***image2***No one escapes the impact of the world's largest company-especially its workers.
H. Lee Scott Jr. looks every inch the chief executive of America's biggest and most powerful corporation as he strides through the lobby of the Omni Los Angeles Hotel on his way to make the most important speech of his career. Wearing an expensive,
well-tailored suit on his stocky frame, his hair carefully coiffed, and his corporate game face on, Scott shows no sign of his natural fear of public speaking. To the contrary, the 54-year-old executive appears eager for the chance to justify his company, Wal-Mart Stores, to the 500 business and community leaders who await him in the Omni's ballroom.
The Omni-a luxury high-rise located in a solidly pro-union, politically liberal city-is an unlikely venue for the chief executive of an Arkansas-based corporation that is famously frugal, deeply conservative, and Southern-fried to the core. Wal-Mart already has 180
stores in California, but its ambitious expansion plans call for it to quadruple this total while moving from the outskirts into the heart of Los Angeles and the state's other big cities. In many Golden State locales, Wal-Mart was being denied the zoning and other clearances it needed, and so Scott has flown out on this February day in 2005 to make the case for himself and his company in person at a luncheon sponsored by Town Hall Los Angeles, a nonpartisan group that immodestly but not
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inaccurately bills itself as a forum "for the most important thinkers and leaders on Earth."
Scott takes the stage to polite applause and opens with an aw-shucks flourish reminiscent of the late Sam Walton, the disarmingly folksy "Mr. Sam," who founded Wal-Mart in the remote Ozarks hill town of Bentonville in 1962. "I know that Town Hall Los
Angeles has a national reputation for hosting conversations on the issues that matter-talks that feature prominent figures from the worlds of government, business, the nonprofit sector, and the arts," Scott says. "It's a little humbling
for a shopkeeper from Arkansas to follow such folks to Town Hall's distinguished podium."
Scott soon discards the faux humility to offer a ringing defense of the embattled company where he has worked for 26 years. By selling vast quantities of goods at its trademark "Every Day Low Prices," Wal-Mart has single-handedly raised America's standard of living, saving
consumers about $100 billion a year, he contends.
"These savings are a lifeline for millions of middle- and lower-income
families who live from payday to payday," he says. "In effect, it gives them a
raise every time they shop with us." As Scott tells it, Wal-Mart also provides good jobs for hundreds of thousands of equally deserving employees, offers even part-time workers generous health insurance and other benefits, and contributes hefty tax payments to thousands of towns and cities from sea to shining sea. "I believe that if you look at the facts with an open mind," he says, "you'll agree that
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Wal-Mart is good for America."
Hold it right there. When America's largest corporation conflates its self-interest with life, liberty and the pursuit of happiness, alarm bells should go off in every city hall, statehouse and union hall in the land. Scott likes to call Wal-Mart an "agent" of the consumer, but this seems far too mild a description of a company of such size, power and righteous zeal. In the name of the shopper, Wal-Mart
systematically bullies its workers, its suppliers, and the residents of towns and cities disinclined to submit to the expansion imperative of a company currently opening new stores at the rate of 1.45 as day.
Who among us does not crave a bargain? But we Americans are not defined by how much money we save down at the Supercenter. We are a nation of workers first and shoppers second.
The reason Wal-Mart's behavior toward its employees, the
communities in which it operates, and its manufacturing suppliers is so important is that it casts such an enormous shadow over the American economy. In the big-business world, there is big, and then there is Wal-Mart Stores. The "shop" that Scott keeps will ring up more than $300 billion in revenue in 2005, more than any corporation in history. Wal-Mart's sales are greater than the next five biggest
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U.S.
retailers combined. By itself, Wal-Mart is China's fifth-largest trading partner, ahead of Germany and Great Britain. Every week, 138 million shoppers visit Wal-Mart's 3,750 stores in the United States and its 2,400 outlets in nine foreign countries. It employs 1.6 million people, four times as many as McDonald's, the world's second-largest private employer. Three hundred thousand more Americans now wear the Wal-Mart uniform than are currently on active duty in the Army, Navy, Air Force and Marines combined.
The so-called Wal-Martization of the U.S. economy certainly has its pluses. In applying relentless pressure on its 61,000 vendors to make the manufacture and distribution of most everything we consume more cost-effective, it has done more to boost U.S. productivity-a key indicator of the nation's economic vitality-than any other corporation. An oft-cited study by McKinsey & Company found that a remarkable one-eighth of the surge in U.S. productivity from 1995 to 1999 can be explained by
only two syllables: Wal-Mart. Similarly, in bringing their prices down to compete with Wal-Mart, rival retailers radiate the economic benefits of "Every Day Low Prices" throughout the ground
floor of the U.S. economy. The net effect is to suppress inflation, making every dollar spent in America go further than it would otherwise.
