Wal-Mart Tries to Go to Town

Back in the 1980s and early 1990s, the most eye-catching graphic in the Wal-Mart annual report was the “measles map” of the United States, in which each dot represented a company store or distribution center. At first, they were all clustered in Arkansas, Missouri, Oklahoma, and Texas, Wal-Mart’s home turf, but then, year by year, the map charted a seemingly inexorable, disease-like spread as state after state became densely covered with scores of little black dots. The Midwest and South were largely dot-filled by the end of the 1980s; New England and much of the Pacific Coast were spotted less than a decade later. Soon, more than 4,000 dots filled the U.S. map, taking up almost every available space.

Wal-Mart executives dropped the measles map in 1994, because, well, a lot of people thought of the company’s growth as something close to a cancerous malady corrupting the body politic. Why reinforce that imagery? More important, though, the dot-filled graphic was not quite as impressive as it seemed. The dots never made it into Chicago, New York, Los Angeles, San Francisco, Boston, Washington, D.C., or other Northern and Western cities. And these urban markets constituted at least 20 percent of the nation’s buying power, with plenty of hard-pressed consumers who wanted cheap food, clothing, and hard goods. From Wal-Mart’s point of view, those out-of-reach consumers represented somewhere between $80 billion and $100 billion in potential sales.

Wal-Mart was barred from these big blue cities because a coalition of unions, liberals, and environmentalists, including a large slice of those elected officials representing African American and Latino communities, said no. More recently, though, Wal-Mart has been banging on these doors again—this time around, marketing itself as an environmentally sensitive, job-providing panacea for urban America. While doing nothing to alter its exploitative labor practices, Wal-Mart has worked hard to woo an incongruous collection of liberal constituencies, including enviros, building-trade unions, and inner-city pols. They’ve gained a limited entry—one store here, another there—to some cities they couldn’t crack half a decade ago. Whether they can gain more—flooding into the cities and bringing down the wages of hundreds of thousands of unionized urban grocery workers in the process—remains to be seen.

Throughout much of the last decade, liberals were able to blunt Wal-Mart’s drive into urban America. Southern California was ground zero in this fight. In 2002, Wal-Mart announced that it wanted to build at least 40 Supercenters in the state, many in Los Angeles and other consumer--rich coastal regions. Management at such old-line supermarkets as Safeway and Kroger were so fearful of this Wal-Mart invasion that in late 2003, they proposed slashing wages and benefits to meet the new competitive standard set by Wal-Mart if and when the giant retailer built its stores—precipitating a four-month strike by the United Food and Commercial Workers (UFCW). The strike ended in a decisive defeat for the union’s 70,000 Southern California grocery workers. The chains forced the UFCW to accept a new contract that reduced pensions, capped health-insurance payouts, and instituted a two-tier wage structure that made it almost impossible for new hires to earn a decent wage. 

Meanwhile, Wal-Mart barreled ahead with its expansion plans. In Inglewood, a declining African American and Latino city enfolded within Los Angeles, Wal-Mart found the City Council unreceptive. The company then organized and funded a local group called Citizens Committee to Welcome Wal-Mart to Inglewood, which quickly gathered enough signatures to require the city to put on the ballot Wal-Mart’s own 71-page planning document. Voters were asked to approve Wal-Mart’s stores as designed, without possibility of a public hearing or city review. 

But this Wal-Mart invasion, labeled “a Confederate economic Trojan Horse” by the Rev. Jesse Jackson at an Inglewood rally, came up short. Spurred on by a coalition of liberals and labor determined to mitigate the consequences of the UFCW defeat, Inglewood voters turned back the Wal-Mart ballot initiative by a decisive margin. Even more important, the unions became far more sophisticated in their battle against the big retailer. They teamed up with the savvy Los Angeles Alliance for a New Economy, a public-interest policy group that had links to traditional liberals, the Latino-led labor movement, and planning advocates who sought to redevelop Los Angeles in a progressive, labor-friendly fashion. LAANE pioneered the community benefit agreement (CBA) concept whereby any business seeking to build or operate a new commercial development—a stadium, shopping center, hotel, or big-box store—would agree to meet environmental standards, hire local people at a living wage, pay adequate health-care benefits, and, in some instances, facilitate unionization by mandating employer neutrality during an organizing drive. 

