakes. My customers loved them. I couldn’t keep them on the shelves because it was good-quality stuff. It wasn’t authorized by the home office, but I brought it in and 70-type it.”

  He picks up a bag of Doritos and points to the Universal Product Code stamped on it. “You have a UPC code, but you’re not an approved vendor, so I go into the computer and assign you a Wal-Mart item number that starts with 70,” he says. “The home office tracks that stuff, so they know I’m doing it, but the nice thing is they don’t know exactly what it is. All my local vendors—Pepsi, Coke, Little Debbie, Frito-Lay—all that stuff is 70-type, too, even though it’s been approved by the home office. That’s because it’s delivered by the supplier instead of coming from a Wal-Mart DC.”

  We come across a bunch of Felida-brand mops jumbled together in a jerry-built wooden rack sitting too high off the floor to offer easy access. “Now that’s creative,” Lehman says sarcastically.

  On the other hand, Lehman is impressed with the faux wood floors we come across in the ladies’ apparel section. “It’s plastic and can’t really pass for wood, but it does give you the feel of a little better quality,” he says, kneeling down to rap on the floor with a knuckle. “It’s a great idea, because instead of having to vacuum the carpet, now
they can just run a floor machine over this.”

  Who can resist pawing through a bin of DVDs selling for $1 apiece? “These are the cheapest DVDs I’ve ever seen,” I say.

  “There you go,” Lehman says. “But I’d bet you they’d sell 20 percent more of these DVDs if they priced ’em at 99 cents instead of a buck.”

  A female clerk who doesn’t look a day over sixteen is restocking a circular rack of men’s shirts. Lehman pulls a hanger out from the side of the rack opposite where she is working. He asks me to guess where the shirt was made: China, Bangladesh, Honduras, or Guatemala.

  “China.”

  “Ding, ding, ding, ding,” Lehman says. “You win.”

  “I’ve been reading a lot in the newspapers about Wal-Mart workers trying to get together and organize and get a union going,” he says to the clerk. “Is that true?”

  The clerk giggles nervously. “I have no idea,” she says.

  “Well,” Lehman continues. “If it’s going to happen, it probably wouldn’t happen here.”

  “No, not in Rogers, Arkansas,” she says with a slight edge. “This is store number one, you know.”

  “How long you been here?”

  “About a month now. But my fiancé, his six months is coming up in June. He’s only eighteen, but he’ll probably be here the rest of his life in, you know, LP—Loss Prevention. I hope he does, ’cause he’s got his heart set on it.”

  “It depends on who you know,” Lehman says quietly. “Good luck.”

  As we’re heading for the exit, I ask Lehman whether this is a typical Supercenter.

  “Yeah. I guess. But I have seen a lot of workers [here] today. I wonder if just because this is store number one they give it a little bit sweeter numbers—more payroll, more bodies to get the job done. But I wouldn’t want to run a store right by the home office no matter what. Even when you’re far away, they’re always looking over your shoulder.”

  CHAPTER SIX

  WHEN WAL-MART COMES TO TOWN

  It was around the improbable figure of Kenneth Stone that national resistance to Wal-Mart’s inexorable expansion first began to coalesce in the late 1980s. Stone, a lanky, agreeably mild-mannered professor of economics at Iowa State University, single-handedly moved the simmering debate over Wal-Mart’s impact on Main Street beyond anecdote to econometric analysis with his 1988 study “The Effect of Wal-Mart Stores on Businesses in Host Towns and Surrounding Towns in Iowa.” Despite its less-than-scintillating title and dry prose, Stone’s forty-page study struck a resounding chord in towns and cities across the United States. Soon, “the Wal-Mart Man,” as Stone was dubbed, was flying here and there making speeches to local government and business groups while dodging the occasional lightning bolt hurled from Bentonville.

  Ken Stone made Wal-Mart his life’s work, issuing a series of reports over the next fifteen years that confirmed what Main Street merchants in Decorah, Independence, Muscatine, and scores of other Iowa towns had come to understand all too well since the Arkansas interloper first entered Iowa in 1982: Wal-Mart kills. By Stone’s count, nearly 2,200 of Iowa’s retail stores had closed from 1983 to 1993, including 43 percent of its men’s and boy’s apparel stores, 42 percent of its variety stores, 37 percent of its grocery stores, 33 percent of its hardware stores, and 30 percent of its shoe stores. In Stone’s view, what was true of Iowa likely was true of other slow-growth, rural economies across the country. “There is strong evidence that rural communities in the United States have been more adversely impacted by the discount mass merchandisers—sometimes referred to as the Wal-Mart phenomenon—than by any other factor,” Stone concluded.1

  Stone birthed a growth industry in its own right, for the issue of Wal-Mart’s impact on the communities it enters has never been more contentious than it is today. Sam Walton fought many a “site fight” in his day, but he picked his spots. “If some community, for whatever reason, doesn’t want us in there, we aren’t interested in going in and creating a fuss,” Walton wrote in his 1992 autobiography. “Wal-Mart wants to go where it’s wanted.” 2 Today, the magnitude of Wal-Mart’s ambitions does not permit Lee Scott the luxury of geographic selectivity. To meet Wal-Mart’s growth promises to shareholders, he must open 250 to 300 new U.S. stores a year every year ad infinitum. Wal-Mart now wants to go where it needs to go, which basically is everywhere there are Americans with two quarters to rub together.

