Overview

From a financial standpoint, Wal-Mart is one of the most successful companies ever. Supporters point out that the company has succeeded in significantly lowering retail price levels and increasing real income levels in the communities where it is located. Critics argue that much of its success derives from business practices harmful to employees, the community, the economy or the environment. Any organization on the scale of Wal-Mart will have problems at the level of individual stores; this article will concentrate chiefly on systemic issues instead of single incidents.

Wal-Mart is the most-frequently sued corporate entity in the United States. As the largest company and largest retailer in the world, this is not surprising. Its legal department has a reputation for aggressive legal tactics, and the corporation has been sanctioned by several courts for improper courtroom behavior. Details of specific, major lawsuits will be included in the sub-section under which the nature of the suit falls.

Product Controversy

Wal-Mart has been accused of allowing so-called "conservative values" to influence its product selection:

• In 1999, Wal-Mart announced that it would not stock the morning-after pill in its pharmacies.
• In 2002, Wal-Mart announced that it would not carry magazines it deemed inappropriate. At the time of the announcment, Maxim, FHM and Stuff were removed from stores. Other magazines were moved to concealed displays that obscured magazine covers deemed potentially offensive by the company. Redbook, Cosmopolitan and Marie Claire were among those magazines relocated.
• Wal-Mart only carries the edited versions of certain music albums. These versions have obscenities completely removed or overdubbed with less offensive lyrics. Such versions, sometimes referred to as radio edits, are produced by music publishers to increase retail sales. Notably, albums critical of Wal-Mart itself have been removed from the shelves.
• In 2004 Wal-Mart was criticised for selling the notoriously anti-Semitic The Protocols of the Elders of Zion on its website. The text is considered to be a forgery by most scholars, but some allege that Wal-Mart's website suggested the text was genuine. It was withdrawn from sale in September 2004 as "a business decision".

Supplier Relations

(for more coverage of imports/outsourcing/globalization, refer to that section)

As the single largest customer to most of its suppliers, Wal-Mart openly uses its bargaining power to negotiate lower prices from suppliers. At times, Wal-Mart is alleged to have demanded access to suppliers' financial statements in order to look for "excessive profit margins." Critics argue that this tactic harms suppliers by reducing their profit margins.

Supporters of Wal-Mart respond that suppliers will never supply products to Wal-Mart at loss-making prices over the long term. Therefore, Wal-Mart is a force for reducing waste and inefficiency from the supply chain while maintaining a minimum level of supplier profitability. Supporters also point out that Wal-Mart's gross margin has remained fairly consistent over time, which indicates that all cost savings negotiated from suppliers are passed on to customers through lower retail prices.

Wal-Mart has also been accused of threatening to cease carrying a supplier's entire product line unless the prices of specific products are lowered. This is analogous, but not identical, to the illegal practice of product tying practiced by manufacturers and suppliers. As a purchaser rather than a seller, Wal-Mart is not bound by regulations in this regard, so the practice is not illegal in the United States.

Wal-Mart is praised by suppliers for paying bills on time. There have been few reported instances where Wal-Mart cheated its suppliers.

Competitive Practices

Some allege that Wal-Mart uses predatory pricing in order to drive competitors out of business and develop local monopolies. The chain has been found guilty of predatory pricing in lower courts, but those convictions have been overturned on appeal. There are also several active cases alleging predatory pricing. Wal-Mart asserts that no predatory practices have been proven at this time, and there have been no successful federal or state actions to sanction Wal-Mart for practicing predatory pricing.

The company does admit to using certain products as loss leaders to increase business, but this practice is not illegal in most cases.

Political/Lobbying Activities

Critics allege that Wal-Mart has translated its economic power into political favoritism by garnering millions of dollars in direct public subsidies and indirect subsidies through such means as confiscation of private property via eminent domain takeovers.

It is important to note that so-called eminent domain abuse is not at all restricted to Wal-Mart or the retail sector. Wal-Mart's competitor Costco was involved in an eminent domain lawsuit that was argued before the United States Supreme Court.

Local Community Impacts

Community activists often organize campaigns against proposed new store locations. Critics and academic studies note that Wal-Mart displaces locally owned stores and results in the reduction of locally-owned corporate assets and real estate. Critics compare this sort of practice to that of an absentee landlord.

Supporters of Wal-Mart respond that the comparison to an absentee landlord is inaccurate. Although ownership of corporate property is transfered from local owners to Wal-Mart, this has no impact on local property tax revenues. Supporters also argue that unlike an absentee landlord, Wal-Mart has full financial interest in maintaining and enhancing the property value of its stores. This often leads to an increase in appraised values used to assess local property taxes. Additionally, Wal-Mart stores often result is significantly increased sales tax revenues to local municipalities.

A 2002 study[1] by Emek Basker examined the effects of Wal-Mart entry on local employment levels. Basker found that in the short-term, Wal-Mart's entry into a county increased net retail employment in that county by 100 jobs; over a five-year period half of this increase disappeared as other retail establishments closed, leaving a net increase of 50 retail jobs locally. However, against this increase, he found decreases of 30 retail jobs in neighbouring counties and 25 wholesale jobs in the entered county. With little net change in total number of jobs, evaluating Wal-Mart's impact requires information on the average value of the jobs created and of those lost, because Basker's study did not distinguish between low-paying and high-paying jobs.

