Times' Wal-Mart View Slants a Bit Askew
Beware of New York Times assessments of Wal-Mart.
In an article the Times published Saturday detailing Wal-Mart's social efforts, the newspaper credits Wal-Mart's recent return to favor among retail observers to sustainability, health care and public relations initiatives, while simultaneously describing them as inadequate. Does that sound strange? It isn't if you've followed Times coverage of the retailer.
For years now, Times coverage has evoked the image of a titan primed for a fall. Specifically, it maintained a point of view that Wal-Mart's practices, particularly its resistance to unionization, were turning consumers against it. Maybe some union-supporting consumers were turned off. But certainly a significant number of consumers still were attracted to Wal-Mart's utilitarian, low-price ways.
The Times sites a "secret" 2004 report that said between two percent and eight percent of Wal-Mart customers surveyed had ceased shopping at the chain because of negative press. Yet, in 2004, Wal-Mart's sales increased by $26.7 billion to $256.3 billion. Clearly, lots of consumers were willing to spend their money at Wal-Mart. As a point of comparison, the Target sales gain for that year was $4.8 billion, 18 percent of its rival's, on total revenues of $45.7 billion.
Wal-Mart's press turned ugly as activists made it a special case, reasoning that if they could force Wal-Mart to change policies, then other retailers would have to follow suit. The strategy was flawed, as Wal-Mart's rivals would have enjoyed nothing better than seeing the company shoulder new burdens that would make it less competitive and improve their relative prospects. Still, Wal-Mart was labeled a labor villain even though just a few years earlier it was being lauded for the generous discount it offered employees who wanted to purchase company stock. In the meantime, Wall Street, which can succumb to perceptions and proportions, was looking at Target as something flashier and more attractive as its sales increases paced Wal-Mart's, at least on a percentage basis. Such was the case in 2004, when both posted sales gains of about 12%, even if that proportion hid a $21.9 billion difference in dollars.
By then, Wal-Mart's share price had already stagnated before it actually slipped a bit as the decade past the halfway point. In the meantime, Target's doubled, finally peaking in the summer of 2007. As the economy slowed last year, though, Wal-Mart's sales and earnings held up better than its competition, and the company's shares climbed, hitting their apex in September shortly before the stock market tumbled in reaction to the deepening recession.
Yet, could the cause of Wal-Mart's share price stagnation in the decade be fairly attributed to simple consumer and investor distaste? Probably not. For one thing, in that time period, Wal-Mart was shifting from opening discount stores to supercenters, a store concept that represented an unknown quantity and one burdened with a higher percentage of low-margin consumables and food than discount stores. Wal-Mart also had troubles overseas. Its ASDA division in Britain was losing ground to Tesco, and its division in Germany was failing to make much progress at all.
The Times suggests that embracing sustainability and social causes has been critical in Wal-Mart's recent relative success. Wal-Mart CEO Lee Scott's presentation at National Retail Federation convention on Jan. 12 may have prompted the Times article because of his comments on those subjects. But Scott pointed out other things in his speech as well, among them, learning lessons from the problems Wal-Mart encountered overseas and relying more on local management to solve local problems in its international operations. In recent years, Wal-Mart dropped its German division when it became clear that growth would be slow and costly, and it refined ASDA's position as a price leader with the result that it has been gaining market share at Tesco's expense.
In the economic slowdown, the logic of Wal-Mart's supercenter strategy has become more evident, and the company continues to enjoy sales gains, even if modest, while competitors who sell little or no food have watched their revenues tumble.
Even its social programs, particularly sustainability, are based on cutting and reassigning costs while establishing more efficient delivery methods. And working class consumers continue to pour into its stores despite union antipathy, because Wal-Mart remains a place where families can save money on everyday shopping. In California, which organized labor has tried to fortify against Wal-Mart, you might not find one of the company's stores in San Francisco, but you sure can across the bay in Oakland. In fact, Wal-Mart operates 18 discount stores and one supercenter in the Bay Area.
The point is, Wal-Mart continues to find solutions to challenges based on its own way of doing business. Wal-Mart certainly has become more aware of its profile and role in American society, but neither public relations nor grudging responses to outside criticism are sustaining Wal-Mart, the Times article aside. Wal-Mart is adapting to a changing market climate by applying its business philosophy of effecting operational efficiencies that allow it to cut prices on popular goods and services to the satisfaction of the core working class customer.