The Bully of Bentonville

by Anthony Bianco

  _______

  Even as Wal-Mart’s aggressive pursuit of new markets at home and abroad alters its business model, the company is holding tight to the status quo when it comes to labor. Change is risky virtually by definition. But Bentonville’s if-it-ain’t-broke-don’t-fix-it attitude toward its workforce could well be exposing the company to greater risk of failure than all of its bold new market-expanding ventures combined.

  The best efforts of the David Glass Technology Center notwithstanding, retailing remains a touchy-feely, improvisatory sort of business—a reality that Wal-Mart acknowledges every time it airs one of its television commercials with the tagline, “Our people make the difference.” Given the dismal state of so many Wal-Mart stores, this is starting to sound more like blame than praise. Castro-Wright’s disclosure that fully 25 percent of Wal-Mart’s U.S. stores fail to meet even minimum customer expectations amounts to an admission that the company’s workforce is broke after all, since customer satisfaction correlates closely with what the company calls “associate engagement.” The financial consequences of this breakdown in employee morale are staggering; according to Castro-Wright, the rate of sales growth at Wal-Mart’s 800 best-performing stores is ten times, or 1,000 percent, greater than the 800 worst-performing outlets. 33

  Wal-Mart is running a serious risk of exacerbating this problem by upgrading the quality of its merchandise without also upgrading the quality of its staff. Wal-Mart, as always, is relying heavily on price to close a sale, in defiance of the general rule in retailing that the more expensive and technically complex a product, the more salesmanship required to move it off the shelves. Wal-Mart would have to pay up to attract clerks as knowledgeable about consumer electronics as Best Buy’s or as hip to next season’s new look as H&M’s. However, Bentonville is categorically unwilling to jeopardize its long-standing labor-cost advantage by loosening the purse strings on payday. “Even slight overall adjustments to wages [would] eliminate our thin profit margin,” Scott insists. 34 To the contrary, the company promised Wall Street in mid-2005 that it would redouble its efforts to squeeze labor costs.

  Even as half of its staff quits every year, Wal-Mart still promulgates the threadbare myth that its workers are so fairly treated by their “partners” in management that they just don’t need outside representation. When asked point-blank by a BusinessWeek reporter in the fall of 2005 why Wal-Mart is anti-union, Scott replied, “Gosh, I don’t think of us as anti-union. I think of us as having a company where we have an open-door policy. In this company, you can talk to…whoever you want to about what is happening. You don’t have to go to a third party and say, ‘Here is my issue.’” 35 The kindest interpretation of Scott’s comment—that the CEO was prone to wishful thinking—was obliterated a few weeks later when the contents of a confidential company memo laying out Bentonville’s cold calculus of wages and health-care benefits was splashed across the pages of the New York Times and other newspapers.

  As described by the memo’s author, Susan Chambers, Wal-Mart’s executive vice president for benefits, Scott’s associates were a sorry lot indeed. For a start, they were getting sicker at a much faster rate than most Americans, especially when it came to obesity-related diseases. From 2002 to 2005, the prevalence of diabetes among Wal-Mart workers rose by 10 percent and of coronary artery disease by 6 percent, compared with 3 percent and 1 percent, respectively, for the U.S. population as a whole. And yet less than half of all associates were covered under the company health plan and one-fifth had no health insurance at all. Workers’ children were especially vulnerable, with 46 percent of them either uninsured or covered only by Medicaid. Add it all up and Wal-Mart employees on average were spending 8 percent of their income on health care, double the national average.

