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Get Four
|  | JANUARY 28, 2004
By Amy Tsao The Two Faces of Wal-Mart [Page 2 of 2] WEED AND REFORM? She's about to begin a study on the impact of Wal-Mart and other "big box" stores on communities in New Jersey. One of her goals will be to put a figure on uninsured retail workers' health-care costs that are passed along to taxpayers. In theory, consumers who don't shop at Wal-Mart might object if it turns out that they're indirectly picking up the retailing giant's overhead. Wal-Mart officials didn't return calls seeking comment for this article. Another effect of the recent news, equally hard to quantify, could be the impact on Wal-Mart's marketing budget. According to the retailer's most recent annual report, it spent $676 million in the fiscal year ending in January, 2003, on ads to draw shoppers and burnish its image. At the very least, MIT's Bund says, a drumbeat of unfavorable news might force Wal-Mart to increase those outlays in an attempt to head off potential damage. Wal-Mart's other strategy might simply be to weed out managers found to have acted improperly and, when necessary, introduce reforms. The drawback, of course, is that the cost of such measures could alarm Wall Street, which usually doesn't award points for being nice to employees. If the cost of such changes amounted to a measly $1 a hour for each of Wal-Mart's 1.2 million employees, the bill would total $2.1 billion a year. That could reduce Wal-Mart's profits by about 25% -- or force it to raise prices and lessen its advantage in the marketplace. DENTED ARMOR. Wal-Mart is a master at quashing union organizing drives, so history suggests its vulnerability on that front is limited. But as it expands into less rural, more affluent areas, the retailer could find itself facing more demanding employees -- not to mention consumers who are less willing to tolerate what they see as deviations from fair labor practices. In such markets, both shoppers and employees are more likely to turn elsewhere, says MIT's Bund, who suspects that shoppers can find other retailers who will "do better for them." Consumers, speculates Bund, might choose to accept "slightly less aggressive pricing for more palatable policies." To outward appearances, not much of that has happened yet. But it's significant, says Kate Bronfenbrenner, director of labor education research at Cornell University, that a significant number of Wal-Mart workers have come forward to complain about an employer whose size and reach are so intimidating. And even though unions may not pierce Wal-Mart's armor, they might, over time, put a dent in it. Ira Kalish, global director at Deloitte Research, the market-research division of consulting firm Deloitte & Touche, notes the impact the United Auto Workers achieved when it lambasted carmakers for unsavory labor practices. Even though the auto union didn't strike, Kalish says those campaigns "did affect consumers' willingness to buy from those companies." Bronfenbrenner notes that a college-student group, United Students Against Sweatshops, helped bring Nike to heel. "If the right people pull together," she predicts, "the public will turn against Wal-Mart." Of course, few companies on earth are smarter or more resilient than Wal-Mart. And considering how powerful it is, talk alone isn't likely to make much of an impression. Over the past century, leading U.S. companies that became the center of controversy -- from the monopoly Standard Oil to the union-busting J.P. Stevens -- eventually had to change. So when the largest U.S. employer comes under fire for the way it treats employees, the smart thing to do is likely to become self-evident.
 Tsao covers retailing and the markets for BusinessWeek Online in New York
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