Stop the Bullying, Wal-Mart
The retailer needs a new business model. It should stop squeezing employees and suppliers, and charge customers a little more. Pro or con?
Pro: Something Registers Wrong
When it comes to price, it’s hard to beat Wal-Mart (WMT). But the "everyday low prices" come at a high cost to its employees. A recent report from consumer group Los Angeles Alliance for a New Economy found that Wal-Mart employees earn 20% less than the average U.S. retail worker, and some $10,000 less than what the average two-person family requires to meet its basic needs.
Also, the company has fewer than half of its employees enrolled in its health insurance plan, compared with 67% for the average large employer. As a result, taxpayers end up subsidizing the company’s workers. "In California alone, taxpayers pay $32 million annually in medical care for Wal-Mart employees," the report finds.
No wonder the world’s largest retailer has become the target of activist groups around the country, and a punching bag for Presidential candidates Senator Barack Obama (D-Ill.) and former Senator John Edwards.
Its status as a political and social target is costing Wal-Mart millions. To clean up its image, it launched a multimillion-dollar advertising campaign in January, telling viewers about the positive characteristics of the company and its workers. It has also hired the powerful public-relations firm Edelman and several political consultants to help polish its image.
One of the consultants, Leslie Dach, a former media adviser to President Bill Clinton, was hired for $3 million in stock, as well as options on 168,805 shares that vest over the next five years.
At the same time, the political attacks on Wal-Mart seem to have unleashed paranoia within the company, which has beefed up its security operations, hiring former senior FBI and CIA officials to watch workers and those who maintain contact with the company. All this usurps funds that could go to workers’ salaries or benefits instead.
These new developments have come at a time when "everyday low prices" isn’t the growth model that Wal-Mart necessarily wants to pursue long term. In recent years, many of its competitors have grown just as efficient in upping profits, and there’s nothing unusual about low prices anymore. No wonder that in the past year Wal-Mart has tried luring upscale customers with a hip fashion line called Metro 7 and has upped the organic food offerings in its stores.
Wal-Mart says it wants to offer more choices to customers at affordable prices. However, its motivation to sell more organic food and fashionable apparel is the desire for the higher margins these goods bring. Since it’s already charging customers more, isn’t it about time that Wal-Mart stopped squeezing its employees?
Con: Don’t Mess with Success
Although it has become the popular symbol of capitalism’s ills, Wal-Mart (WMT) has a business model that works quite well. Its fanatical focus on eradicating costs aids the largest number of people—the world’s shoppers—while allowing a simple redress for others, who can take their business or labor elsewhere.
Moreover, it is supremely haughty to suggest Wal-Mart’s customers could all just pony up a little extra cash so the lives of others could suddenly improve. Many people cannot afford an extra few bucks here or there, especially when it comes to buying staples.
Last fall, BusinessWeek.com quoted a spokesman for WakeupWalMart.com, a group harshly critical of the company, who said the retailer "has the responsibility to improve the lives of its workers." Actually, in the U.S., most would likely agree that we as individuals are tasked with improving our own lives, if their current state displeases us.
Make no mistake, the company’s business model mandates adherence to a lean cost structure. Wal-Mart has been known to hector manufacturers and distributors in hopes of paying less, and, undeniably, doesn’t always sell the highest-premium product in a particular merchandising category.
But is that such a bad thing? If Wal-Mart drives out costs, it forces suppliers to also narrow costs. Isn’t battling cost bloat one of the hallmarks of running a successful business? Who is to say that Wal-Mart isn’t improving the management of those companies with which it does business?
Also, it is true, no Wal-Mart clerk has ever gotten wealthy from his or her salary. Does anyone expect to do so? Still, company defenders have an extensive litany of persuasive stats: Wal-Mart’s average wage amounts to nearly $10 per hour, its workers pay roughly $1 per day for medical insurance, and the company employs more than 1.3 million Americans.
And the retailer has just begun boosting hourly compensation through bonuses—last month it gave $530 million to nearly 80% of its 1.04 million hourly workers.
Finally, let’s take a look from a different perspective: In a society geared toward hyper-consumption and greed, perhaps the real issue isn’t Wal-Mart’s business plan. Maybe it’s us.
Opinions expressed in the above Debate Room essays are for the sake of argument and do not necessarily reflect the views of BusinessWeek, BusinessWeek.com, or The McGraw-Hill Companies.