Wal-Mart Fights for Its Reputation

The giant retailer is launching a nationwide ad campaign just as critics are stepping up their attacks

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.

Hard-Hitting Reports

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."

Repairing Its Image

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.