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Wal-Mart Scandal

walmart scandalYou only have to look at the cover of Wal-Mart's 2004 annual report to know the company is facing trouble unlike any it has had to handle before.

“It's my Wal-Mart,” asserts the slogan on the cover of the annual report.

At the bottom are these claims: “Good Jobs * Good Works * Good Citizen * Good Investment.”


Missing is any reference to “Always Low Prices.”

Stepped up and novel community and legal challenges confronting the company are making the mammoth retailer expend energy on repositioning its image. Hence the annual report, the major image-oriented television ads, the sponsorships on National Public Radio — listened to by few of its shoppers — and the huge surge in campaign contributions. Wal-Mart and its managers gave more than $2 million to federal candidates in the last U.S. electoral cycle, more than any oil company, and almost triple the level the company donated in the 2000 elections.

The company faces a class action lawsuit on behalf of 1.6 million women workers, alleging rampant employment discrimination at Wal-Mart.

The Service Employees International Union (SEIU) has announced plans to spend $25 million a year with the ultimate goal of unionizing Wal-Mart, the largest private U.S. employer.

And the company — which has already lost more than 200 site fights — faces an even more-intensified resistance to its efforts to locate new stores, as it increasingly seeks to enter markets in more urban areas. In April, voters in the largely African-American and Latino working class town of Inglewood, California rejected a referendum that would have allowed Wal-Mart to open a Supercenter without being subject to normal municipal reviews.

But while on a bit of a public relations defensive, the company remains the colossus of U.S. — and increasingly global — retailing. It registers more than a quarter trillion dollars in sales. Its revenues account for 2 percent of U.S. Gross Domestic Product.

The company takes in more than one in five dollars spent nationally on food sales, and market researcher Retail Forward predicts Wal-Mart will control more than a third of food store industry sales, as well as a quarter of the drug store industry, by 2007. Wal-Mart is the largest jewelry seller in the United States, “despite the fact that the prime target market for jewelry — high-income women from 25 to 54 years — are the least likely of all consumers to shop for jewelry in discount channels,” as Unity Marketing notes. Wal-Mart is the largest outlet for sales of CDs, videos and DVDs. And on and on.

For two years running, Fortune has named Wal-Mart the most admired company in America. It is arguably the defining company of the present era.

The company's business model has relied on new innovations in inventory management, focusing on ignored markets (low-income shoppers in rural areas — though this is now changing), and squeezing suppliers to lower their margins. But it has also relied centrally on undercompensating employees and externalizing costs on to society.

A February 2004 report issued by Representative George Miller, D-California, encapsulated the ways that Wal-Mart squeezes and cheats its employees, among them: blocking union organizing efforts, paying employees an average $8.23 an hour (as compared to more than $10 for an average supermarket worker), allegedly extracting off-the-clock work, and providing inadequate and unaffordable healthcare packages for employees.

Miller's report's innovation was in documenting how Wal-Mart's low wages and inadequate benefits not only hurt workers directly, but impose costs on taxpayers. The report estimated that one 200-person Wal-Mart store may result in a cost to federal taxpayers of $420,750 per year — about $2,103 per employee. These public costs include:

$36,000 a year for free and reduced lunches for just 50 qualifying Wal-Mart families.

$42,000 a year for Section 8 housing assistance, assuming 3 percent of the store employees qualify for such assistance, at $6,700 per family.

$125,000 a year for federal tax credits and deductions for low-income families, assuming 50 employees are heads of household with a child and 50 are married with two children.

$100,000 a year for the additional Title I [educational] expenses, assuming 50 Wal-Mart families qualify with an average of two children.

$108,000 a year for the additional federal healthcare costs of moving into state children's health insurance programs (S-CHIP), assuming 30 employees with an average of two children qualify.

“There's no question that Wal-Mart imposes a huge, often hidden, cost on its workers, our communities and U.S. taxpayers,” Miller said. “And Wal-Mart is in the driver's seat in the global race to the bottom, suppressing wage levels, workplace protections and labor laws.”

Wal-Mart's abuses are giving rise to countervailing efforts, but it is an open question whether the company has amassed such power that it will be able to defeat such initiatives.

In California, in November, the company was able to stave off by a 51-to 49 percent margin a proposition that would have required every large and medium employer in the state to provide decent healthcare coverage for their workers, with the employer contribution set at a minimum of 80 percent of costs.

Wal-Mart dumped a half million dollars into the anti-Proposition 72 campaign just a week before the vote.

“As one of California's leading employers, we care about the health of our 60,000 employees here,” said Wal-Mart spokesperson Cynthia Lin, in celebrating the defeat of Proposition 72. “That's why we provide our employees with affordable, quality health care coverage.”

“Prop. 72 was never about Wal-Mart,” she claimed. “It was about allowing businesses to operate without unreasonable government mandates, it was about the survival of small businesses and it was about consumer choice in healthcare benefits.”

The biggest immediate challenge facing Wal-Mart is the class action lawsuit filed by its women workers. The women allege that Wal-Mart pays female workers less than men, promotes men faster than women and men above more competent women, and fosters a hostile work environment. A federal judge ruled in June that the case could proceed as a class action.

“We strongly disagree with his decision and will seek an appeal,” says company spokesperson Mona Williams. “While we cannot comment on the specifics of the litigation, we can say we continue to evaluate our employment practices. For example, earlier this month Wal-Mart announced a new job classification and pay structure for hourly associates. This new pay plan was developed with the assistance of third party consultants and is designed to ensure internal equity and external competitiveness.”


Liza Featherstone, who has chronicled the claims of the women employees in her book Selling Women Short, says women workers report “a pattern of arbitrary, very subjective decision-making by management.” They report business meetings being held at Hooter's or strip clubs.

The contradiction of a self-righteously moral company — which won't sell racy magazines or CDs with parental advisory labels — permitting such behavior is a reflection of women employees' powerlessness. “Unlike its female workforce,” Featherstone writes, “the women who shop at Wal-Mart can't be ignored, and many of them have conservative values.”

But while Wal-Mart is willing to bend to consumer demand on marginal issues like covering over the headlines on Cosmopolitan magazine, it is not so flexible on respect for worker rights. Nor is there any sign of a consumer rebellion on anything like the scale necessary to make the company revisit its employment policies.


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