  However, the plight of Wal-Mart’s workers was of secondary concern to Chambers, whose aim in writing the memo was to propose changes in Wal-Mart’s “benefits strategy” that would rein in the company’s health-care outlays without doing further damage to its reputation. Wal-Mart’s “increasingly well-organized and well-funded critics…have selected healthcare as their main avenue of attack,” stated Chambers, adding that “our critics are correct in some of their observations. Specifically, our coverage is expensive for low-income families, and Wal-Mart has a significant percentage of associates and their children on public assistance.” 36

  The most inflammatory aspect of Chambers’ memo was its implicit denigration of employee longevity at a company that claims to prize loyalty. “The cost of an associate with 7 years of tenure is almost 55% more than the cost of an associate with 1 year of tenure, yet there is no difference in his or her productivity,” she wrote. “Moreover, because we pay an associate more in salary and benefits as his or her tenure increases, we are pricing that associate out of the labor market, increasing the likelihood that he or she will stay with Wal-Mart.” In the revelatory glow cast by Chambers’ comments, the Wal-Mart cheer now looks not only archaic but downright sinister. A company that forces its employees to make daily affirmations of loyalty even as it devises schemes to induce long-timers to leave can only be described as Orwellian.

  In the fall of 2005, Wal-Mart remade a second-floor conference room in its Bentonville headquarters into a political-style “war room” with the aim of escalating its public relations campaign to win the hearts and minds of the American consumer. It was set up after the company sought out Edelman Public Relations, a top Washington-based firm that assigned two of its senior executives to the Wal-Mart account: Michael Deaver, formerly communications director for the Reagan White House, and Leslie Dach, one of Bill Clinton’s senior media advisers. Among the staffers Edelman dispatched to full-time duty in Bentonville were a half-dozen former political operatives, including Jonathan Adasek, a top director of national delegate strategy for the 2004 Kerry campaign, and Terry Nelson, the national political director of the 2004 Bush campaign. 37

  Wal-Mart’s creation of its very own “rapid response” PR swat team was another of those recent developments that would have perplexed and annoyed Sam Walton, who essentially believed that corporate image-polishing was a waste of time and money. Scott had every hope of maintaining Wal-Mart as one of America’s most insular public companies, but was forced out of his Bentonville fortress by the maelstrom of criticism that has rocked the company over the last few years. “We used to believe you could run the company out of Bentonville, Arkansas, and if you took care of your business, your employees and your customers, everyone would leave us alone,” Scott said in the fall of 2004. “What we’re trying to do now is reach out.” 38

  After greatly boosting its spending on image advertising and enlarging its in-house PR staff several orders of magnitude, Wal-Mart turned to Edelman for help in coping with a fresh assault launched by its most determined natural enemy: organized labor. Having folded the classic unionization campaign led by Mike Leonard from 1999 into 2004, the United Food and Commercial Workers Union resumed its war against Wal-Mart in the spring of 2005 with a new strategy and a host of new allies. The UFCW joined with the Service Employees International Union to form an anti–Wal-Mart coalition that included some fifty environmental, student, community, and women’s organizations.

  The coalition in turn spawned two Washington-based pressure groups, Wal-Mart Watch and WakeUpWal-Mart.com, that incorporated the latest techniques of political campaigning in the Internet age to what amounted to the PR equivalent of a guerrilla war against America’s largest company. Both groups relied heavily on politicos, though not in the bipartisan spirit of Edelman’s Wal-Mart team. Paul Blank, campaign director of WakeUpWal-Mart.com, was political director of the Howard Dean presidential campaign, while Wal-Mart Watch’s staff includes Jim Jordan, ex-director of the Kerry campaign. Between them, these two union-financed groups have signed up a few hundred thousand members across the country and even penetrated Wal-Mart’s home office. An anonymous Bentonville staffer slipped the Chambers memo into a plain manila envelope and sent it to
Wal-Mart Watch, which passed it on to the Times.

  Even before the Chambers fiasco, Wal-Mart Watch and WakeUpWal-Mart.com had succeeded in putting Scott and company squarely on the defensive. “Today, we’re the focus of one of the most organized, most sophisticated, most expensive corporate campaigns ever launched against a single company,” said Scott in sounding the alarm at Wal-Mart’s 2005 annual meeting. “A coalition of labor unions and others are spending $25 million to do whatever they have to do to damage this company. That’s a lot of money, that’s a lot of firepower, scattered around a lot of territory.” 39