Prodded by LAANE and the unions, the Los Angeles City Council enacted an ordinance in August 2004 that required big-box retailers to fund a cost--benefit analysis, on a store-by-store basis, designed to demonstrate that any new outlet of more than 100,000 square feet would not have an adverse economic or environmental impact on the surrounding community. Such an analysis would tally not only the jobs and sales-tax revenues generated by a new store—always a Wal-Mart talking point—but the hidden costs as well: traffic, policing, downward wage pressure, and the cost of taxpayer-financed safety-net programs for the children of low-income Wal-Mart employees. Soon, San Diego, Santa Ana, Turlock, and Long Beach had passed similar economic impact laws. And with Wal-Mart blocked from entering the LA market, the UFCW was able, in its 2007 and 2010 bargaining with unionized Southern California supermarkets, to partially undo the concessions it had been compelled to make in 2003.

But Wal-Mart would not play ball, refusing to participate in any of the impact studies mandated by these new ordinances or to enter into negotiations for a CBA covering one of the 180,000-square-foot Supercenters it hoped to build in urban California. Instead, the company continued to run expensive campaigns and support politicians who would give Wal-Mart condition-free access to coastal California, Chicago, New York, and other markets where unions were strong and politics bright blue. 

Wal-Mart lost most of these battles. Indeed, the conflict energized the company’s opponents and led to fierce debate and sometimes enactment of a slew of ordinances and laws that either blocked big-box stores entirely, provided for higher wages and benefits, or mandated an economic and environmental impact study. The Maryland Legislature, for example, passed a law that required any company with more than 10,000 workers in the state to devote 8 percent of its payroll to health insurance for its employees. Wal-Mart was the only firm affected by the legislation. 

A federal court soon struck down the Maryland law, but not before Wal-Mart reaped another round of publicity that tarnished the corporate image, putting the company’s growth “under siege in several regions of the country,” in the language of the marketing firm Bernstein Research. Indeed, after New York City rejected Wal-Mart’s 2005 effort to build a store in Queens, Lee Scott, then the company’s CEO, shot back with wounded Arkansas pride, “You have people who are just better than us and don’t want a Wal-Mart in their community.” 

 

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But Wal-Mart never gave up its quest for the urban market. Today, it needs those customers more than ever. Although Wal-Mart weathered the Great Recession better than a lot of other retailers, the Bentonville, Arkansas–based merchant is a mature company whose fortunes are depressed by the wage stagnation and unemployment that have made life so difficult for many of its shoppers. “Our own surveys and reports … indicate that financial uncertainty still weighs heavily on everyday Americans, including many of our core customers,” Wal-Mart CEO Michael Duke told investors late last year. Nearly 70 percent of Wal-Mart’s business comes from customers with household incomes of less than $70,000 per year. 

Same-store sales have actually dropped for seven quarters in a row as overall sales inch forward by a few percentage points each year. Wal-Mart’s stock price has been just about flat for a decade, even as those of rivals such as Costco have soared. And the income polarization that once robbed Sears and other middle-class retailers of their markets is now eroding Wal-Mart’s capacity to keep growing. Sam Walton, Wal-Mart’s founder, made his family rich by exploiting the vast lower-class market created by the economic turbulence during the 1970s and after. Today, a new cohort of retailers is finding a pool of truly desperate customers that even Wal-Mart has overlooked. There are now thousands of “dollar” stores in America—Dollar Tree, Dollar General, Family Dollar—which cater to shoppers who are often too poor to own a car. These stores, most a tenth the size of a typical discount emporium, are found in almost every strip mall in the country. They are cheap, dirty, and understaffed but are growing rapidly and stealing customers that Wal-Mart once counted as core clients. 

Things are not all that great abroad, either. Wal-Mart has stores in 16 countries, but income generated abroad is a much lower proportion of overall sales than it is at rivals Carrefour and Ikea, which are more adept at accommodating the culture of their host countries. Wal-Mart is doing great in Canada, but it plays second fiddle to Tesco in the United Kingdom and failed utterly in Germany and South Korea, where it lost billions before pulling out. Wal-Mart is the dominant retailer in Mexico but faces “competition” from a vast informal economy that the big-box retailer cannot penetrate. Meanwhile, Wal-Mart has just closed its Moscow office, and in China, which the company sees as a potential market second only to the United States, expansion has been far slower than company public relations might have one believe. Even after more than a decade in the country, Wal-Mart still only has 328 stores there, fewer than in Texas. Wal-Mart makes a ton of stuff in China, but the Chinese themselves don’t buy all that much of it.

