The Bully of Bentonville

by Anthony Bianco

  “There is in Inglewood today a legitimate fear, a fear of being wiped out by a Confederate economic Trojan Horse,” Jackson continues. “It looks attractive on the outside, but like cyanide it’s sweet at first taste—and then there is no more.” 43

  After the press conference, Jackson and Maxine Waters, Inglewood’s representative in the U.S. House of Representatives, tour a nursing home and then take a stroll down Market Street with a small entourage. Waters gamely attempts to converse with the Korean shop owners, none of whom seem to speak English and who smile and nod excitedly as the congresswoman speaks to them with the exaggerated simplicity of an overbearing grade school teacher. “If Wal-Mart come here, lose money. Do you agree?” she asks a couple behind the counter at a booth in the swap meet. “Yes, yes,” they respond in unison. “I’m going to introduce you to Jesse Jackson then,” she says.

  Jackson hits the street with a big smile on his face, clearly amused by Waters’ pluck. “Maxine’s taking no prisoners today,” says Jackson, who holds hands with Waters as they cross Market Street, headed for Cox Menswear. DJ is waiting for them outside the store, looking sharp in a black-and-white sweater and black gabardine pants. Waters greets DJ effusively and introduces him to Jackson.

  “DJ, you the man,” Jackson says. DJ smiles demurely, loving the attention, but unable to summon any words. “OK, you one of the men,” says Jackson, who puts an arm around DJ and squeezes him so hard that he nearly falls over.

  Standing in the doorway of the shop, Waters addresses the small crowd that’s gathered before Cox’s. “DJ is what is special about this store,” she says. “He’s taken me to places that most people have never been.” She turns to Yoon Lee, DJ’s boss, who’s standing stoically at her side. “And Mr. Lee is very special, too, because he lets DJ leave work to help me. Give him a big round of applause.”

  “Plus, he’s got a sign in his window,” Jackson says. “No on 4-A.”

  As DJ shakes hands all around, and Waters talks into a television camera amid much milling about, Jackson stands off to the side, enjoying the chaotic scene. “Maximum Maxine,” he murmurs to no one in particular. “Maximum.”

  The next day’s turnout of 11,624 substantially exceeds expectations, and the outcome shocks both sides. Instead of prevailing by the five to seven percentage points that most experts had projected, Wal-Mart and its ballot measure go down to crushing defeat, 60.6 percent to 39.4 percent. Robert McAdam, Wal-Mart’s vice president for state and local government relations, puts out a statement blaming “outside special interests” for leading Inglewood voters astray. The next day, given a second chance to rise to the occasion, McAdam reverts to the familiar union-bashing mode of Wal-Mart mouthpieces everywhere. “We are not going to get pushed around or bullied by unions,” he vows. “We are here to state our case, and we are not going to go away quietly.” 44

  Back in Bentonville, cooler heads eventually realized that the Inglewood misadventure was a full-fledged public relations disaster. For the last few years, Wal-Mart had made a concerted national effort to curry favor among African Americans, advertising heavily on black-themed television programs while passing out millions in donations to such national organizations as the NAACP and other African American advocacy groups. During the Inglewood battle, “the silence from mainstream black organizations—such as the NAACP and Urban League—that have been recipients of Wal-Mart largesse was deafening,” noted the commentator and author Earl Ofari Hutchinson. 45 Even so, Jackson, Waters, Bishop Ulmer, and their many African American comrades in arms had succeeded in turning 4-A into a racial cause célèbre that put Wal-Mart in a place where no major consumer company can afford to be—on the wrong side of the legacy of Martin Luther King, the martyred saint of the civil rights movement.

  At the same time, the copious coverage the Inglewood site fight generated placed an exclamation point on all the bad press Wal-Mart was getting in general. Long accustomed to receiving the benefit of the doubt from reporters as “America’s Most Admired Company,” Wal-Mart belatedly was coming under the sort of intensive journalistic scrutiny usually reserved for unpopular presidents and misbehaving celebrities. The multimedia onslaught of skeptical headlines aimed in Wal-Mart’s direction in 2003 and 2004 included “Is Wal-Mart Good for America?” (New York Times, PBS/Frontline, and National Public Radio), “Is Wal-Mart Too Powerful?” (BusinessWeek), and “Should We Admire Wal-Mart?” (Fortune). The Los Angeles Times won a Pulitzer Prize for a three-part dissection entitled “The Wal-Mart Effect.”