  Having finally manned full PR battle stations, Wal-Mart now is spinning its story as aggressively as any candidate for political office ever has—and with far more money at its disposal than any union or public interest group can muster. Make no mistake, Wal-Mart today is not a chastened giant looking to restore its reputation by confessing its sins and accommodating its critics. “Our goal is not to polish our image,” Scott said. “Our goal is to have the world understand who we are.” 40

  That said, the ordeal of engaging outsiders in debate and discussion has caused Wal-Mart to redefine its self-interest in ways that appear to be changing it for the better. For a start, the company is more inclined to hire outsiders to fill senior management jobs—and less likely to treat executives who leave to work elsewhere as traitors. Wal-Mart also has begun to decentralize its rather imperial real estate office in Bentonville, moving employees into new offices in cities across the country to interact directly with local officials on issues of store location and design instead of hiding behind consultants. The company is showing more flexibility in designing its stores to blend in better with surrounding architecture and to consume less land. Wal-Mart even has gone so far as to initiate out-of-court settlement talks with people who sue the company, instead of automatically hunkering down for all-out legal warfare.

  Wal-Mart made a surprisingly credible attempt to elevate the national debate over its economic impact above partisanship in sponsoring a by-invitation-only academic conference in Washington in November 2005. Ten papers were presented, only one of which was financed by Wal-Mart itself. Half of the studies were mildly or strongly critical of the socioeconomic effects of Wal-Mart’s business model. “We understood some conclusions might not be favorable,” said Bob McAdam, the company’s vice president for corporate affairs. “But if everything was one-sided, it would not be credible.” 41

  Even more surprising, Scott appears to have emerged an intriguing shade of green as a result of extensive discussions over the past year with left-leaning environmental groups. In the same “Twenty-First Century Leadership” speech in which he invoked Hurricane Katrina as a higher calling, Scott laid out a new corporate environmental agenda so broad and progressive that it would not have sounded out of place coming from Al Gore. “Environmental problems are our problems,” Scott declared. “The supply of natural products (fish, food, water) can only be sustained if the ecosystems that provide them are sustained and protected. There are not two worlds out there, a Wal-Mart world and some other world.” 42

  What has changed is not Wal-Mart’s politics, but rather the economics of energy. That is, the soaring cost of oil and its derivatives has created a potentially massive opportunity for the company to do what it does best: save money by devising new ways to stretch a dollar. (Taking on a greenish tinge also should help the company with its wooing of the very customers to whom it is pitching iPod Nanos and luxury sheet sets.) In his speech, Scott committed the company to investing $500 million a year over the next few years to improve the fuel efficiency of its truck fleet by 25 percent, reduce the solid waste produced in its U.S. stores by 25 percent, and create a new store prototype that would consume 25 percent to 30 percent less energy and lower greenhouse gases by 30 percent. In addition, Wal-Mart vowed to press its vendors to reduce waste in packaging, do more recycling, and cut their use of pesticides and other pollutants in everything they do.

  Environmental groups reacted carefully, offering qualified praise while saying that they wanted to make certain the company carried through on its new initiatives in publicly accountable ways before clapping Scott on the back. “If they do these things, it’s not green-scamming,” said Carl Pope, executive director of the Sierra Club, which is a founding member of the UFCW’s new anti–Wal-Mart coalition. “If they did what they say they will, it would be a major shift.” 43

  In the same speech in which he laid out his environmental manifesto, Scott also departed radically from Walton-era orthodoxy in declaring Wal-Mart’s support for an increase in the federal minimum wage of $5.15. For a union-hating company whose founder spent the first decade of his career playing fast and loose with the minimum wage to suddenly come out in favor of one of organized labor’s pet proposals seemed like apostasy. “Is Wal-Mart going wobbly?” asked the Washington Post. 44 No, it isn’t, at least not in the sense of becoming softhearted. But Scott’s seemingly out-of-the-blue endorsement of long-stalled legislation to boost the minimum wage was a cry for help from a company that is beginning to realize that it has backed itself into a corner by re-creating a vast swath of the world economy in its low-price, low-wage image.