In 2004, the University of California at Berkeley published a study which asserted that Wal-Mart's low wages and benefits resulted in an increased burden on the social safety net, costing California taxpayers $86 million.

A study by the state of Georgia, cited (see below) by California State Assembly member Sally Lieber , points out that a survey of children in the state's subsidized health care system, PeachCare , found that Wal-Mart employed more of the parents of these children than any other employer. More than 10,000 children who qualified for the program had parents working at Wal-Mart. The next largest employer employed the parents of less than 800 children in the program.

Supporters point out that this fact is not surprising considering the number and demographic characteristics of Wal-Mart employees. Wal-Mart is one of the largest employers in most states, so it follows that its employees' children will be relatively numerous. Wal-Mart's employees are more likely to have children than most other large employers, a fact that also helps explain the Georgia study.

The company responds to all critiques of store openings by explaining that it extensively studies potential locations before deciding to build a store. The company's rule-of-thumb is that a location must have the economic base to support one-and-a-half Wal-Mart stores. In other words, there is more than sufficient customer demand for a Wal-Mart to be built in the locations it ultimately selects.

Specific Instances of Community Protests

Wal-Mart has sought to open new stores in Chicago and failed due to community pressure. Despite multiple well-funded attempts to develop Supercenters in at least two wards, unions and community groups such as ACORN focused effective community opposition. In September of 2004, Mayor Daley said this of the debate, "Wal-Mart has a PR problem. I feel sorry for them. They've got a big problem."

In late 2003, the company undertook an unusual step after failing to gain the support of the Inglewood, California City Council for a proposed development of a supercenter. The council had cited a wide range of concerns, including traffic, the environment, labor practices, and public safety. In response, Wal-Mart obtained the signatures of thousands of voters, forcing the council to call a special election. The resulting 71-page measure, Initiative 04-A, asked voters to allow the company to create its supercenter and a collection of chain shops and restaurants on a sixty acre (243,000 m²) parcel near Hollywood Park Racetrack . The proposal exempted the company from all of Inglewood's planning, zoning and environmental regulations. The special election was held April 7, 2004; by a 60-40 margin the Wal-Mart proposal was defeated.

Complaints about International Locations

Wal-Mart has been accused of "insensitive placement of stores" abroad. In 2004, amid local community resistance and protests, both from environmentalists and anti-globalists, Wal-Mart opened a new Superstore in Teotihuacan, Mexico, near ancient Pre-Columbian pyramids. Local opposition characterised the opening as being "extremely symbolic" and "...like planting the staff of globalization in the heart of ancient Mexico". (Quote is from Homero Ardijis , one of the store's lead opponents in the community.)[2]

Wal-Mart responds that the real estate was made available for commercial purchase, and that extensive studies showed that the location would be extremely profitable. By extension, the company stated that potential customers' enthusiasm for the store indicated that they were willing to accept the store's presence in order to lower prices and imporove the quality of life.

Employee/Labor Relations

(for information on the large-scale impact of Wal-Mart's employment practices, see the section on Community Impact)

Opposition to unions

The target of persistent unionizing efforts, Wal-Mart aggressively (and at times illegally) resists union attempts. The company has been accused of firing workers sympathetic to unionization, and the company does show anti-union videos in an effort to discourage unionization. So far, only a few North American stores have successfully voted to unionize.

In 2000, the meat-cutting department of the Wal-Mart superstore in Jacksonville, Texas voted to unionize. After the vote, Wal-Mart eliminated its meat-cutting operations at the store. Likewise, when the employees of a Wal-Mart in Jonquière, Quebec, Canada voted to unionize, Wal-Mart announced that it would close the store. [3] In both cases, Wal-Mart has stated that the increased costs associated with a unionized workforce would lead to unprofitability at current retail price levels. Rather than raise retail prices, the company elected to eliminate those jobs.

There have been several other votes to unionize at North American stores. In most cases, unionization proposals are defeated by employees. Critics argue that this is due to employees' fear of corporate retaliation. Wal-Mart supporters say that employees are aware of Wal-Mart's cost structure and corporate strategy, so the employees know that the store will not raise prices in order to accomodate union-related costs.

The Quebec Labour Relations Board found the company guilty of harassing and intimidating workers trying to join the United Food and Commercial Workers Union at another store in Ste-Foy, Quebec. [4]

In Germany, Wal-Mart stores are required by law to consider the views of workers through each store's so-called "workers' council", but Wal-Mart has yet to collectively bargain with a German union.

Treatment of employees

As with many US retailers, Wal-Mart experiences a high rate of employee turnover (approximately 50% of employees leave every year, according to the company). Wages at Wal-Mart are about 20% less than at other retail stores. Founder Sam Walton once argued that his company should be exempt from the minimum wage. (Palast, 121).