  Wal-Mart took such a PR pounding that by the fall of 2004, about five months after the Inglewood vote, it dropped its traditional posture of disdain for and indifference to Big Media and started swinging back. The press-reclusive Lee Scott suddenly was everywhere, giving interviews and making speeches in an attempt to put some of the shine back on Wal-Mart’s image. The company also ran full-page ads in the form of an argumentative “open letter” in more than 100 newspapers across the country. Essentially, the company had decided to be as aggressive in its public relations as it was in every other aspect of its business. Or, as Rob Walton put it in his 2005 letter to Wal-Mart shareholders, “It was time to set the record straight.” At the same time, though, Scott promoted the idea of a kinder, gentler, more flexible Wal-Mart as he made his media rounds. He came hat in hand, in the sense that he refrained from directly criticizing past coverage, and mouthed conciliatory words not previously part of Wal-Mart’s lexicon. “Where appropriate,” he said, “we will compromise”—a comment that prompted a Southern Methodist University retailing expert to proclaim a “sea change” in attitude in Bentonville. 46 “What we’re trying to do now is reach out,” the CEO said. “Where we’re wrong, we change, so our detractors don’t have a foothold in attacking us.” 47

  However, the only real error that the CEO tumbled to was the ill-fated ballot measure in Inglewood, where, Scott acknowledged, “I think we came across as a bully who would get their way regardless.” 48 Coming from a Wal-Mart executive, this qualified as startling candor, though a close reading suggests an attempt at what was known in the Nixon era as a “modified limited hangout.” OK, we occasionally do stupid things, but not out of arrogance (or greed, intolerance, or any other moral defect). We’re just a bit clumsy. What giant isn’t?

  Two weeks after meeting with the Post, Scott underscored California’s importance to Wal-Mart by flying out to Los Angeles to deliver the corporate equivalent of a political convention’s keynote address at the Town Hall in Los Angeles. In his speech, Scott again used Inglewood as a token example of Wal-Mart’s fallibility. “One of our mistakes recently was the way we went about trying to open our store in Inglewood, not far from here,” he said. “We learned from that experience, and we’re engaging with communities in a better way as a result.” Scott maintained a statesmanlike tone throughout his address, only to flash his sharp teeth afterward in an interview with the Los Angeles Times. Wal-Mart’s opponents “need to bring their lunch, because we’re not going to lay down,” he vowed. “We’ve got nothing to apologize for.” 49

  Its spin campaign notwithstanding, Wal-Mart was as aggressive as ever in pushing its building plans forward after the Inglewood fiasco. In California and elsewhere, a few dozen site fights were in progress during the Inglewood battle, including one in Flagstaff, Arizona, that would result in a public relations gaffe so horrendous that this time Wal-Mart’s management would be shamed into apologizing directly and unequivocally.

  Flagstaff is a scenic city of about 50,000 in northern Arizona with an ecologically progressive city council and a mayor who once managed a local Safeway supermarket. In the fall of 2004, the city council enacted an ordinance that prohibited the construction of any store larger than 125,000 square feet and imposed an 8 percent limit on the amount of floor space a large-scale retailer can devote to groceries. Flagstaff’s big-box ordinance grew out of a regional plan that had been approved by a wide margin at the polls in 2000. “The goal was to have a mix of retaile
rs that included national chains and locally owned business, but where no one store dominated,” said Becky Daggett, executive director of Friends of Flagstaff’s Future, a citizens’ group that favored the big-box ordinance. 50

  More specifically, the intent was to prevent Wal-Mart from ever converting the discount store it owned in Flagstaff into a Supercenter. Wal-Mart had put forth no such plan, but wanted to keep its options open. Following its usual modus operandi, Wal-Mart bankrolled an aggressive campaign to put the new law to a popular vote via ballot measure. So much for Scott’s post-Inglewood vow to “never again try to go over the heads of local politicians,” though the Wal-Mart spokeswoman on the case blithely denied it. “This has nothing to do with the local government,” she said. “It’s about an ordinance that is anti-competition, anti-choice and anti-consumer.” 51

  Proposition 100 split Flagstaff’s electorate right down the middle, though not along clean, simple fault lines. Predictably, low-income residents of a city with one of the highest costs of living in the state tended to be against Prop 100 while Northern Arizona University, which happens to offer a master’s program in Visions of Good and Sustainable Societies, was no less predictably a hotbed of support. Although small-business owners were generally in favor, the head of the Chamber of Commerce lined up with Bentonville and brought a large minority of members with her. The many affluent retirees who had fled the big city for bucolic Flagstaff avidly embraced Prop 100, but there also was a sizable group of well-off, older residents who opposed the ballot measure because they considered the big-box ordinance an affront to free-market principles.