  Despite all the money that Wal-Mart boasts of saving them, the working-class “loyalists” on whom the company’s immediate fortunes still hinge are hurting financially. “We can see first-hand at Wal-Mart how many of our customers are struggling to get by…” Scott said. “Our customers simply don’t have the money to buy basic necessities between pay checks.” Why not? Their living expenses are rising much faster than their wages, which aren’t really rising at all. Or, as Scott discreetly put it, “There are global forces at work flattening pay scales.” Yes, and one of them—the most powerful such corporate force by far—is called Wal-Mart.

  It is well within Wal-Mart’s own power to raise the living standards of the American worker by raising its own minimal wages and benefits. Despite the fresh thinking going on in Bentonville on some issues, elevating the hourly wage scale is out of the question. “Because we are so big, people forget that we have to compete,” Scott said. More to the point, because Wal-Mart is so big and so obsessively focused on parlaying low prices into market share, it has forced both its competitors and its vendors to dance to its single-minded tune, dragging down wages with prices.

  Even as it moves up the merchandise food chain into higher-priced, higher-quality goods, Wal-Mart continues to measure its corporate manhood by the gap between its prices and those of its competitors. It simply knows no other way to compete and seems no more capable of altering its path now than a hammer can avoid the nail it was made to pound. In calling for a hike in the minimum wage, Wal-Mart in effect is asking Congress to bolster the spending power of its customers at the expense of the employers who pay even lower wages than it does. (There are some.) Congress almost certainly will not comply, as long as the Republican Party to which Wal-Mart contributes so heavily controls every branch of the federal government. Today, nearly half a century since Sam Walton opened that first store in Rogers, Arkansas, it is far from certain that even Wal-Mart can thrive in a Wal-Mart world.

  NOTES

  CHAPTER ONE: THE CASE AGAINST WAL-MART

  1. Jon P. Goodman, “President’s message,” www.townhall-la.org.

  2. Lee Scott, “Wal-Mart and California: A Key Moment in Time for American Capitalism,” February 23, 2005, 1. Available at www.walmartfacts.com/docs/981_ leescottspeechattownhall2-23-05_1492524199.pdf.

  3. Ibid., 2.

  4. Ibid., 7.

  5. Al Lewis, “Car Techs Get Crash Course on Unionizing,” Denver Post, February 13, 2004.

  6. Arindrajit Dube, Barry Eidlin and Bill Lester, “Impact of Wal-Mart Growth on Earnings throughout the Retail Sector in Urban and Rural Counties,” Unpublished paper, University of California at Berkeley, 2005.

  7. David Neumark, Junfu Zhang and Stephen Ciccarella, “The Effects of Wal-Mart on Local Labor Markets,” unpublished paper, avai
lable at www.globalinsight.com/publicDownload/genericContent/neumark.pdf.

  8. Michael Sasso, “Critics Push Wal-Mart on Health Coverage,” Tampa Tribune, June 2, 2005.

  9. Steven Greenhouse and Michael Barbaro, “Wal-Mart Memo Suggests Ways to Cut Employee Benefit Costs,” New York Times, October 26, 2005.

  10. Lewis, op. cit.

  11. Steven Greenhouse, “In-House Audit Says Wal-Mart Violated Labor Laws,” New York Times, January 13, 2004.

  12. The five are Home Depot, Kroger, Target, Costco, and Dell Computer.

  13. Lee Scott, “Twenty-First Century Leadership,” October 24, 2005, http: walmartstores.com/Files/21st%20Century%20Leadership.pdf.

  14. Mark Shaffer, “Flagstaff Divided on Big-box Store,” Arizona Republic, May 15, 2005. For election results, see Shaffer, “Wal-Mart Backers Win a Squeaker in Flagstaff,” Arizona Republic, May 18, 2005.

  15. Interview with author, September 22, 2004. Birdsall is a vice president of development for Regency Centers, a large national owner and builder of shopping centers anchored by grocery stores.

  16. Interview with author, March 1, 2004.

  17. John M. Broder, “Voters in Los Angeles Suburb Say No to a Big Wal-Mart,” New York Times, April 8, 2004.