The economic blight that is Wal-Mart: They don't care if you hate them

Things you hate to see:

- A large oil spot in the driveway where your car was parked
- A big little "bomb" symbol in the middle of your computer screen
- Scattered clothing and a discarded shoe in the lion enclosure at the Milwaukee County Zoo
- A picture of the mayor of your city in a newspaper next to a headline that says "Welcome Wal-Mart"

But there it was, below the fold in the July 27th issue of the Milwaukee Business Journal: Franklin Mayor Tom Taylor giving the high sign to the retail monster for a Supercenter upgrade. With some improvements, of course. Pretty please.

"It would be nice if Wal-Mart upgraded that business in that area," [Mayor Taylor] said.

It would be nice. But it won't happen.

But, guess what? Wal-Mart doesn't care.

Not so long ago large companies toed the line to some extent in order to curry favor among the public at large. It was a standard tool in the public relations toolbelt: If people like you, they'll do business with you.

Wal-Mart now understands that they are not under that pressure.

The ad agency Foote, Cone & Belding traveled to Oklahoma City (selected because Wal- Mart has the latest of all its formats - - Wal-Mart, Supercenter, Sam's Club, and Neighborhood Market - - - operating there) to see who shops Wal-Mart and how they feel about the store.  After compiling the data, the group split those surveyed into four segments - the champions, the enthusiasts, the conflicted and the rejecters.

From Heidi R. Centrella's story in The Oklahoma City Journal Record:

The champions really love Wal-Mart, she said, and they make up about 29 percent of shoppers, tending to be younger families. The enthusiasts are 27 percent of shoppers who are typically older and on fixed incomes, they also look at Wal-Mart as a trusted advocate looking out for them.

The conflicted are 15 percent of shoppers who tend to be boomer families.

The reason we call them 'conflicted' is because they're very Wal- Mart negative. And they don't like (Wal-Marts) for political and societal reasons. They feel that Wal-Marts are killing off mom-and- pop shops, losing jobs, et cetera, [senior vice president and director of brand equities at FCB Paula] Ausick said.

However, this group shopped at Wal-Mart 5.6 times in the past four weeks. They're the second-highest most frequent shopper of Wal-Mart.

Wal-Mart rejectors are 29 percent of shoppers. They tend to be dual-income, no-kid families. And they shop Wal-Mart about once every four months.

As Charles Fishman says in his excellent (and balanced) book, THE WAL-MART EFFECT: "How many companies can say that the amount of customers who use their services second most often, and spend the second most amount of money with them, are 'very negative.'?"

Bottom line: Wal-Mart knows it need not be liked in order to continue making money. That's why they have no qualms about:

• building stores that are a blight inside and out
• squeezing suppliers until they have to move manufacturing to China
• squeezing municipalities by demanding tax breaks and free land (only to then lease the free land to a Wendy's or Pay-Less Shoe Store and pocket the income)
• doing all they can to keep their employees on or below the poverty line by enforcing low wages and insufficient benefits leading to additional stress on state aid agencies, etc.

How bad is it? In Arkansas - Wal-Mart headquarters - Wal-Mart is NUMBER ONE in Children of employees on publicly-funded State Health Care programs.

Quoting a story in the Arkansas Democrat-Gazette: "Georgia, Tennessee, Washington, Massachusetts, Wisconsin, West Virginia and Connecticut have also reported that Wal-Mart employees, or their children are a disproportionately large share of their state health rolls."

More: "A 2002 Georgia state survey showed that 10,261 of the 166,000 children covered by PeachCare for Kids (a Georgia state health program) had a parent working at Wal-Mart. That’s 14 times the number for the next highest employer, Publix grocery store, with 734."

Now, is that just because Wal-Mart employs SO MANY people that the numbers are skewed? I'm afraid not: Wal-Mart claims to have similar health care coverage as other large retailers. That's just silly. A recent Harvard Business School study (2002) shows that Wal-Mart spent an average of $3,500 a year on health care for each employee, compared with $4,800 for the average retailer and $5,600 for the average U.S. company. In Tennessee these numbers are even worse, with 3,700 of Wal-Mart’s 9,617 employees, or 26%, on state aid (according to the Chattanooga Times Free Press)!

When you are the biggest employer in the country, these practices CAN and DO cost the taxpayer money, putting ENORMOUS pressure on state health care systems. Just "good business"? It's irresponsible and simply shameful.

And this is not to mention Wal-Mart suppliers. Decades-old companies that provided jobs for thousands of people in their communities are forced to close their domestic operations by Wal-Mart's demand that they CONSTANTLY lower their prices to meet Wal-Mart's internal goals. Now you can get that $75 air conditioner for $69 - - - meanwhile, 97 American workers at the air conditioner factory are out of work because the jobs had to be shipped overseas to meet the Wal-Mart price demand. (There's a pretty interesting story along those lines with very specific cases here.)