So the cities beckon, but in its efforts to enter them, Wal-Mart has had to adopt a new set of tactics and hire some culturally and politically attuned executives. Chief among them is Leslie Dach, a Yale-educated New Yorker, longtime environmentalist, and a former staffer for both Edward Kennedy and Michael Dukakis. Dach, who was hired in 2006, has been more than another public--relations flack. He signifies the company’s determination to put its best foot forward when it comes to mollifying some of the company’s blue-city critics. 

To solve Wal-Mart’s “reputational” problems, Dach and company moved along two fronts. They mollified company critics where possible but divided them when opportunity and necessity coincided. Thus, in June of 2009, Wal-Mart President Michael Duke joined with trade union leader Andrew Stern and John Podesta of the progressive Center for American Progress in endorsing one of liberal Democrats’ key ideas in the health-care legislative fight. This was the employer mandate, which would require that all large corporations either provide health insurance or pay a mandated fee—$750 was the ballpark figure—to the government for every employee who was not covered. 

This “pay or play” plan put Wal-Mart on the side of unions and liberals and seemed to let Wal-Mart off the hook for its own inadequate health-insurance offering, a vulnerability unions and blue-state public officials had long listed at the top of the company’s sins. Although Wal-Mart itself did not trumpet its tack to the left in the health-care debate, executives at the industry lobbying arm, the National Retail Federation, declared themselves “flabbergasted” at what they saw as Wal-Mart’s “catastrophic” endorsement of a government mandate that most retailers, once including Wal-Mart, have long considered anathema. 

The mandate idea was eventually excised from the Obama administration’s health-care bill, but Wal-Mart was nevertheless quietly pleased with the final legislation. Like the Earned Income Tax Credit and the Children’s Health Insurance Program for the poor, the new health-care law amounted to a vast subsidy for Wal-Mart’s low-wage workforce. The expansion of Medicaid to all those making up to 133 percent of the official poverty level will probably mean that about half of all Wal-Mart workers will be directly covered by this government program. And from Dach’s perspective, the company’s new respectability was worth its weight in gold. “Retailer’s Image Moves from Demon to Darling” headlined The Wall Street Journal in July 2009, after which Michael Duke was among the handful of friendly executives President Barack Obama invited to lunch. That fall, Dach told Wall Street analysts that the new respect Wal-Mart had earned from politicians “has enabled us to continue to be part of this debate in a far more effective way than we have ever been on the sidelines.” 

Although it actually represents a far less ambitious departure from Wal-Mart’s core business practices, a “sustainability” initiative has also softened the retailer’s reputation. This is a multiyear effort to reduce the carbon footprint not only of Wal-Mart’s own stores and trucks but of every vendor in the entire transnational supply chain. A prologue came in late 2008 when Wal-Mart began to rebrand all its stores with a new logo that dropped the hyphen/star, instead offering the rounded, lowercase “Walmart” followed by an asterisk-like design resembling either a flower or a yellow sunburst. Wal-Mart executives then announced the creation of a sustainability index, which green activists soon dubbed “The Wal-Mart Index,” much to the company’s satisfaction. To create this universal rating system for products sold in Wal-Mart stores, the company is “asking” tens of thousands of supplier firms to survey their energy consumption, waste production, greenhouse-gas emissions, water use, and other environmentally measurable activities and then send the information to Bentonville. Wal-Mart will use its famed technological prowess to measure the environmental competence of thousands of suppliers and then display the results of every product it carries. 

 

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The initiative is classic Wal-Mart: Use the company’s tremendous buying power to foist as many costs as possible onto its vendors, thereby squeezing millions of workers and thousands of manufacturers. Discard those who fail to measure up and then take credit for the low prices or, in this case, for the environmental friendliness and nutritional value of the product when it finally reaches the shelf. But whatever the supply chains’ costs, these Wal-Mart programs demonstrate the pattern-setting power of the company. “We want [nongovernmental organizations] around the world, when they think of the partner who can help them move their agenda forward to think of us,” Dach says. “We want governments who need to have a partner who’s nonideological, pragmatic, and gets things done on a big scale to think of us. And we want our customers, when they may not have as much faith in some other larger institutions … to look to us as a trusted brand.” Indeed, “Wal-Mart is in a position almost like the Food and Drug Administration,” says Michael Jacobson, executive director of the Center for Science in the Public Interest. “I think it really pushes the food industry in the right direction.” 

