One Nation Under Wal-Mart

In his irreverent new book, journalist John Dicker reveals the super-high social costs of Wal-Mart’s super-low prices.

September 20, 2005  |  If Wal-Mart were a nation, it would be one of the world’s top 20 economies. There are now nearly 5,000 stores worldwide, over 3,500 in the U.S. A new Wal-Mart SuperCenter opens every 38 hours; with yearly sales of $288 billion, Wal-Mart employs one of every 115 workers in America. Wal-Mart has an enormous influence on all facets of business — manufacturing, trade, communications, transportation, design, you name it. But as journalist John Dicker describes in his first book, The United States of Wal-Mart (Jeremy P. Tarcher), the backlash — from citizens, workers, unions and governments — has begun.

TERRY MCNALLY: You supplied the statistic — if it were a country, Wal-Mart would rank as the 20th largest economy. Any idea what countries rank below it?

JOHN DICKER: It’s bigger than Ireland, Sweden and Israel.

Fifty years ago Americans knew the phrase, “What’s good for General Motors is good for the USA.” Today GM’s credit rating is in trouble, it’s been offering its employee discount to everyone in hopes of generating sales, and Wal-Mart rules. What does this shift mean for all of us?

I think it means that corporations don’t take the same sort of responsibility anymore. They can get away with a lot less. The idea that you pay your workers a living wage for a job that’s also a career — that seems to be on the decline. It obviously also signifies the switch from a manufacturing economy to a service economy. Rights that were fought for and won in union campaigns in the ’20s and ’30s in manufacturing have yet to be won in the service sector, retail in particular.

Wal-Mart claims it benefits millions by supplying more jobs than any other company and lower prices worldwide. What’s wrong with this picture?

Well, on one level it’s correct. I’m very critical of Wal-Mart’s PR in this book, but one thing Wal-Mart’s CEO gets right is that he continually reminds people that the heart and soul of Wal-Mart’s customers live paycheck to paycheck. To serve them, Wal-Mart provides cheaper check cashing services and cheaper money wiring services. They really cater to that clientele, and that creates a very complex political dynamic.

How do you explain to a poor person that a $28 DVD player sucks? I wouldn’t want to go to a checkout line and engage in that conversation. One of the things that we saw with Southern California’s grocery strike: Wal-Mart is putting the pinch on. They’re forcing their competitors down to their level of wages and benefits.

Retail has never been a source of incredible jobs. You’ve never been able to get rich working in a store as a clerk, but there used to be more of a middle ground. What you see in retail now is a certain bifurcation. On the high end, you have Whole Foods or Wild Oats, the kind of frou-frou markets where I have a piece of squash on layaway. On the lower end you have Wal-Mart.

You also have Aldi, a very interesting German hard discounter. They’ll have about 800 items for sale, but you go in and there’s only three people in the store working. If you want a shopping cart, you put in a dollar deposit. It’s pretty ingenious. You get your dollar back when you return the shopping cart. It saves on labor, right? You don’t have anyone doing parking lot reconnaissance, herding stray carts around. If you want a plastic bag, you pay for it, I think it’s between 10 cents and a quarter. In exchange for these labor-saving techniques, you get significantly lower prices.

A&P did something like this recently on the East Coast. They shut down their deli and their bakery, and now you have to pay for your plastic bags, but prices went down 20 percent. Hard discounters, places like Costco or Wal-Mart, used to be novelties. Now really low prices are becoming entitlements. But they’re not free. Super-low prices have social costs. This is a conversation that I think the country is slowly beginning to engage in.

How much does the Walton family make per year?

If you’re a member of Sam Walton’s lucky sperm club, that is if you are one of his four heirs or his wife, Helen, your annual dividend payout — I believe Forbes reported this in November — is about $176,000,000. That’s your paycheck just for waking up Walton.

All the sibs rank in the top 10 of Forbes’ richest?

I know Rob Walton, who’s the chairman of the board, and his sister Alice are both up there.

In doing your research, what did you learn that most surprised you?

Wal-Mart can enter a retail category and dominate it, and the world kind of yawns. All of a sudden you discover Wal-Mart’s the world’s largest jeweler. You don’t think of Wal-Mart and jewelry, but because of their economy of scale, they’re the largest jeweler. They also quietly enter certain areas of business. You can now get a dental plan or a healthcare plan for your employees through Sam’s Club. They start slowly, but eventually they perfect things and roll them out nationwide, and boom — it’s huge. They more or less use gasoline as a loss leader to drive traffic into their stores. They use petroleum as a dancing monkey.

