Wal-Mart Fights for Its Reputation
The Giant Retailer is Launching a Nationwide Ad Campaign Just as Critics are Stepping Up their Attacks
Business Week- January 9 2007
By Pallavi Gogoi
The ad opens with a grainy shot of a retail store. "It all began with a big dream in a small town," a narrator says. The image changes to Sam Walton, the founder of what has become Wal-Mart Stores (WMT), the country's largest retailer. It goes on to describe how Wal-Mart workers believe in treating customers "like family," how the company has created "thousands of American jobs," and how when Wal-Mart comes to town, "it's like getting a nice pay raise."
The advertisement is part of a multimillion-dollar marketing campaign that Wal-Mart launched nationwide on Jan. 8 to tell viewers about the positive characteristics of the retail chain that has been under fire in recent months. The ads also claim that Wal-Mart's employees get health benefits for less than $1 a day and that the company contributed $245 million to local charities last year. "We think this will give more people the opportunity to learn about who we are, as we strive to build what is good for American working families," says David Tovar, spokesman for Wal-Mart. "And it will give people comfort as they shop our stores."
If only it were that easy. Wal-Mart's critics have been hammering the company over a number of issues, including its pay and benefits practices, and they show no signs of backing off. On the very day that Wal-Mart launched its ad campaign, a group called the Los Angeles Alliance for a New Economy organized a teleconference in which religious, political, business, and civil rights leaders called on Wal-Mart to improve its treatment of employees and become a more responsible community partner.
The group released two statements signed by 100 urban leaders—one demanding that Wal-Mart's chief executive, Lee Scott, change his approach to urban communities, the other calling on elected officials to enact policies that encourage the creation of good jobs in urban America. "Our research found that when Wal-Mart comes into any area, it reduces earnings of the community by 1.3% and the worst affected are black workers and others of color," says Steven Pitts, a labor policy specialist at the University of California, Berkeley, who took part in the conference call.
The Los Angeles group also released a report on the impact of Wal-Mart on communities, stating that employees earn 20% less than the average retail worker earns and more than $10,000 less than what the average two-person family needs to meet its basic needs. The company enrolls fewer than half of its employees in its costly health insurance plan, compared to 67% for the average large employer.
As a result, taxpayers end up subsidizing health care for the company's workers. "In California alone, taxpayers pay $32 million annually in medical care for Wal-Mart employees," says Tracy Gray-Barkan, director of retail policy for the group and author of the report. Wal-Mart's Tovar wouldn't comment on the specifics because he didn't know the origins of the cited data but said: "Wal-Mart is proud of the economic impact that we have in communities in that we provide competitive jobs and opportunities and save money for working families in the communities that we operate in."
The back and forth between Wal-Mart and its critics underscores the fundamental challenge facing the retailer. Scott is pressing hard to improve the company's image, yet financial pressures are pushing him to take the kind of actions that antagonize the company's critics. While the activists call on Wal-Mart to boost pay or slow expansion, the company needs to open new stores and keep tight controls over expenses to satisfy shareholders. Its stock has gone sideways for five years, frustrating many investors. "As a shareholder, my main concern is that Wal-Mart might be reaching saturation point in the U.S., and if they show continued same-store sales declines, it's a huge worry," says David Abella, portfolio manager at New York's Rochdale Investments, which has $2.3 billion in assets.
He's not the only investor who's concerned. Patricia Edwards is a managing director and portfolio manager at Seattle money manager Wentworth Hauser & Violich, which has $7.9 billion in assets including Wal-Mart stock. She points out that a shiny new Wal-Mart Supercenter is built and ready to open in Chelan, Wash., but has been put on hold because of opposition from the town's citizens. The opening was planned for Jan. 22, but some opponents want to tear down the structure. "Not only is [Wal-Mart's] battered image having a negative impact on sales and earnings, but on its efforts to build new stores," she says. The company's sales growth has been sluggish of late. In December, same-store sales were up 1.6%, the slowest rate in six years.
Wal-Mart clearly recognizes the importance of its corporate image. It has been increasing efforts to counter critics in the last year and half. For years, the company avoided politics, but now it has hired PR giant Edelman and a string of big name political consultants, including Leslie Dach, a former media advisor to President Bill Clinton. The company has also steadily boosted political contributions, particularly at the state and local levels, where many of these issues are coming to the fore (see BusinessWeek.com, 9/28/06, "Wal-Mart's Rising Political Payouts").
Still, Wal-Mart and its business practices may become even more of a political issue in the months ahead. Presidential hopefuls Senator Barack Obama (D-Ill.) and John Edwards have already made it clear that the practices of Wal-Mart and other big businesses will be major campaign issues. And two union-funded groups, Wal-Mart Watch and WakeUpWalMart.com, are increasing the pressure on the company, charging that the Bentonville (Ark.)-based company mistreats its employees and doesn't pay a living wage or offer affordable health care (see BusinessWeek.com, 10/31/06, "Wal-Mart: A 'Reputation Crisis'").
These detractors see little new in Wal-Mart's latest advertising campaign. "Unfortunately, using Sam Walton's image in a new TV ad doesn't change the reality that Wal-Mart has turned its back on everything Sam Walton stood for, by capping salaries, eliminating health-care plans, ending its "buy American" program, and implementing a new antifamily scheduling policy that makes it difficult for employees to take care of a sick child or schedule day care," says Chris Kofinis, communications director at WakeUpWalMart.com.
Wal-Mart is fighting for its image—and for its financial future. Its reputation is becoming increasingly important to its growth strategy, as it pushes to expand into urban areas and to attract more high-income customers. "Wal-Mart is an embattled company and is fighting many wars on all sides," says Edwards of Wentworth Hauser. "The management is in a situation where they need to be working and sleeping with flack jackets on."