  Emotions were running high even before Wal-Mart bought its ad in the Arizona Daily Sun equating Proposition 100 supporters with Nazi book burners. Afterward, people were screaming at each other on the street. Frank Dickens, who headed the pro–Wal-Mart group Protect Flagstaff’s Future, received death threats over the telephone and had to replace the windshield of his truck after a vandal shattered it. “It was the most hateful and divisive campaign I ever saw,” said Dickens, a local real estate agent. 52

  Wal-Mart’s Nazi ad quickly became a national news story, and the Phoenix office of the Anti-Defamation League was deluged by complaints from all over the country. “It trivializes the Nazis and what they did,” said Bill Strauss, the ADL’s Arizona director. “And to try to attach that imagery to a municipal election goes beyond distasteful.” 53 In the blogosphere, spluttering outrage was the order of the day. “Wait. Let me get this straight,” wrote DavidNYC on DailyKoz.com. “Some kind of ordinance making life tough for big-box retailers is EQUIVALENT TO THE NAZI REGIME…. Are these people out of THEIR FUCKING MINDS?…How dare they?”

  The ad had been produced by a Flagstaff agency under contract to Wal-Mart and had been approved first by Peter Kanelos, the company’s community affairs manager for Arizona as well as southern California, and then by his boss in Bentonville. Jay Allen, a senior vice president and Scott’s chief PR adviser, immediately sent a formal letter of apology to Strauss. “While we did not know of the photo’s historical context until after the fact, there is still no excuse for associating this photo with the upcoming election on the proposed retail ordinance in Flagstaff,” Allen wrote. 54 The company also ran an open letter in the Daily Sun apologizing to the people of Flagstaff: “Any attempt to compare this issue with events that took place in Nazi Germany is thoroughly inappropriate and clearly false.”

  Wal-Mart’s contrition had its limits; it stopped well short of disavowing the drive to overturn Flagstaff’s big-box law. An eleventh-hour ad blitz pushed Wal-Mart’s total spending above $280,000—a record for a political campaign in the city and six times as much as the UFCW contributed to the opposition. More than 60 percent of Flagstaff’s registered voters cast a ballot, a much better turnout than in Inglewood. Wal-Mart prevailed in a squeaker, by a margin of 51 percent to 49 percent.

  Flagstaff was a victory, Inglewood a loss. But it was Flagstaff that cost Kanelos his job. A few weeks after the vote, Kanelos left Wal-Mart on what he described as “mutually agreeable terms.” At Wal-Mart’s annual meeting in June, a question from the floor forced Rob Walton to comment on the Nazi photo fiasco. “We’re just a bunch of humans trying to run this company,” Walton said. “We make mistakes.” 55 Walton’s characteristically laconic statement was a variation on Scott’s big-and-dumb defense and completely inadequate as an explanation of so egregious a blunder.

  Even if one gives Bentonville the benefit of the doubt and acknowledges that Wal-Mart’s senior management is not so culturally clueless as to knowingly approve the use of Nazi imagery to make a point, the ad is only slightly less repellent if the photo was indeed the “generic book-burning” image Wal-Mart and its ad agency thought it was. In equating a law passed by a city’s elected representatives with the violent suppression of free speech, and in elevating discount shopping to parity with the freedoms affirmed by the Bill of Rights, Bentonville disrespected not only its local opponents but all Americans. Wal-Mart’s belief in its own manifest destiny is so extreme that it often behaves as if it were a populist government in exile, rather than a particularly assertive—and dangerous—“special interest” of the sort that it is always denouncing.

  CHAPTER SEVEN

  WAL-MART’S CHINA PRICE

  In western Ohio, a few miles from the Indiana border, the city of Celina sits at the edge of Grand Lake St. Marys. The seat of Mercer County, Celina is home to about 10,000 people. The surrounding countryside’s particularly rich loamy soil is used to grow corn, soybeans, and wheat. Celina itself long has been a factory town. In the 1920s, its biggest employer at the time, the Mersman Brothers Corp., claimed that it produced one of every ten tables in America. More recently, Celina was home to the world’s largest bicycle factory—822,000 square feet of assembly space, offices, and warehouses sprawling over a fifty-acre site. It was owned by the Huffy Corp.