As you point out, some of them are Wal-Mart gas stations, but a lot of them aren’t. They’re just charging rent. People come for the gas, stay for the shopping.

Also, if you’re Wal-Mart, you want to keep customers in your store as long as possible, and that has other implications. Exclusive concerts by various bands are broadcast on Wal-Mart TV; Wal-Mart pioneered this concept, and they call it “retail-tainment.” They put on events, they have in-store radio, in-store TV, special broadcasts — all to keep people in the stores as long as possible. The more time you spend, the more money you spend. That’s generally a safe ground rule for any retailer.

By the way, Garth Brooks recently announced an exclusive multiyear deal in which Wal-Mart, Sam’s Club and their online outlets will be the only places his music will be sold. This multimillionaire, who’s sold 105 million albums, more than all but the Beatles, Elvis and Led Zeppelin, sang at Wal-Mart’s annual shareholders meeting in June wearing a blue smock and told the audience “It’s great to work for Wal-Mart.” You go, Garth.

From Bentonville, Arkansas to world dominance — you’ll grant that Wal-Mart has not become what it is today simply by being rapacious, won’t you? The company has been one of the wisest innovators of new technologies, hasn’t it? Sam Walton was famous for saying, “Try it, do it, improve it.”

On a basic level, Wal-Mart is a master of data. I would love to turn loose a sociologist or an anthropologist at Bentonville’s information systems department. Other retailers merchandise for Father’s Day or Labor Day weekend or Back-to-School. Wal-Mart can merchandise for the weather. With the hurricanes last year in Florida, they mined data from stores in the hurricane’s path to find out what people buy when they know a hurricane’s approaching. They nailed it down specifically to strawberry pop-tarts.

Toaster-oven treats in general were big, but #1 — strawberry pop-tarts. This is a company with nearly 5,000 stores worldwide, but they know in a Florida hurricane, strawberry pop-tarts. And they have the infrastructure to get those strawberry pop-tarts into stores within a day or two. Other retailers are still catching up, but they’ve been able to do that for years. They call it merchandising a store at a time.

They have all these people querying their databases. Two stores might be five miles apart in LA, and they’ll know, “OK, this store is really close to the beach,” “This store is right near a Best Buy,” “This other store is near a senior citizen’s home.” All the demographic factors around a particular store go into the merchandising mix. It might look like they all carry the same items, but they actually don’t. Wal-Mart is extremely clever at mastering data.

I assume many think that mastering data happened with Amazon and other online retailers. But these folksy folks from Bentonville, Arkansas saw the potential of this dynamic information relationship between customer and store way before anyone else, right?

Perhaps because they’re from Bentonville. They weren’t located in a major city, so they had to deal with distribution in a different way. They couldn’t rely on a big warehouse in a big city because they weren’t near one. Other companies would outsource their contract to a wholesaler who would supply them, but Wal-Mart had to do its own supplying. That meant building its own distribution centers. A lot of other companies still don’t have their own distribution centers, especially for food. Wal-Mart is more vertically integrated so they can more easily implement technological changes in distribution to increase efficiency.

If you’re a retailer, it’s all about turning over stock. You don’t want to have anything in the warehouse too long or on the shelf too long, but once it sells out, you want to make sure another one’s replacing it. And Wal-Mart is genius at that.

At one point Wal-Mart prided itself on buying American. I assumed that was one of the big things that helped them grow. When did that change, and what’s the case today?

Sam Walton was famous for a campaign he started in the mid-’80s to get Wal-Mart to buy from American companies. He made a big deal about one Arkansas apparel manufacturer, for instance. But even though this one particular apparel maker was making shirts in Arkansas, they still had Wal-Mart purchase their raw materials in bulk from China. So this move off-shore actually was simultaneous with the Buy America campaign.

There’s a kind of myth around Sam Walton. A lot of people say that if Sam were alive today, none of this would have happened, and that’s just bogus. I think the shift to overseas production transcends one company. It’s complicated. On the one hand, Wal-Mart didn’t start the trend, but they certainly helped push it.

“Wal-Mart is both a beneficiary and a driver of the race to the bottom in the global economy,” says Alejandra Domenzain, an associate director of Sweatshop Watch. Tell us more.

Activists like the National Labor Committee and others who monitor offshore manufacturing, particularly apparel, note that, while companies like the Gap have signed on to disclose where their factories are and to let independent human rights inspectors into them, Wal-Mart refuses. They will not tell you where they’re operating in China, and they won’t let human rights inspectors in. I think it was the Gap a couple of years ago that released a report based on these inspections. It wasn’t flattering to their own company, but they did it. They were behaving responsibly, even if what they were saying was “Hey, we’re not getting it right all the time, here’s what we did wrong.”