At the same time,
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economists at the University of California-Berkeley found that Wal-Mart's expansion during the 1990s cut the income of America's retail employees by 1.3 percent-or by $4.7 billion in 2000 alone. The average Wal-Mart hourly employee makes substantially less than the $12.28 average for retail workers in the United States; although the exact amount is debatable, the highest figure, Wal-Mart's own, is a mere $9.68 an hour.
What is more, the depressing effect of Wal-Mart's expansion on payrolls extends well beyond retailing. According to a 2005 analysis by economists at the Public Policy Institute of California,
take-home pay per person fell by 5 percent across the board following Wal-Mart's entry into a county. The evidence "strongly suggest(s) that Wal-Mart stores lead to wage declines, shifts to lower-paying jobs (or less skilled workers), or increased use of part-time workers," the authors concluded.
Surely, no mogul of equal stature has ever romanced his workers
as ardently as did Wal-Mart's founder Sam Walton. He spent the larger half of every workweek out among them, improvising merrily as he flew from town to town, usually accompanied only by his favorite bird dog, Ol' Roy. Field visits by CEOs tend to be stilted, nervous-making affairs tolerated at best by workers afraid of doing or saying the wrong thing. But Walton's visits were joyous, even raucous occasions. A reporter who accompanied Walton on a trip marveled that when he announced his presence over the public-address system, workers began to "shriek as if Elvis Presley had risen from the dead."
Walton's brilliance as an employee motivator was much envied by his CEO peers, most of whom would never have dreamed of leading a corporate cheer or, for that matter, donning a grass skirt and doing a hula down Wall Street, as Walton did in 1984 to settle a wager. The
fun and games were critical to Wal-Mart's success, for it was Walton's incandescent common touch that reconciled the contradiction at the heart of the company's approach to the labor-intensive enterprise of retailing. That is, Wal-Mart's business model worked well only if its hourly workers were both poor and highly inspired-a combination often found among inner-city public school teachers or disaster-relief volunteers but exceedingly rare in the world of big business.
The typical Wal-Mart entry-level worker stays on the job less
than a year-not nearly long enough to qualify for the profit sharing that helped cement the loyalty of earlier generations of employees. While many longtime "associates" (as employees are known in Wal-speak) still believe devoutly in the Wal-Mart Way and tend to break spontaneously into the company cheer at the annual meeting or other large company gathering, their numbers have dwindled sharply at a company that hires new
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workers at the unheard-of rate of nearly 800,000 a year.
Today, the typical Wal-Mart associate...is someone like Jonnie Monroe, a 22-year-old rock musician who went to a Wal-Mart store in Olympia, Wash., to buy a can of spray paint one day and applied for a job instead, intending to work only long enough to buy an amplifier for her band. She sailed through two interviews and a drug test and was hired in
February 2004, as a full-time cashier making $7.91 an hour. Her training consisted of shadowing another cashier and watching a video that included scenes of a sinister-looking union organizer working a parking lot. "It was weird, like an after-school special," said Monroe, whose supervisor made her cover up the small tattoo on her arm after a customer complained.
Monroe soon made friends with a co-worker, but within a few weeks the Customer Service Managers, or CSMs, separated them, making sure they worked in different sections of the store and eventually on different shifts. Wal-Mart discourages associates from forming friendships with the people around them, apparently because it both fears such fraternization will result in lost productivity and because there is a greater chance such bonds will facilitate unionization. If Monroe made even the smallest computation error, she had to call a CSM to fix it while customers waited impatiently. "Customers scream at you and there's nothing you can do," she said. Monroe was told not to joke around with her fellow workers or to make political comments, even on her breaks. Monroe came to particularly dread the "opening ceremony," otherwise known as the Wal-Mart cheer: "You guys treat
me like crap, you won't let me switch shifts, you won't let me dress like myself, won't let me act like myself, and now you want me to be, like, 'Yay, Wal-Mart'?" Monroe quit on the spot after 11 months when her boss refused to allow her time off to attend her brother's wedding in Chicago.
Every worker soon learns there are two unforgivable sins at Wal-Mart: stealing from the company and consorting with a union. "In my 35 years in labor relations, I've never seen a company that will go to the lengths that Wal-Mart goes to, to avoid a union," said Martin Levitt, a consultant who helped the company perfect its anti-union tactics before writing a memoir called
Confessions of a Union Buster
. "They have zero tolerance."
