Why Wal-Mart is good
We've heard all the horror stories about the retail giant. They're just not true.
STEVE MAICH | Jul 25, 2005
There's a place on the western edge of Cleveland that encapsulates the story of the city -- its proud industrial past, its slow depressing decline, its hopes for a brighter future. But the battle now being waged over that patch of land tells an even bigger tale.
It's called the steelyard flats, a 130-acre plot of barren wasteland at the intersection of Interstates 90 and 71, in what was once the heart of Cleveland's thriving steel industry. The site has sat idle since 2000, when LTV Steel went bankrupt. The finishing mill was torn down, and the shells of a few remaining buildings have been crumbling here ever since. The place is now littered with discarded scrap metal, concrete and junk: a dozen old tires here, a shattered TV there.
Soon, however, this site will also be a symbol of renewal. In May, work began on what will be the first big-box shopping centre in this city of 500,000 people. It's called Steelyard Commons, and will include a Target store, a Home Depot, a Staples, plus restaurants and smaller businesses. It's expected to bring close to 2,000 jobs to the city identified as the most impoverished urban area in the U.S. in the 2004 census. Unemployment here runs at 11 per cent -- roughly double the national average.
But there's a problem. Wal-Mart Stores, the world's biggest retailer, will be the anchor tenant of Steelyard Commons, and that has transformed this place into another front in North America's most bitter retail cold war. Wal-Mart's critics say the company destroys local economies, putting small competitors out of business; that it abuses workers with low wages and paltry benefits; and that it drives urban sprawl and all the environmental damage that goes with it. And so, a coalition of labour leaders, activists and city councillors have banded together, vowing to keep Wal-Mart out even if it means killing the whole project.
It's a divisive political standoff that's been mirrored in communities throughout North America over the past few years. To the project's advocates in City Hall, this is just the kind of development Cleveland so desperately needs. Aside from precious jobs, the mall will spin off US$3 million in property taxes annually, US$1.8 million of which will go to the city's struggling school system, plus US$700,000 in local payroll tax. It will also give city residents a place to shop near home, rather than travelling to the suburbs. Officials estimate local residents spend US$4 billion a year in retail shops, a third of which currently goes outside the city. If ever there was a Wal-Mart that deserves support, they say, this is it.
But that's just the point: Wal-Mart isn't engaged in a series of messy local zoning disputes. It's at war with a well-financed, well-organized opposition, determined to fight it on every front. From Los Angeles to the Saguenay, from Hartford, Conn., to Vancouver, a broad array of activist groups and unions have launched protests, lawsuits and ad campaigns, all aimed at discrediting Wal-Mart, halting its growth, and unionizing its workforce.
Like most wars, it's about money and power, and the first casualty is truth. Because even after all the scrutiny and analysis of the Wal-Mart phenomenon, most of what we've been told -- about worker abuse, destroyed small-town economies, crushed suppliers and greedy management -- is wrong.
To Carol Foote, it just didn't make sense. It was near the end of the summer of 2000, and most of her neighbours in Miramichi, N.B., were planning to drive to Moncton, an hour and a half away, to buy school supplies for their kids at Wal-Mart. Foote knew that many in town already made regular trips there to buy household goods, clothes and electronics. And she knew every carload took more money from the local economy. But the prices, they said, were just too good to pass up.
So, Foote and her friend Paula Beaulieu decided to make it their mission to bring Wal-Mart to Miramichi. They organized a petition, and within six weeks they'd gathered 11,276 signatures in and around the town of about 19,000 residents. "The whole talk of the Miramichi was this petition," Foote remembers. "Lots of people would say, 'I'll sign, but we'll never get one,' and I'd say, 'C'mon, you've got to believe!' "
It took almost five years of trying, but last January Wal-Mart finally opened an outlet in Miramichi. Aside from creating dozens of jobs, Foote says the store has brought new life to the town's small commercial district. Pennington's has opened a store, Staples is on the way, and there is talk of a Quizno's sandwich shop. To city dwellers, the arrival of such mass-market brands is no big deal, but in a little town like Miramichi, they represent investment that would've seemed impossible a few years ago.
