Wednesday, August 26, 2009

Wal-Mart Faces Its Day of Reckoning

Wal-Mart Faces Its Day of Reckoning

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Since Sam Walton opened the first Wal-Mart in Rogers, Ark., in 1962, the company has grown into a global retailing colossus employing more than 2 million people in almost 8,000 stores worldwide and ringing up annual sales topping $400 billion.

The sheer size and scale of the empire is such that when someone holds up a mirror to Wal-Mart, what we see reflected back are many of today's most potent social, political, economic and cultural issues.

Labor historian Nelson Lichtenstein, a professor at the University of California, Santa Barbara, provides such a mirror in his latest book, The Retail Revolution: How Wal-Mart Created a Brave New World of Business.

He previously edited a collection of essays on Wal-Mart published in 2006 that defined the chain as "the face of 21st century capitalism." He began to focus on the company during the long-running 2003-2004 grocery store strike in Southern California, when three major grocery chains cited fear of Wal-Mart selling groceries for their hard-line stance in negotiations.

As a labor historian, he was a close observer of the dispute and became a regular source for reporters. He even sent his students to interview picketing grocery workers, and in April 2004, he organized a one-day conference on Wal-Mart at the UCSB campus.

"For 20 years I studied the auto industry, the classic industry of the 20th century," he said. "Then it dawned on me that retail, and Wal-Mart in particular, had in some sense taken over that role as the most important and influential industry."

In The Retail Revolution, he offers a detailed critique of the controversial company that so many people love to frequent and others to hate, and he drills deep into the corporate culture, history and past performance, distilling a sense of where the company stands now and where it goes from here.

He says Wal-Mart came to prominence during the conservative era of the early 1970s and the '80s and always prided itself on proclaiming, "Wal-Mart is America." Now, he says, the problems of Wal-Mart are the problems of America.

Lichtenstein focuses on topics that are as close to the heart of Wal-Mart as they are to the new Obama administration and many American citizens: the environment, health care reform, labor relations and what's happening in China.

He concludes that Wal-Mart, for so long the undisputed alpha male of the U.S. retail pack, faces a day of reckoning, to some extent, on all these issues. "Wal-Mart knows it has to change," he says, echoing Obama's message to the American people.

On the environment, for example, Wal-Mart recently sprang a surprise by announcing its intention to give an "eco-rating" to each of the hundreds of thousands of products carried in its stores.

Under the plan, which paints Wal-Mart an uncharacteristic shade of green, every product will carry a sustainability pedigree detailing its environmental history and impact.

According to Lichtenstein, Wal-Mart has long drawn environmental scorn, with critics characterizing its stores as big, ugly boxes often plunked down on "greenfield" developments where they proceed to suck the retailing lifeblood out of neighboring communities. The most prominent current fight is over what is actually a "battlefield" development -- a coalition of political odd befellows and celebrities have joined locals opposed to placing a Wal-Mart Superstore on the site of the Cil War's battle of the Wilderness in Northern Virginia.

He says the company has adopted various measures to placate its critics -- shrinking the gas consumption of its vehicle fleet and energy use in stores, reducing packaging and stocking "green" items like fluorescent bulbs and organic cotton clothing.

However, Lichtenstein, who admits he's no Wal-Mart fan, notes such moves also saved or made money for the company. Still, he applauds the latest proposal for a sustainable product index: "I'm willing to give them some credit on this one."

At the same time, though, he doesn't imagine the program will end up costing Wal-Mart much money. Rather he sees suppliers and manufacturers, constantly squeezed by the company's huge economic muscle, being forced to shoulder the extra expense.

Lichtenstein regards Wal-Mart's environmental policy as part of a wider strategy: appeasing one group of critics in order to weaken a broad coalition of opponents. Something similar seems to be happening with the company's apparent U-turn on health care.

Lichtenstein adds his voice to a scathing chorus condemning Wal-Mart's record on health care coverage, which he describes as both woefully inadequate and shamefully manipulated to ensure the least benefits to the greatest number of workers.

He says Wal-Mart has kept medical insurance costs low by limiting eligibility to its health plan, loading members with additional expenses such as high deductibles and co-pays, and providing only threadbare coverage for those most in need -- for example, mothers with young children.

But after years of dogged resistance to reform, Wal-Mart recently had a change of heart. In another surprise announcement, the company aligned itself with the idea of employer-mandated health coverage, part of Obama's vision in extending coverage to an estimated 46 million currently uninsured in America.

"We believe the time for comprehensive reform is now," the company said in a July statement. "The present system is not sustainable. The status quo is not an option."

Wal-Mart has earned some kudos for this, but Lichtenstein remains skeptical. Noting the fierce reaction of other retailers against Wal-Mart's position, he wonders if anything will really happen beyond the liberal-sounding statement once the lobbying dust settles in Washington.

In addition, he says the company already relies disproportionately on the state to provide health care for its workforce. Given the "modest" annual employer mandate of around $750 per employee suggested by Obama, Lichtenstein thinks this could even be a good deal financially for Wal-Mart besides an opportunity to deflect more criticism.

The about-face over health care reform leaves Wal-Mart in rare alignment with organized labor, the company's traditional nemesis: Since its earliest days, Wal-Mart has fought unionization tooth and claw.

The author argues this resistance is based not just on a desire to keep wages low but to deny the sense of security that unionization brings. Lichtenstein argues that the company's internal structure and operations, largely founded on fear and uncertainty, would be impossible if unions were allowed to take root.

He says at many unionized grocery stores, assistant managers are in the union. Wal-Mart, in contrast, has around 50,000 assistant managers who work up to 80 hours per week and can be moved around at random. "Nobody's ever laid off or fired," says Lichtenstein. "They're just told their hours are being cut or they're put on night shift."

He says high staff turnover -- "60 to 70 percent are churning very rapidly" -- is built into the Wal-Mart model, and the company loves it. The cost of training new people is offset by not having to pay more to long-serving staff, and employees are kept compliant through the fear of losing their jobs.

However, if health coverage improves and the minimum wage rises again in the next two years as planned, Lichtenstein says Wal-Mart will inevitably become a better place to work.

That means people will stay longer, gaining some sense of a stake in the company, which could increase the possibility of unionization. But don't hold your breath, he cautions, recalling how the company shuttered stores in Canada rather than accept unionization.

However, changes coming out of China could be harder to handle and may have the greatest impact on Wal-Mart -- and, at the same time, on the American consumer.

Lichtenstein, who made two trips to China researching this book, says that country is undergoing the kind of social turmoil that seems almost certain to boost wages -- therefore pushing up the price of goods -- enhance human rights and greatly improve conditions for millions of workers.

"So Wal-Mart and its clones face a day of reckoning," he writes. "Their relentless growth and Darwinian competitiveness have created a world that is increasingly inhospitable to their own success and to the well-being of countless people who make, sell or buy the products that line their shelves."

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