Wal-Mart has never acquiesced to that, and I think that’s part of the struggle right now. Barbara Briggs of the National Labor Committee out of New York told me that the question used to be: “Can we get these manufacturing jobs to come back to America?” Increasingly the answer is that’s not realistic. Now the question is: “How do we pressure and lean on companies to behave responsibly in places like Southern China?”

Without getting into a plug, I’ve heard comparisons between Wal-Mart and its smaller rival, Costco: that Costco’s not actually a bad public citizen. Is that true?

Though only about 15 percent of Costco stores are unionized, it’s my understanding that being a cashier at Costco can be a career. From what I’ve read, if you’ve been there four years, you can be making around $45,000. I think 90 percent of their workers have health care and it’s fully paid for. That’s another model. But Costco’s not the same store as Wal-Mart. It’s a club store, and you’re paying $40 a year in membership. Shopping there is kind of like treasure hunting. It’s hard to do all your grocery shopping for the week there. And when you see how big items are, you think, God, unless I’m a family of 10, this isn’t going to work. At a Wal-Mart SuperCenter you can do grocery shopping as we’ve grown to understand it: All I need is a dozen eggs and a half gallon of milk. Costco competes more with Sam’s Club, but in many ways not with a Wal-Mart SuperCenter.

You referred earlier to the Southern California grocery workers strike. For those who didn’t follow it, what happened there?

Southern California and California as a whole is huge booty for Wal-Mart because they only have their regular stores here, they don’t have their SuperCenters. A SuperCenter is a traditional Wal-Mart general merchandise store with a grocery store attached to it. They’re usually between 180,000 and 210,000 square feet at the top end. Since the mid-’90s this has been Wal-Mart’s main growth vehicle. Next year I think they plan to open about 250 SuperCenters and only about 40 regular variety stores.

Southern California and urban markets in particular are hugely important to them, because they’re really under-represented in the major metro markets. In 2002 Wal-Mart announced plans to open 40 new SuperCenters in California. That gave the unionized grocery stores — Vons, Ralphs and Albertson’s — an excuse to go to the bargaining table and tell the unions that they’d better accept concessions because of this looming competition from Wal-Mart.

While it’s true that Wal-Mart is eating the lunch of unionized stores, they weren’t operating in the Southern California market yet. For a lot of reasons stores like Safeway were having their own financial difficulties, and this was a very convenient excuse to stick it to the union. It resulted in a four-month strike, and a lot of people were unhappy about the way it was run. It wasn’t the most well-coordinated strike, and there were confusing messages on the picket line. Unfortunately it ended up with workers settling for a two-tier contract. People hired after the strike date get one deal, and people who were already there and stood on the picket line get another.

One of the things the workers ran into was the problem of a local union striking national companies, who can sort of “amortize” nationally whatever they lose locally during the strike.

The grocery industry developed regionally, and the United Food Commercial Workers, at least at the top executive level, never really adjusted their strategy. It was a very disheartening experience, and I’m critiquing the unions from the left here, not the right. You had the president of the UFCW, Joe Dougherty, who I think clocks about $350,000 with disbursements, declare this the greatest strike in labor history, comparing it to the Flint Michigan sit-down strike, and the next day he retires to his two homes in Colorado and Florida. This is disgraceful. I think unfortunately the United Food and Commercial Workers have lost credibility to really take on the Wal-Mart issue, because they just don’t have the skills or the history of running these national campaigns.

What do you think the big message is for the future?

One of the things I talk about in the book is the fact that Wal-Mart transcends national polarization of left/right, red state/blue state. You’re seeing a lot of suburban and exurban communities don’t want Wal-Mart.

But they’re not fighting Wal-Mart by turning it into a referendum on, “Is Wal-Mart good for America?” They’re sticking to the nuts and bolts of a specific local proposal. They’re analyzing Wal-Mart’s particular environmental impact statement, analyzing traffic studies. They’re fighting it on the nitty-gritty. If in the process they decide they don’t like Wal-Mart, they’re kind of sucking it up. They’re making a politically mature decision to not let that color local politics — where it’s not terribly relevant.

Places like Union County, North Carolina or Monument, Colorado, which is near Colorado Springs — places that are not hotbeds of progressive politics — are taking on Wal-Mart, and it’s a very different dynamic. It has a lot to do with the basic fact that we’re “over-stored” in this country. There’s a lot more retail space than ever before, and people don’t need Wal-Mart as much. Basically I guess I’m advising people interested in taking on Wal-Mart to be incredibly practical.

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