This is how the Wal-Mart revolution was built: on small towns like Miramichi. The numbers are truly staggering. Wal-Mart had sales of US$288.2 billion last year -- meaning, if it were a country, it would be the world's 33rd biggest economy, ahead of Sweden, Switzerland and Hong Kong. It has 1.7 million employees worldwide, slightly less than the population of Montreal. The company's stock has risen 79 per cent in the past decade, giving it a market value just north of US$200 billion -- more than the total combined value of Canada's Big Five banks. And profit rose 13 per cent last year, to US$10.3 billion, making it the undisputed Goliath of retail.
In Canada, the growth is no less impressive. Wal-Mart first arrived here in 1994, buying 122 Woolco stores with about 15 per cent of the department store market. Over the next decade, it more than doubled its number of outlets and increased its market share to about 52 per cent. And while critics portray this as the work of a ravenous invading force, the truth is most communities reached out to Wal-Mart and embraced it.
Foote heard lots of grousing about Wal-Mart, but when she looks at what it has brought to her town, she has no regrets. "We weren't trying to hurt our city, we just wanted it to grow," she says. "The stores here charged so much, people had to go to Moncton. And when they did, they'd buy their fuel there, they'd eat there. All our money was leaving town. I thought, 'This has got to stop.' " Rather than Wal-Mart crushing the few local businesses like the critics warned, she suspected the store would invigorate them, because that's just what has happened in hundreds of places across the country.
In 2002, Ryerson University completed the first major study on the company's impact on nearby small retailers, and found the opening of a new outlet is generally an economic boon for the whole area -- attracting other retailers and driving up sales at nearby stores. In metropolitan areas, a new Wal-Mart was generally followed by an increase of $56.8 million in local sales, and the opening of 12.9 new stores. In rural areas, the commercial boost was $74.1 million and 16.7 new stores on average. Meanwhile, economic growth in areas with Wal-Mart stores far outpaced growth in places without them. The final line of the study said it all: "It is difficult to make the case that a Wal-Mart store actually puts other retailers out of business."
That study confirmed what Wal-Mart had long claimed: that its stores are economic generators, not predators. And, it seems, even small-business owners are coming around to that view. A 2004 Canadian Imperial Bank of Commerce survey of more than 1,800 small-business owners across Canada found that just 16 per cent of respondents said they had been hurt by competition from big-box retailers like Wal-Mart and Home Depot. Five per cent said the big boxes had actually helped them, while the vast majority claimed little or no impact.
Andy Grossman, however, doesn't buy any of that. Grossman is executive director of Wal-Mart Watch, a lobbying and publicity organization that coordinates the efforts of several anti-Wal-Mart groups. In April, it launched a two-week media blitz across the U.S., with full-page ads in major newspapers like the New York Times alleging a by-now familiar litany of misdeeds. "Wal-Mart needs to become a better corporate citizen, a better neighbour and a better employer," Grossman says. And at the very top of his list of grievances is Wal-Mart's purported ill-treatment of its workers. But there again, research suggests the criticism is overblown.
To be sure, nobody is claiming that being a Wal-Mart associate is a job many would aspire to. It's a low-wage gig, with only moderate opportunity for advancement, and it's not easy. The average full-time Wal-Mart worker in the U.S. makes US$9.68 an hour, which works out to roughly US$17,500 a year before taxes. If that worker is a sole earner trying to support a spouse and child, it puts him only about US$1,500 above the federal poverty line. Labour advocates say that in light of Wal-Mart's US$10-billion profit, the company should pay higher wages. But a closer look at the numbers paints a different picture. Wal-Mart's 2004 profit works out to a little more than US$6,000 per employee, compared to US$54,000 at General Electric, and US$143,000 per employee at Microsoft. Despite mammoth earnings, Wal-Mart doesn't have as much room for generosity as it first appears.
Health care is another oft-cited complaint. Only about 48 per cent of Wal-Mart's workers buy into the company's health care plan, and critics say that's because it's too expensive: US$40 a month for an individual and US$155 for a family, plus a US$1,000 deductible. A recent study by researchers at the University of California at Berkeley concluded Wal-Mart's wages and benefits are so low that its workers in California rely on about US$86 million in public assistance every year. On the other hand, Wal-Mart points out that only about 36 per cent of all retail workers get employee-sponsored health care in the U.S. -- meaning its plan is better than most in its industry. And while unions say the company should provide big benefits like those offered by General Motors, financial analysts point out that skyrocketing health care costs now threaten the stability of GM's business and have contributed to massive layoffs -- hardly a model to emulate.