What distinguishes Wal-Mart from the many other large American corporations that are "union-free" and determined to stay that way is not only the depth of its antagonism toward
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collective bargaining, but also the steadfastness of its refusal to admit to it. Like every other bedrock tenet of the Wal-Mart Way, the company's evasive brand of
anti-unionism was Sam Walton's doing. "I've always believed strongly that we don't need unions at Wal-Mart..." he wrote in his autobiography,
Made in America
. "Historically, as unions have developed in this country, they have mostly just been divisive. They have put management on one side of the fence, employees on the other, and themselves in the middle as almost a separate business, one that depends on the division between the other two camps. And divisiveness, by breaking down direct communication, makes it harder to take care of customers, to be competitive, and to gain market share."
In a rare instance of defiance, workers in a store in Jonquière, Quebec-North America's staunchest bastion of trade unionism-voted in the fall of 2004 to join the union that Wal-Mart considers its archenemy, the United Food and Commercial Workers. In apparent retaliation, Wal-Mart, to the outrage of the people of Quebec, shut down the store, which still had 16 years to run on its 20-year lease, and put 190 workers on
the street in an area with one of Canada's highest unemployment rates.
"The principal strategic question for every American retail and
consumer-goods manufac-turer is 'What's my relationship to Wal-Mart?'" observes Peter J. Solomon, one of Wall Street's top retail experts.
Although Wal-Mart does not
gain from putting suppliers out of business, it enfolds them in a bear hug so powerful that it can suffocate them just the same. A classic example is
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pickle-maker
Vlasic Foods, which came to grief agreeing to Wal-Mart's demand for a gallon jar of dills that it could sell for $2.97, or for less than most grocers sell a quart. In no time, Wal-Mart was selling 240,000 jars a week, monopolizing Vlasic's production. The problem was not only that Vlasic made just a penny or two of profit per jar, but also that demand plunged for spears and chips, its most lucrative items. The more Wal-Mart sold, the less Vlasic made. When Vlasic begged Wal-Mart to let it raise the price, Wal-Mart stubbornly refused, threatening to stop carrying all Vlasic products if it discontinued producing the economy jar. Finally, Wal-Mart relented and allowed Vlasic to switch to a half-gallon size priced at $2.79. "The Wal-Mart guy's response was classic," recalled Steve Young, a former Vlasic executive. "He said, 'Well, we've killed it. We can back off.'" Wal-Mart's reprieve came too late for Vlasic, which filed for bankruptcy protection in 2001.
Forget that annoying smiley face: The truest symbol of the
post-Walton Wal-Mart is a supercomputer whirring quietly away in a temperature-controlled room in the David Glass Technology Center in Bentonville. Built within a converted aluminum plant located two miles from the home office, the center is home to Wal-Mart's 1,000-person Information Systems Division. Unlike the headquarters, which buzzes with the constant comings and goings of manufacturers' representatives vying to get their products onto Wal-Mart's shelves, the Glass Center is strictly off-limits to outsiders. A small placard hanging on the wall in the lobby offers a discreet hint as to why security is so tight, as well as explaining the company's innate paranoia. "We must be inventing and implementing faster than the competition is stealing," it reads. The Glass Center-named for David Glass, who succeeded Walton as CEO in 1988,
four years before Walton's death-houses what is easily the business world's largest computer database. The 460-terabyte capacity of its data warehouse dwarfs Amazon.com's 13 terabytes and AT&T's 26 terabytes, and is equal to nearly half of the information on the Internet.
Wal-Mart uses its great digital brain not only to figure out what to put on its shelves and to streamline the movement of merchandise through its distribution system, but also to closely monitor and evaluate its employees. "I could tell you last year on July 13 during the hours of 7 and 8 pm how much sales a store did and how much of it was rung up by Sally Jo, the cashier with operator number 342 [within] that hour," said Bill Thomas, a longtime store manager who recently left
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Wal-Mart.
Wal-Mart also relies on its centralized computer system to devise work schedules, with the aim of suppressing payroll costs by
fully staffing a store only when it is busiest. To better match the supply of workers with the need for their labor, the computer generates hour-by-hour projections of customer traffic and future merchandise deliveries. It then matches them up with workers' pay levels, availability, and so on to produce a weekly schedule for each store. As a result, associates' schedules not only vary weekly, but are subject to change on short notice. In effect, store workers now are on call virtually round the clock, subject to the dictates of a mainframe in Bentonville. In creating a retailing machine that spun faster and ground finer than any other in business history, Wal-Mart progressively transformed its store workers into faceless, low-cost and frequently replaced component parts.
To a greater degree than any of its competitors, Wal-Mart has
taken a moral stand in its merchandising decisions. Through its actions, if rarely its words, Bentonville chose sides in America's culture wars, adopting the same conservative default position that won George W.
Bush two terms in the White House: Placate the religious right and take your chances with everybody else.
