Wal-Mart Fights for Its Reputation

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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").

Political Pressure

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."

Gogoi is a contributing writer for BusinessWeek.com.