Wal-Mart without the Window Dressing
IN SAM WE TRUST
Indeed, much of Ortega's book is a rehash of previously published material on Wal-Mart. The author, a reporter at The Wall Street Journal, borrows liberally from Sam Walton's own autobiography, Sam Walton, Made in America, and Vance Trimble's Sam Walton: The Inside Story of America's Richest Man, mostly because the Walton family and most Wal-Mart executives declined to cooperate. And despite the wealth of detail that Ortega has gathered, the storytelling suffers from its lack of inside perspective. Still, if you're unfamiliar with the history and controversies surrounding the world's largest retailer, it's a good place to start.
Why should we care about one purveyor of socks and soap? Ortega correctly sees that Wal-Mart's size and scope--more than $118 billion in sales in its last fiscal year, ended Jan. 31, 1998, or $440 a year from every person in the U.S.--gives it vast influence over what we buy and how we buy it. ''Wal-Mart's way of doing business is the new paradigm, and the company embodies both the shining success and the dark underbelly of modern American business,'' he writes.
But much as he would like to blame Wal-Mart for not enforcing better working conditions in overseas factories or for failing to provide higher wages and benefits at home, Ortega weakly concludes that fingers should ultimately be pointed at consumers. ''Wal-Mart...will respond to what the public demands from it. That is to say, to what you demand from it. It's up to you,'' he writes.
The problem is that consumers have been demanding low prices, broad selections, and big stores, with little regard for what Ortega sees as the hidden social costs. And that didn't start with Wal-Mart, as he recounts in his history of American retailing. The history is worth remembering when Ortega in later chapters retraces the efforts of some communities to keep Wal-Mart out. He notes that in the 1920s and '30s, small merchants were futilely banding together to battle ''soulless'' chain stores, such as A&P and Sears, Roebuck & Co., by pushing special taxes and even outright bans on chain expansion.
Despite his questions about Walton's values, Ortega, who never met the man, is clearly awed by his energy, intensity, and adaptability. A keen student of other retailers, Walton liberally borrowed rivals' ideas in an effort to improve his own operations. And when discount merchandising threatened to overtake his Ben Franklin variety stores, he nimbly jumped on this trend by opening his first Wal-Mart Discount City, in 1962 in Rogers, Ark. He was one of the first to see that the small towns he served would fit discounting's low-margin, high-volume formula.
But as Ortega seems appalled to discover, the penny-pinching Walton was first of all a businessman focused on the bottom line. And from that mentality sprang a corporate culture where profit-sharing and employee empowerment serve the management's ends as much as the workers'. Despite the low wages and benefits, the bonuses tied to store results prompted employees to believe they had a stake in the business. And the perks helped keep out the unions that Walton so vigorously battled. In describing those fights, Ortega strips away the folksy mythology that still surrounds the late founder.
One of the freshest parts of Ortega's tale isn't about Wal-Mart at all. It's his detailed chapters on the decline of Kmart Corp. and the management blunders that undercut that company's huge headstart on its Arkansas rival. By the end of 1963, when Walton was just pondering a second Wal-Mart store, Kmart parent S.S. Kresge Co. was already operating 53 of its giant discount stores and producing $83 million in sales. But the executives who succeeded the visionary Harry Cunningham soon led Kmart into decline with disastrous decisions on store design, merchandising, and information systems. Ortega describes a Kmart corporate culture where--unlike at Wal-Mart--outside ideas weren't welcome.
With insights from former Kmart executives, Ortega describes Kmart's onetime savior, Joseph Antonini. But the feisty and charismatic leader, who at first seemed like a breath of fresh air, soon overextended the company. His forays into office supplies, sporting goods, and other ventures sapped the effort and money needed for computer systems and store renovations. By March, 1995, Antonini had been forced out, and the company was struggling to stave off bankruptcy. Today, Kmart is slowly rebuilding with a new CEO.
If the managers at Wal-Mart have learned anything from Sam, they won't angrily ignore Ortega's critical book. Instead, they'll be poring over the Kmart chapters for an inside look at how arrogance can kill a giant.
BY WENDY ZELLNER
Updated Dec. 30, 1998 by bwwebmaster
Copyright 1999, Bloomberg L.P.