Even in Canada, where the health care issue is largely moot, it would still be difficult to raise a family on an associate's wage. But very few are in that position. While the majority of Wal-Mart employees work full time, the company also employs many students, seniors and people collecting a second income. And Wal-Mart says only seven per cent of its staff are supporting a family.
Perhaps most telling is the fact that most Wal-Mart workers seem content. Human resources consulting firm Hewitt Associates issues an annual ranking of Canadian employers based largely on worker satisfaction surveys, and for three of the past four years Wal-Mart has been named best retailer, due mainly to incentives like profit sharing and a discounted stock purchase program. And despite union claims of widespread mistreatment, Andrew Pelletier, director of corporate affairs with Wal-Mart Canada, says new stores usually receive between six and 10 applications for every available job.
The various campaigns to paint Wal-Mart as an avaricious and abusive employer simply don't hold up to scrutiny, says Elisa Sumanski, a legal analyst with the National Right to Work Legal Defense Foundation, a Virginia-based group that represents workers in disputes with their unions, and which has received grants from Wal-Mart's founding Walton family. "We think it's really pretty simple -- if Wal-Mart is such a terrible place to work, then why are so many thousands of people so eager to work there?" she says.
But when it comes to Wal-Mart, perception and myth are powerful. In spite of all the evidence to the contrary, the company is still struggling with the consequences of its increasingly tainted image. For much of the past year debate raged in Vancouver's city council over plans to build the city's first Wal-Mart. Opponents complained the store would be an energy-hogging blight on the environment. Wal-Mart responded by designing perhaps the most environmentally progressive big-box store ever -- lit with skylights, cooled with shade trees, with rainwater running the toilets, and a geothermal heating system run by wind-turbine power. But nothing could convince the critics. "Big-box stores create traffic congestion, cause air pollution and harm small businesses," said councillor Anne Roberts, who led the anti-Wal-Mart campaign. Last month, city council rejected the plan by eight to three.
Shortly after, Wal-Mart received its second B.C. rejection in a week, this time when the town council of the Vancouver Island city of Campbell River voted 7-0 against a rezoning application that would have paved the way for the retailer. More than 300 people spoke against Wal-Mart during three days of hearings, most saying the proposed riverside site should be used for a park. Pushing the development was the Campbell River Indian Band, which was hoping to buy the parcel of land from a logging company and had applied to have its status changed. After being turned down, some band members said racism had played a part in the rejection.
As far as Bruce Bartlett is concerned, people who hate Wal-Mart don't understand it.
Bartlett, a former deputy assistant secretary for economic policy at the U.S. Treasury Department, now serves as senior fellow at the National Center for Policy Analysis, a conservative Washington think tank. Over the past two decades, he has watched the company's astonishing rise with admiration, and the recent public backlash with dismay.
His concern is not primarily for the company or its executives. Nor is he worried for the descendants of founder Sam Walton -- by far the wealthiest clan in North America. Rather, Bartlett worries about the impact the war on Wal-Mart will have on the poor families who have come to rely on the stores. "The problem with this debate is that there's no one out there representing the people who've benefited from Wal-Mart, which is primarily the poor people," Bartlett says. "If you're stuck with a low income and you can reduce the amount you pay for basic items, then your real income goes up."
Those savings are substantial. In 2002, a study by the New England Consulting Group estimated that Wal-Mart's "everyday low prices" on a wide range of groceries and household goods saves U.S. consumers US$100 billion annually, or US$600 a year for the average American family. That's because not only does Wal-Mart sell for less, it forces competitors to cut prices in order to compete. UBS Warburg analysts measured grocery prices in various markets across the country and found that basic food items are 10 to 15 per cent cheaper in areas where Wal-Mart competes. So it's far from being an insidious influence: those savings are a godsend for consumers, especially for working-poor families. As W. Michael Cox, chief economist for the Federal Reserve Bank of Dallas, said in 2003: "Wal-Mart is the greatest thing that ever happened to low-income Americans."