  Wherever it goes, Wal-Mart’s main calling card is “Every Day Low Prices.” Emek Basker, a University of Missouri professor, who analyzed Wal-Mart’s effect on the prices of ten staples in 165 cities from 1982 to 2002, found that the retailer’s entry into a new market tends to knock prices down by “an economically large and statistically significant” 7 percent to 13 percent for such products as aspirin, toothpaste, shampoo, and detergent. 3 “Wal-Mart’s effect is strongest for products traditionally sold in drugstores, and weakest, or absent, for cigarettes and Coke (sold in many outlets, including convenience stores) and clothing,” wrote Basker, who found that prices fell farthest in smaller cities, where competition tends to be less intense. 4

  Other geographically narrower price surveys have shown that Wal-Mart can also have a dramatic effect in large cities. In 2002, the investment bank UBS Warburg collected price data on 100 grocery and non-grocery items from a sampling of stores in Sacramento, which Wal-Mart had yet to enter, and compared them to prices in three Wal-Mart strongholds—Las Vegas, Houston, and Tampa. This study found that prices were 13 percent lower on average in the Wal-Mart cities than in Sacramento. UBS Warburg also documented Wal-Mart’s remarkable competitive tenacity. Competing stores in Las Vegas, Houston, and Tampa cut their prices by 13 percent on average, but hadn’t come close to matching Wal-Mart’s prices, which remained 17 percent to 39 percent lower. 5

  These percentages all translate into big money saved for consumers—and a big advantage for Wal-Mart going into any site fight. When the company comes to town, it’s as if everyone gets an $800 or $900 tax cut. What politician wouldn’t want to run on the slogan “Delivering Low Prices Every Day”?

  However, the economic case in favor of Wal-Mart pretty much begins and ends with the undeniable boon of its bargain prices to consumers. The company invariably promotes a new store as a high-powered engine of job creation and sales-tax generation. The available evidence suggests that such claims are vastly overstated. Basker studied Wal-Mart’s effect on local employment in a separate study that posed the question: “Has Wal-Mart created more jobs than it destroyed?” Her short answer: Barely.

  After sifting through a mountain of data spanning 1,750 U.S. counties from the years 1977 to 1998, Basker found that retail employment within a county typically rose by just 100 jobs when Wal-Mart opened, even though the typical Wal-Mart employed 150 to 350 people. This suggests that other retailers already had cut back or even shut down in anticipation of its entry into the market. What is more, half of this 100-job gain melted away over the next five years as competing stores failed. Their demise in turn caused the loss of twenty jobs at local wholesale supply firms. The net gain: a mere thirty jobs. Basker also found that a new Wal-Mart brought no measurable spillover of added business to restaurants, gas stations, and other businesses that did not compete with it directly. “The small magnitude of the estimated effect of Wal-Mart on retail employment is striking in light of the level of public discussion on this topic,” Basker concluded. 6

  Small as it was, the positive job-creation effect documented by Basker disappeared altogether in an even broader subsequent study of Wal-Mart’s effect on local employment nationwide by David Neumark, a senior fellow at the Public Policy Institute of California, a think tank. Working from more precise information about dates of store openings supplied by Wal-Mart itself, and adjusting for the company’s preference for locating stores in faster-growing counties, Neumark found that retail employment in a county actually declines by 2 percent to 4 percent after a new Wal-Mart opens, even as overall employment rises slightly. 7


  Viewed through either Basker’s or Neumark’s wide-angle lens, Wal-Mart’s expansion is essentially a zero-sum game in which a new store wrests away almost all of the business it does from smaller and less-efficient competitors. This is progress of a sort, though the negligible net increases in employment and sales-tax receipts that result barely register on the economic Richter scale. But in looking at a particular city, county, or state, Wal-Mart’s impact can be downright cataclysmic, as documented in Ken Stone’s Iowa studies.

  As Stone found in analyzing a decade’s worth of sales-tax records from thirty-five Iowa counties, a Wal-Mart store can be a high-powered retail magnet indeed. “Host” towns saw huge increases in general merchandise sales, with a 54 percent gain in the initial year, tapering off to 44 percent after three years, and holding firm for the next two years. 8 Wal-Mart itself accounted for most of the gain, but the town’s restaurants, bars, and gas stations rang up more business than before, as did stores that specialized in merchandise Wal-Mart didn’t carry (yet, anyway)—notably furniture, consumer electronics, major appliances, and upscale apparel. Didn’t this contradict Basker’s findings? No, because Stone also found that a new Wal-Mart took a ruinous volume of business away from competing merchants in town and also sucked cash out of the surrounding countryside for miles around. “The impact that Wal-Mart was having just amazed me,” Stone recalled. 9