The products you think you're getting such a good deal on aren't so great anymore, either. THE WAL-MART EFFECT contains an instructive case history in the sad fate of the L.R. Nelson sprinkler company of Peoria, IL. Long story short: Got involved with Wal-Mart; forced to lower quality on products (plastic swapped for metal, etc.); then forced to move elements of production to China. Sturdy sprinklers are now a thing of the past, as whatever is speced by Wal-Mart also goes everywhere else (that's part of "the Wal-Mart effect"). Instead of spending $40 once every ten years on a good sprinkler, you spend $9.99 every summer on a piece of plastic garbage. That's value?

By the way, the L.R. Nelson Sprinkler Company will finish moving ALL production lines to China in the next two years. 450 former full-time workers - - who had benefits - - are on the street. Nelson President Dave Englinton does not beat around the bush: he blames the relocation and lost jobs on Wal-Mart. "Wal-Mart has said that they would love to buy from us because some of the product is [was] done in the United States, but the cost differential is so great that they told us that unless we supply them out of China, we couldn't do business."

More on the Wal-Mart blight:

The cost of doing business with Wal-Mart.

George F. Will - "Condescending lectures by liberals RE Wal-Mart"

What's wrong with having a Wal-Mart across the street?

FAST COMPANY: The Wal-Mart You Don't Know (the article that became the book THE WAL-MART EFFECT

Comments

[Josh Strupp]

I enjoy reading your blog every week, especially regarding the "Shoppes" project. That being said, I'd like to offer a quick comment on your Wal-Mart post.

I hate Wal-Mart. I never shop there because my time is worth more than the 2 bucks I'll save by standing in line for 30 minutes while someone writes out a check for 3 dollars instead of pulling out 3 singles from their pocket. I CHOOSE not to shop there. What's great about capitalism is that the consumer has the power to influence the profitibility of companies like Wal-Mart. Likewise, the sprinkler manufacturer has the ability to tell Wal-Mart to go pound sand when they are told to sacrifice quality to meet Wal-Mart's demand. Maybe the sprinkler manufacturer shouldn't be so dependant on one low-margin customer like Wal-Mart. Unfortunately for the mom and pops, (and the sprinkler manufacturers) of the world, they need to adapt, innovate, and be "proactive" instead of "re-active" in order to survive. Afterall, how do you think Wal-Mart got where they are today? The demise of the mom and pops is a sad story. Guess what. It's not going to change unless the market CHOOSES to change. We have on one to blame for Wal-Mart but ourselves.

[daver]

ummm as the article nicely points out this isn't just the "market" at work. Clearly Wal-Mart subsidizes its profits on the back of tax-payers via greenfield TIFs (never should happen but does), health care costs and not even mention environmental recklessness that costs us all money.

[Bryan Maersch]

While I totally agree with your WalMart post. As one pro-WalMart person has told me "WalMart is so entrenched in the US economy that if WalMart closed up shop for a month, it would have a devastating effect on our economy". Unfortunately, I think this person is right also. Just look at the stock market plunges when WalMart posts a bad quarter.

[Josh Strupp]

Who grants the greenfield TIF's? They don't drop out of the sky for Wal-Mart to grab folks. I don't like Wal-Mart's corporate policy on health care either. That why I don't work there. Wal-Mart has no responsibility to provide health care to it's employees. We can picket Wal-Mart, beg them to provide insurance to all employees and we will end up where we started. Don't like'em? Don't shop there. As for Wal-Mart's impact on the U.S. and global economies, I agree that Wal-Mart is without a doubt the single most influential company in the world. But I don't understand the relavance of saying that if Wal-Mart suddenly stopped doing business, that they would have a devastating impact on the American economy. Look, if Japan stopped buying dollars to keep the Yen from rising against the dollar or if the Chinese government stopped it's companies from shipping to the U.S. it would also have a devastating impact on the U.S. and global economy. None of these cases will happen because the result would be devastating to EVERYONE involved. Wal-Mart is a reality. Hypothetically removing them from the global economy is a good way to demonstrate Wal-Mart's amazing size but using a hypothetical to show what kind of "damage" Wal-Mart could do to the American economy if they somehow "pulled the plug" isn't practical.

[Dawn Lowen]

I happen to think that Walmart is an excellent tool when it comes to fighting poverty! Kevin Price wrote a really interesting blog on Walmart’s war on poverty. Check it out at www.bizplusblog.com.

[John Michlig]

Dawn, you directed me to a naive and shallow analysis, to say the least. "Kevin Price" did not impress me.

Alas, Price's Wikipedia bio - which looks like he wrote it himself - says:

"Much of Kevin Price's early career was in politics and public policy. He was an activist for Students for Reagan in 1980, which led to job offers that took him to Washington, DC. He is a former Aide to a United States Senator (Gordon Humphrey, R-NH]) and worked as a policy analyst for the National Center for Public Policy Research and other think tanks."

A perfect Wal-Mart shill.

[Jack Wade]

I've read Price's work for quite some time. I personally think his analysis offers a fairly unique perspective. Meanwhile, what is really "shallow" are those who want to dismiss Walmart without recognizing its important and positive economic impact.