More bluntly, says the ever political Dach, “It reduces the traction of our enemies in a meaningful way.” He could report, in campaign-mode language, that by the second half of 2010, company support among conservatives remained strong at 77 percent approval and that moderates liked the company almost as much. But Dach was most excited by the shift among self-described liberals. Five years ago, half gave the company a clear thumbs-down, and a sizable proportion said they would never shop there. But just four and a half years later, 59 percent of these liberals told a company--sponsored survey that they were now favorable to the company, while only 35 percent remained negatively inclined. 

So Wal-Mart has been making progress among environmentalists and liberals. But what about the unions that executives routinely label “enemies” of the company? Indeed, the UFCW, with more than 1.3 million members in the U.S. and Canada, constitutes the backbone of the anti--Wal-Mart coalition. Although the UFCW has never been able to organize a single Wal-Mart store in the U.S., it has successfully backstopped, with money and expertise, many of the activist organizations and local government officials who have battled Wal-Mart in the press and in politics. The UFCW fears that Wal-Mart will put unionized grocery stores out of business or set a new, low-wage and benefit pattern that will soon spread to the chains where the union has long represented workers—as it did in Los Angeles. 

Wal-Mart made no concessions to the UFCW, but the company did divide labor’s ranks. For years, the unionized building trades were almost as hostile to Wal-Mart as the UFCW was, because the company was willing to hire a set of aggressively anti-union contractors to build its stores and distribution centers. But in the summer and fall of 2010, Wal-Mart demonstrated that a divide-and-conquer gambit could work, even within the house of labor. First in Chicago and then in New York, Wal-Mart reached agreements with area building and construction trades councils that any new stores built in or near each city would be constructed by union labor. In Chicago, the agreement to build at least 21 new stores is to last for five years, the same as in New York. Both deals were notable because they were project labor agreements (PLAs), a collective-bargaining arrangement that mandates union labor, considerable local hiring, and apprenticeship programs for minority youth. Wal-Mart had never before signed PLAs of this sort, and these arrangements have long been anathema to anti-union contractors. It was not surprising, therefore, that the Associated Builders and Contractors, which represents these “merit shop” firms, saw Wal-Mart as a turncoat company. 

The UFCW and its liberal allies were furious but stayed publicly mum when it came to this building-trades betrayal. At the June 2010 Chicago meeting, where the City Council approved an agreement for the first of the new stores, debate was heated and sometimes personal. When the time came for the vote, however, all 50 aldermen and women endorsed the deal. 

So, is Wal-Mart going to be the savior of the cities? Defending his deal with Wal-Mart, Chicago Federation of Labor President Dennis Gannon laid it on the line: “We didn’t cave on anything. Take a look at the job market right now. Our communities need jobs. Take a look at the food deserts. Our communities need … grocery stores. Take a look at no building and construction trade going on in Chicago. Thirty percent unemployment.” 

 In Chicago, where overall unemployment hovers near 10 percent, Wal-Mart promises 2,000 new construction jobs, 10,000 staff positions, over $500 million in sales and property tax revenue, and a billion dollars in capital expenditure. Perhaps more realistically, in Washington, D.C., where Wal-Mart proposes to build four stores in areas often labeled “food deserts”—communities lacking quality grocery stores—the company promises 1,200 new jobs over the next two years, $10 million in new tax revenue, and pay that is “equal to or better than those offered by competitors, including unionized grocers.” 

But a lot of this is just well-tested public relations, adopted and adapted from the scores of “site fights” at which Wal-Mart is a past master. The company has long used the promise of an inner-city store as a “loss leader” designed to soften up the political opposition, especially in underserved minority neighborhoods. This was the pattern in Los Angeles, where Wal-Mart converted an old Sears store in the African American Crenshaw neighborhood, and on the West Side of Chicago, where the company hired a black-owned local contractor to build its first store. 

But if residents of Washington, New York, or Chicago expect the company to build more than a bare handful of Supercenters in the poorer, neglected neighborhoods, they will be mistaken. In Memphis, Houston, Atlanta, Cleveland, St. Louis, and other cities where Wal-Mart has faced little or no opposition, it has built just one or two stores in the inner-city neighborhoods. Those communities pretty much remain food deserts for the same reasons other supermarkets have not located there: too much poverty and crime and a dearth of the kind of customers who will spend a hundred or more dollars on their weekly shopping excursion. Instead, Wal-Mart, even more than its competitors, builds its stores largely in white, middle- and lower-middle-class neighborhoods, and in recent years, increasingly in the more affluent exurbs. 