As Wal-Mart has grown, those savings have sent ripple effects through every corner of the North American economy, even benefiting consumers who've never set foot in one of its stores. In 2002, the consulting firm McKinsey & Co. delved into the so-called "Wal-Mart effect" and found it was the biggest single contributor to the growth of economic productivity across the U.S. between 1995 and 1999. According to McKinsey, Wal-Mart's pioneering approach to computerized inventory management, and analysis of store traffic patterns to better deploy its staff in peak hours, improved the efficiency of thousands of companies. The U.S. National Bureau of Economic Research has found that Wal-Mart's prices have a significant impact on holding down the rate of inflation. That, in turn, helps keep interest rates low, and helps fuel economic growth.
All this isn't some happy accident, but a fundamental part of what makes the company tick. Ever since Sam Walton opened his first store in Arkansas in 1962, Wal-Mart has dedicated itself to providing the lowest possible price for people living on a budget. "The underpinning of everyday low prices is a commitment to lowering the cost of living," says Wal-Mart Canada's Pelletier. "That was Sam Walton's vision, and it permeates the company today. The only way we can do that is by driving waste out."
Even now, 13 years after Walton died, his obsession with cost is still evident in every aspect of the business. Head offices are spartan and basic. Company officials fly economy, and stay at bargain hotels. And every person, in every division, is constantly encouraged to look for less expensive ways of doing everything. Critics say this obsession with price has put relentless pressure on suppliers, even driving some out of business as they failed to meet Wal-Mart's demands for efficiency. But the company makes no apologies. It offers suppliers full access to sales data on every item sold, right to the minute and the penny. And every year thousands of small suppliers line up for the chance to get their products on Wal-Mart's shelves.
That helps explain why, for the past several years, Wal-Mart has ranked among the world's most admired companies, according to Fortune magazine's annual rankings. This year's survey of thousands of executives and industry analysts put the company first among retailers for innovation, employee talent, quality of management, financial soundness, and second for social responsibility.
So, last year, when Bruce Bartlett saw opponents in his own city of Washington defeat plans for a Wal-Mart, he shook his head. "It's just stupid and frankly insane if you really care about the well-being of your constituents," he says. "They're shooting themselves in the foot, and they're just showing that they really don't care about people at all. They'd rather cater to a few squeaky wheels."
But the wheels turning against Wal-Mart are more than squeaky. They're coordinated, tireless, and deeply committed to their cause. For them, defeating Wal-Mart is a matter of life or death.
Tom Robertson is a guy who wears his passions on his sleeve.
Sitting in his wood-panelled office near downtown Cleveland, the head of the northern Ohio chapter of the United Food and Commercial Workers union lays out his objections to Cleveland's proposed Wal-Mart, but he finds it hard to contain his contempt. "My mission isn't to organize Wal-Mart when they come to town. My mission is to keep them the hell out of town so they won't drive wages down," he explains, gaining steam as he speaks. "They just fuckin' destroy jobs, period, because they replace high-paying jobs with low-paying jobs."
Robertson is paid to defend the unionized workers at a chain of small local grocery stores that will be threatened by Wal-Mart's arrival. But, he acknowledges, this fight is about more than just this city and his roughly 1,600 local members. It's about saving the union movement itself, and that's why so many labour organizations and their political allies have joined the fight. "If Wal-Mart continues to grow and expand based on their terms and conditions, with nobody overseeing the way they treat people and compete, yes -- it could destroy the labour movement," Robertson says.
The plight of Robertson's own union illustrates why. Over the past three years, his local has lost 3,000 members -- a decline of more than 10 per cent -- and he says Wal-Mart is the number 1 reason for it. Unionized stores have had to cut staff and wages to compete, and other companies have increased efforts to prevent unionization.
The UFCW's membership crisis is but one example of a larger trend unfolding throughout the continent, as traditionally union-heavy industrial companies downsize, and as mostly non-union sectors like services, technology and retail become a much larger portion of the economy. The same phenomenon is happening in Canada, where private sector unionization has fallen from 26 per cent in the early 1970s to just 18 per cent in 2003. In short, organized labour is dying a slow death and its financial strength and political influence are waning as a result.
The fight over Wal-Mart is really a fight to halt organized labour's gradual death spiral. If the unions are to turn the tide, they need to be in retail, and if they are going to get into retail, they have to get into Wal-Mart -- union leaders themselves acknowledge as much. As Stuart Acuff, organizing director of the AFL-CIO, America's umbrella organization for trade unions, told Fortune last year, "If we want to survive, labour has no choice but to organize Wal-Mart."