It is alleged that Wal-Mart managers have sometimes pressured employees to work "off-the-clock " after they have worked 40 hours in order that overtime pay may be avoided. It remains to be determined whether this is misconduct by individual managers (something that might be inevitable, given the number of managers employed by Wal-Mart), or directed from higher up.

Since 1997, investigators have found 250 illegal immigrants working at Wal-Mart stores. These individuals were employed by custodial services subcontractors used by Wal-Mart. Many of the janitors worked seven days a week without overtime pay or injury compensation. To settle criminal charges relating to these incidents, Wal-Mart paid $11 million in March 2005 without admitting wrongdoing or liability. Several of the custodial services firms that employed the illegal immigrants pled guilty to criminal charges.

Gender Discrimination

Wal-Mart has also been accused of discriminating against women. A class-action suit alleging sex discrimination, Dukes vs. Wal-Mart, was brought against Wal-Mart. Representing 1.6 million women, it comprised of both current and former employees is based on statistics that show that women working at Wal-Mart are paid less than men in every region and in most job occupations and take longer to enter management positions. It is the largest class-action suit in American history. In June 2004, a California judge ruled in favor of the women. Wal-Mart is appealing the decision.

Wal-Mart asserts that statistics used in the suit were flawed, because aggregated numbers failed to take into account differing demographic characteristics of employee groups. After statistically accounting for age, education and length-of-service, Wal-Mart claims that statistical analysis shows no difference between male and female employees.

Wal-Mart, like many large American corporations with low-wage employees, screens potential hires through a drug test, in addition to a multiple choice personality test, which asks applicants to express their level of agreement with statements such as "rules have to be followed to the letter at all times." (Ehrenreich, 124)

Imports and Globalization

Worldwide, Wal-Mart has become a symbol of globalization to the Anti-globalization movement by encouraging imports and carrying what detractors term "sweat-shop" products.

Imports

Critics argue that Wal-Mart's pricing pressure forces the relocation of manufacturing capacity to China, because China currently offers the lowest-cost manufacturing environment in the world.

Supporters argue that the shift of manufacturing capacity to China is part of an inevitable trend towards globalization due to China's comparative advantage in labor intensive manufacturing.

Use of sweatshop labor

Wal-Mart is criticized for failure to maintain adequate supervision over its foreign suppliers. This lack of supervision has led to incidents where Wal-Mart products have been made using sweatshop or slave labor. Greg Palast reports that Chinese dissident Harry Wu (Wu Hongda) discovered, in 1995, that Wal-Mart was contracting prison "slave labor" in Guangdong Province. Wu and Palast argue that numerous items at Wal-Mart are made by the Chinese People's Liberation Army rather than being "made in America".

In Bangladesh, Palast reported that in 1992 teenagers were working in "sweatshops" approximately 80 hours per week, at $0.14 per hour, for Wal-Mart contractor Beximco. In 1994, Guatemalan Wendy Diaz reported that, at the age of 13, she had been working for Wal-Mart at $0.30 per hour. (Palast pp. 119-120)

Wal-Mart responds that simply comparing wage levels leads to inaccurate conclusions. The company also asserts that wages paid to overseas workers are comparable to or exceed local prevailing wages. In that case, the company states that the overseas manufacturing jobs it creates are often an improvement in the quality of life for its employees. The company has also asserted that factory jobs with its suppliers are often safer and healthier than local alternatives, which may include prostitution, the drug trade or scavenging.

References

• Barbara Ehrenreich, Nickel and Dimed: On (Not) Getting By in America (2001, ISBN 0805063889)
• Liza Featherstone, Selling Women Short: The Landmark Battle for Workers' Rights at Wal-Mart (2004, ISBN 0465023150)
• Bob Ortega , In Sam We Trust: The Untold Story of Sam Walton and Wal-Mart, the World's Most Powerful Retailer, (1998, ISBN 0812963776)
• Greg Palast, The Best Democracy Money Can Buy (2002 ISBN 0745318460)
• Robert Slater , The Wal-Mart Decade: How a New Generation of Leaders Turned Sam Walton's Legacy into the World's #1 Company, (2003 ISBN 1591840066)
• BBC Three, Outrageous Fortunes, aired on 26 April 2004, about the workings of Wal-Mart.
• Democratic Staff of the House Committee on Education and the Workforce, "Wal-Mart: High Prices for American Workers" (PDF file, February 16, 2004)

External links

• "Inside the Leviathan" by Simon Head for The New York Review of Books, December 16, 2004
• Attacking Wal-Mart's Supply Chain
• "The Wal-Mart You Don't Know", Fast Company, Issue 77, December 2003, Page 68
• Is Wal-Mart Good For America?, PBS/WGBH Frontline
• "A distorted lens on Wal-Mart", Bruce Bartlett, Washington Times, November 22, 2004
• "Job Creation or Destruction? Labor-Market Effects of Wal-Mart Expansion", Emek Basker, Dept. of Economics, University of Missouri, 2002.
• Wal-Mart Free NYC, Latest articles, studies, and lawsuits pertaining to Wal-Mart.
• Study of Peachcare
• Wake-Up Wal-Mart Campaign