 

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The Wal-Mart job promise is also likely to disappoint. Thousands will undoubtedly apply for the several hundred jobs that come with each store. Lines of desperate job seekers are now commonplace every time the word gets out that a new hotel, post office, or retail outlet is hiring. Wal-Mart will most likely overstaff its flagship urban stores for the first year or 18 months. After that, the distinctive Wal-Mart management practices will kick in: barebones staffing, high turnover, and a watchful eye on all those employees who manage to hang on and work their way up the salary scale. 

Indeed, the willful failure of Wal-Mart to provide a decent and secure career is the main difference between the company’s labor policies and those of its rivals. Wal-Mart is right to boast that its hiring wage—about a dollar above the minimum wage—is roughly the same as that offered by unionized chains, but if you hire on at Safeway or Giant, it is entirely possible that after a decade of reliable work, you can just about double your wages, build up a modest pension benefit, and secure the kind of regular shift that facilitates a relatively secure lower-middle-class lifestyle. No such career is possible at Wal-Mart, unless you are one of the lucky few who make the leap to store management. (The company boasts that 73 percent of all managers started off as hourly workers. That is true, but the real question is what proportion of hourly workers can expect to rise into the ranks of management, and that figure is both guarded and minuscule.) 

In fact, the incentive structure at Wal-Mart severely penalizes any overage in the store labor budget decreed by the computers at the main office in Bentonville. This makes it almost mandatory that store mangers churn the local workforce to eliminate those workers who have climbed the salary scale and to keep the flow of near minimum--wage greenhorns plentiful. Without a union, seniority system, or grievance procedure to restrain them, managers are free to be just as flexible as they like, moving workers about and cutting hours or shifts, in the process making the work lives of their “associates” short and unpredictable. Thus, the truth in a recent Wal-Mart advertisement touting the company’s “Hourly Jobs, Salaried Careers.” 

But what about all those low prices for which Wal-Mart is world famous? Here yet another recent Wal-Mart advertisement tells us a lot: “In today’s economy, nobody’s more committed to helping family budgets go further than Wal-Mart. Wal-Mart saves the average family about $3,100 a year, no matter where they shop. Save money. Live better. Shop Wal-Mart.” 

What is meant by “No matter where they shop”? Wal-Mart’s claim that the average family saves more than $3,000 a year is based on a study that the company commissioned from the economic research firm Global Insight. The report concluded that if 1985 is used as a baseline, then Wal-Mart’s remarkable innovations in logistics, its famous squeeze on vendors and manufacturers, and the downward pressures it exerts on the prices charged by competitors have led, over more than 20 years, to an overall decline in the consumer price index that works out to $3,100 per year per family.

This is indeed something to celebrate. Food, clothing, electronics, house goods; they all cost less than before Wal-Mart’s retail revolution. Unfortunately for Wal-Mart, this relative price decline has hardly been confined to the Bentonville--based merchant. The decline has seeped into every nook and cranny of the retail economy. Target, Kroger, Sears, and most other retailers have appropriated Wal-Mart’s innovations. Just as every automobile manufacturer soon installed a version of the assembly line first deployed by Henry Ford, so too have the Wal-Mart innovations become standard operating procedure in retail. The company does have a slight price advantage in groceries over firms such as Kroger. The difference, though, is not radical and shrinks as these rivals figure out how Wal-Mart does it. So the paychecks of urban shoppers at the new Wal-Marts will not go much further than they do at the chain supermarket down the block. 

Higher wages and a steady job would help shoppers out a lot more, if merely because even the most dedicated Wal-Mart shopper only spends about 20 percent of the family budget at the big-box discounter. The rest is spent on housing, health insurance, education, transportation, retirement savings, and the like. And those you still can’t buy at Wal-Mart. 

So, what is to be done now that Wal-Mart has cajoled its way into urban America? Given the weakness of both labor law and the labor movement, there is not much hope for unionization even in the most labor-friendly districts. But Wal-Mart can still be pushed, prodded, and regulated into acting like a mature company that lives up to its progressive public-relations campaign. If and when the new health-insurance law finally takes effect, many Wal-Mart workers will see a real improvement in their overall social and economic welfare. And should the Obama administration finally get around to pushing for a higher minimum wage—which remains a popular and effective social-policy tool—then the gap between the wages paid at Wal-Mart and its competitors will shrink. Finally, if Leslie Dach truly wants Wal-Mart to partner with all those environmental and nutritional NGOs, then the company may find itself forced to ameliorate some of the more destructive and exploitative practices embedded within its global supply chain.

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