They've spared no expense to do it. For the past five years, the UFCW has sent organizers around Canada and the U.S., trying to get Wal-Mart workers to sign union cards and force certification votes. It waged a four-year effort, at a cost of about US$3 million a year, to certify a single Las Vegas store. But so far, they've had no luck.
Wal-Mart has been equally aggressive in keeping the unions out. Managers are encouraged to report union activity, and the UFCW points to dozens of cases in which it accuses the company of firing workers for working on behalf of the union. When the UFCW was able to get a unit certified in Jonquière, Que., the company responded by shutting down the store. Pelletier insists, however, that this is not a fight over worker rights. "At the end of the day, this campaign is all about money for the union," he says. "The union is looking for dues to finance their operations. If they could collect union dues from our thousands of associates across the country, this would amount to millions of dollars a year into the union and out of the pockets of our workers."
Lately, though, the unions and their allies have changed their approach. Efforts to unionize have been stymied, so they've decided to focus on discrediting the company and slowing its growth. Hence Wal-Mart Watch's publicity campaign, and the union-supported zoning fights cropping up everywhere. "It's an effort to destroy Wal-Mart because the company's continued growth and success is really an argument against the need for unionization," Sumanski says.
But Andy Grossman says the union fight is only part of the picture. As he sees it, Wal-Mart is driving a vicious cycle: it starts with lower prices, and leads over time to a single player essentially rewriting the economics of the industry for everybody. Pretty soon, there are fewer employers, lower wages, less medical coverage, more poverty -- all widening the gap between the rich owners of Wal-Mart stock and the poor who shop and work there. "This is a societal fight," Grossman explains. "Wal-Mart is a symbol, because they're so good at what they do, others have to emulate them. This company's reach is so broad, we need to change the relationship between it and the communities it seeks to do business in, otherwise it's going to continue to destroy our societies."
For Grossman, those are the stakes: social destruction. Never mind that most of the research refutes this view. Never mind that millions more consumers vote with their feet and their wallets every year, opting for the financial freedom Wal-Mart affords. The point is that Grossman, and thousands of others, believe with near-religious zeal that Wal-Mart is dangerous. And the war drags on.
Back in Cleveland, Chris Ronayne is still a little baffled by the whole controversy. As chief of staff to Democratic Mayor Jane Campbell and former head of the city planning commission, he knew enough to expect opposition to any plan to bring Wal-Mart to the city. And he knew his boss would be locking horns with the very union bosses that helped put her in office in 2001.
Still, he didn't expect the debate to be so nasty. Opponents tried, and failed, to pass a change to zoning laws to keep the company out, and protesters recently tried to crash Campbell's re-election campaign kickoff. Former supporters have denounced the mayor for selling out to the Great Satan of Corporate America. "We see this as a first step toward a bigger turnaround, toward making Cleveland into a city that can attract residents," Ronayne says. "We know these are starter jobs, but this city has seen a serious erosion of our employment base and a starter job is better than no job, from our perspective. We need jobs, period."
And while there is certainly a vocal faction, led by the UFCW, vowing to keep fighting Wal-Mart every step of the way, it remains in the minority. With the support of about 78 per cent of residents in a recent poll and with a legal building permit in hand, it appears Wal-Mart has won this battle. The war, though, is less certain, and the company knows it. Already it's getting much more difficult and expensive for Wal-Mart to build stores. It is sued thousands of times every year by local activists, disgruntled ex-employees, and unions. Thanks to a steady stream of negative press, thousands of consumers would sooner go barefoot than buy shoes there.
The company, as always, puts a positive spin on things. Pelletier says all the scrutiny will only make Wal-Mart stronger and more responsive. He says it will keep listening to the complaints, and acting to address what it can. But the one thing that will not change is Sam Walton's admonition to put the customer first, always. Carol Foote likes it that way. "I think sometimes it's just easier for people to blame the other guy," she says. "If your customers aren't coming back, maybe you should look at why they're not coming back rather than trying to point the finger."
But the war on Wal-Mart raises more complicated questions. If the company helps poor families, creates decent jobs and fuels economic growth, what does it say that so many are so determined to stop it? More important -- if Wal-Mart loses this fight, who wins?
Read Steve Maich's weblog, All Business