  Horace Huffman founded Huffy’s predecessor, the Huffman Manufacturing Co., in 1925 to make steel bicycle wheel rims. Horace was building atop a foundation laid by his father, the sewing-machine magnate George P. Huffman, who had gone into the bicycle business in 1892 in Dayton, about seventy miles to the south. (The elder Huffman retooled his sewing-machine factory to make bicycles about a decade before two other Dayton bicycle manufacturers, Wilbur and Orville Wright, branched out into aviation.) Over the years, Huffman produced some of the most memorable bicycles made in America: the Huffman Dayton Streamliner in the 1930s, the Huffy Radio Bicycle in the 1950s, and the Huffy Dragster with a distinctive banana-shaped seat in the 1960s. The company made fast-selling drop-handlebar racing bicycles in the 1970s and did much to popularize mountain bikes in the 1980s.

  However, by the mid-1990s, Huffy was in deep trouble. The U.S. bicycle industry had consolidated, sharply reducing the number of channels for selling bikes. “High-volume retailers,” as Huffy called them, had claimed three-fourths of the U.S. market, gaining tremendous leverage over bicycle makers. Wal-Mart in particular was pressing Huffy: It ordered 900,000 bicycles at one time, but insisted that Huffy lower its prices significantly. To remain a major player in the bicycle market, the Ohio company had little choice but to agree. “Wal-Mart is really the only show in town as to mass market,” said Matt Wiebe of Bicycle Retailer, a trade magazine. 1

  Huffy supplemented its production in Celina with a second factory in Farmington, Missouri, staffed with low-paid, non-unionized workers. This helped Huffy meet demand, but the company soon found that it simply could not make a profit selling bicycles at the prices that its biggest customer, Wal-Mart, was willing to pay. After losing $10 million in 1995, the company asked the union representing the workers in Celina—the United Steelworkers of America Local 5369—for a 20 percent across-the-board pay cut. The union quickly agreed to it, taking the average wage down to $12 to $13 an hour.

  Huffy returned to profitability in 1996 and 1997 only to again crumple under the pricing pressure applied by Wal-Mart. 2 The following year, m
anagement informed the union that the company had to lower its costs by another 35 percent. The city of Celina, desperate to keep its biggest employer, offered a $14 million package of incentives, but it was not nearly sufficient to alter the calculus of Huffy’s doom. Management insisted that the lion’s share of the 35 percent reduction would have to come out of the one cost that was not fixed: employee pay. This time, the union balked.

  When Huffy’s Celina employees arrived for work a few days later, on May 28, 1998, their managers called them together in the plant’s warehouse for what they said would be an important announcement. As Huffy executives informed workers that the company was closing the factory and laying off all 935 of them, a rumble of surprise and anger swept the warehouse. Several workers burst into tears. “I really thought I would retire from here,” said Joann Jones, who had worked at the Huffy plant for twenty-two years. 3

  After closing the Celina plant, Huffy shifted production to its factory in Missouri and also opened another non-union plant in Southaven, Mississippi. Workers in these facilities earned $8 to $10 an hour—still more than Huffy could afford to pay, as it turned out. The bike maker abruptly closed both factories little more than a year later, firing another 900 employees. The company subcontracted all of its work to China, where bicycle-plant workers earned just 25 cents to 41 cents an hour. 4

  Even moving production to China was not enough to save Huffy. It did gain market share, but remained unable to operate at a profit. In late 2004, the venerable bicycle maker tumbled into bankruptcy court, listing assets of $138.7 million and liabilities of $161.2 million. Its biggest creditor was the company it contracted with to build the bikes it could no longer afford to make itself: the Shenzhen Bo-An Bike Co. Ltd. of Shenzhen, China. In federal bankruptcy court in Dayton, Ohio, Huffy’s assets were turned over to its creditors, chief among them the China Export and Credit Insurance Corporation, or the Sinosure Group, an agency of the Chinese government that provides export credit insurance to Chinese exporters—like the Shenzhen Bo-An Bike Co. After years of struggling against the cut-rate Chinese bicycles that set the price target guiding Wal-Mart, Huffy essentially had become a Chinese-owned company.