Wal-Mart was the only one of the 10 largest drug chains to refuse to stock Preven when Gynetics Inc. introduced the morning-after contraceptive in 1999. Although Preven works only in women who are not pregnant, Pharmacists for Life and some other anti-abortion groups considered Preven an abortion pill. They pressed Wal-Mart to ban it. Wal-Mart complied, but insisted ethical concerns had nothing to do with its decision; company officials claimed the drug wouldn't have sold enough to be worth stocking.
The cover of Jon Stewart's
America (The Book): A Citizen's Guide to Democracy Inaction
was tailor-made for Wal-Mart, with its bald eagle and huge American-flag backdrop. "We thought the flag on the cover would do it for Wal-Mart since they're fond of selling things with flags on them," said Ben Karlin, co-author of
America
and producer of Stewart's
The Daily Show
and its spinoff,
The Colbert Report
. But some enterprising Wal-Mart buyer paged through the parody civics textbook and found a
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p
ortrait of the Supreme Court in which the heads of the justices had been Photoshopped onto naked bodies. As a result, Wal-Mart banned the book.
Many music labels produce edited versions of albums for sale at Wal-Mart by deleting swear words or by rerecording a tune with new lyrics. CD covers, too, are frequently altered to Wal-Mart's tastes. Even the late Kurt Cobain, the famously contrary frontman of the rock band Nirvana, caved when the retailer objected to paintings of fetuses on the cover of the
In Utero
album. "He remembered growing up in Aberdeen [Wash.] and knowing that Wal-Mart was one of the few places you could go to buy music," recalled Danny Goldberg, Nirvana's former manager. Nirvana also changed the title of the
In Utero
track "Rape Me" to "Waif Me."
In 2004, Wal-Mart finally stopped selling the infamous anti-Semitic tract
The Protocols of the Learned Elders of Zion
on its website. A faked account of rabbis meeting to plot Jewish
world domination, the document was concocted by the Czarist police in Russia in the 1890s. Adolf Hitler liked it so much he made it required
reading for the Hitler Youth. Although
The Protocols
was discredited long ago as a racist fraud, Wal-Mart affected neutrality in the disclaimer it attached to the book on Walmart.com. "If
The Protocols
are genuine (which can never be proven conclusively), it might cause some of us to keep a wary eye on world affairs. We neither support nor deny its message. We simply make it available for those who wish a copy."
Make no mistake, Wal-Mart is a company in crisis.
"As it stands right now and for the last few years, Wal-Mart simply isn't performing as a great company," said Jeff Macke, an East Coast money manager who is one of the most acerbic of
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Wal-Mart's many critics on Wall Street. From the day Scott succeeded Glass as CEO in January 2000 to the morning of the 2005 annual meeting, the price of a share of Wal-Mart common stock had fallen from $64.50 to $47.35. This decline of 27 percent lumped Wal-Mart in with the worst-performing U.S. retail chains over this period.
Wall Street is even more alarmed by another trend: Wal-Mart's loss of sales momentum in the United States.
Sales have continued to climb by 11 percent to 12 percent annually only because the company is opening 250 to 300 new stores each year. Strip out the impact of expansion, and the annual growth rate at Wal-Mart and Sam's Club [Wal-Mart's warehouse-store subsidiary, its answer to Costco] stores now is a meager 3.2 percent, down sharply from 8 percent in 2000.
Part of the problem is that existing Wal-Marts are losing business to new Wal-Marts as the company locates its stores closer together than before. At the same time, the company is beginning to pay what promises to be a steep price for having located the great bulk of its stores far beyond the reach of mass transit. The explosion of gas prices to well over $2 a gallon has meant many of Wal-Mart's low-income customers can't afford to drive out to the store as often, making it clear that Wal-Mart's economics are predicated on low-cost gasoline no less than on low wages.
In maintaining its traditional fixation on low-income consumers, Wal-Mart also has undercut its sales growth by failing to appeal
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equally to more affluent shoppers.
Finally, the escalating public controversy over Wal-Mart's socioeconomic impact on America also has significantly dented its sales. Image matters in retailing more than in most industries, and Wal-Mart's is in tatters. In a national survey taken for
Ad Age
in mid-2005, Wal-Mart ranked second only to Enron Corp. as the "least trustworthy company in America. (In the same poll, in response to a second question, it ranked second only to General Electric as the country's most trustworthy company, affirming that the United States has polarized around Wal-Mart as sharply as any of the other hot-button issues dividing red state and blue.) By Wal-Mart's own estimate, 40 percent of Americans either are skeptical of the company or hate it outright.
Today, Wal-Mart is besieged by critics on all sides, but perhaps the greatest threat it faces is from within-from unhappy, demoralized employees who are quitting at the rate of hundreds of thousands a year and who have dozens of class-action lawsuits pending against the company.
Today, nearly half a century since Sam Walton opened the first Wal-Mart Discount City in Rogers, Ark., it is far from certain that even Wal-Mart can thrive in a Wal-Mart world.
