Archives for February 2005

Company admits no guilt as part of deal

By Donald Mckenzie
Published by The New York Times, February 12, 2005

Editor’s note: Imagine if street criminals received two weeks notice before police began investigating a crime in which they were the primary suspect. And imagine the suspect could plea-bargain away 24 charges against them by paying a fine equal to the amount of money they make in less than 18 seconds — and it was tax-deductible.

That’s the impact of the fine described in this article on Wal-Mart, based on their 2004 annual report which declared $256 billion in revenue last year. The violations in question here are quite minor — especially in comparison to many other offenses by Wal-Mart stores — but if the Bush Department of Labor is seeking to encourage law-breaking , it’s sending the right signal.

Among the bizarre pieces of this story is the Department of Labor recalling a press release in which it referenced one specific harm from the violations — a teenager injured by using a chainsaw — and reissuing a release cleansed of the incident. Why? Wal-Mart was given the right to approve all official public statements on the case!

Update 1: On Feb. 18, 2005, the Labor Department announced it would investigate the propriety of this deal after U.S. Rep. George Miller made the complaints.

Update 2: On Jan. 18, 2006, Rep. George Miller informed us, “I am happy to report that, after much public scrutiny and controversy, DOL notified me today that it has allowed the agreement to expire. Hopefully this shameful episode will stop the Department from making other sweetheart deals in the future.”

Wal-Mart Stores, the nation’s largest retailer, has agreed to pay $135,540 to settle federal charges that it violated child labor laws in Connecticut, Arkansas and New Hampshire.

Labor Department officials said most of the 24 violations covered by the settlement involved workers under age 18 operating dangerous machinery, including cardboard balers and chain saws. In the agreement, Wal-Mart denied any wrongdoing.

Department officials said that one of the violations was in New Hampshire, three were in Arkansas and 20 were in Connecticut, where the investigation began in 2001. One violation involved a youth who injured his thumb while using a chain saw to cut Christmas trees.

The Labor Department and Wal-Mart signed the agreement on Jan. 6, but made no public announcement. The department disclosed the settlement yesterday after a reporter questioned officials about concerns raised by several department employees that the agreement gave Wal-Mart special favors.

The agreement states, “Compliance with the child labor laws and regulations will be an important factor in evaluating the performance of managers.”

A provision also promises to give Wal-Mart 15 days’ notice before the Labor Department investigates any other “wage and hour” accusations, like failure to pay minimum wage or overtime.

That provision drew criticism yesterday from Representative George Miller of California, the senior Democrat on the House Education and Workforce Committee. (Editor’s note: His office subsequently analyzed the agreement and issued this report detailing its irregular nature). It also prompted complaints from some Labor Department investigators who spoke on the condition of anonymity for fear of retaliation.

“With child labor cases involving the use of hazardous machinery, why give 15 days’ notice before we can do an investigation?” asked a district office supervisor who has worked in the wage and hour division for nearly 20 years. “What’s the rationale?”

Victoria Lipnic, assistant labor secretary for employment standards, called the settlement typical, saying that giving Wal-Mart notice before conducting investigations would encourage the company to correct the problems sooner.

The department employees also said the agreement was unusual because the department had never announced it.

Department officials said they were preparing a news release and were waiting for Wal-Mart to pay the $135,540 before making the settlement public.

In the settlement, Wal-Mart agreed not to employ any worker under age 14 and agreed to prohibit any employee under 18 from operating cardboard balers. It also agreed to post a notice on each cardboard baler saying that minors may not use or touch the balers. Wal-Mart also agreed to train new store managers about compliance with child labor laws and to provide more training to current managers on the subject.

“We worked with the Department of Labor to strengthen our training and compliance programs,” said Gus Whitcomb, a spokesman for Wal-Mart, which is based in Bentonville, Ark. “Again, our focus is to be 100 percent compliant with all applicable laws.”

Wal-Mart has faced previous child labor charges. In March 2000, Maine fined the company $205,650 for violations of child labor laws in every one of the 20 stores in the state. In January 2004, a weeklong internal audit of 128 stores found 1,371 instances in which minors apparently worked too late at night, worked during school hours or worked too many hours in a day. Company officials said the audit was faulty and had incorrectly found that some youths had worked on school days when, in fact, those days were holidays.

Under the new agreement, the Labor Department did not waive its right to conduct future investigations. Still, several department officials suggested that the provision for 15 days’ notice might give Wal-Mart an opportunity to hide violations.

John R. Fraser, the government’s top wage official under the first President Bush and President Bill Clinton, said the advance-notice provision was unusually expansive.

“Giving the company 15 days’ notice of any investigation is very unusual,” Mr. Fraser said. “The language appears to go beyond child labor allegations and cover all wage and hour allegations. It appears to put Wal-Mart in a privileged position that to my knowledge no other employer has.”

Ms. Lipnic countered, “We usually call employers before we go to investigate,” and said there was “nothing uncommon or unprecedented about that.”

Several federal employees voiced concern about a Jan. 10 e-mail message sent by the director of the Little Rock, Ark., office for the Labor Department’s wage and hour division after the settlement was reached, that said, “Wage & Hour will not open an investigation of Wal-Mart without first notifying Wal-Mart’s main office and allowing them an opportunity to look at the alleged violations and, if valid, correct the problem.”

But Cynthia Watson, the division’s Southwest regional director, said advance notice would speed compliance. “We are seeking to centralize the points of contact in order to get the people involved to resolve the issue,” Ms. Watson said.

Addendum: Tuesday, Feb. 15, 2005. Victoria Lipnic, assistant labor secretary for employment standards, claims the advance notice applied only to complaints alleging child labor violations and not all wage/time violations.

© 2005 The New York Times

By Wendy Zellner
Published by Business Week Jan 27, 2005
Editor’s note: We have nothing to do with Wal-Mart financial services. Please do not contact us with questions for Wal-Mart!

Wal-Mart Stores didn’t get to be the world’s biggest retailer by giving up easily. So despite being twice thwarted by lawmakers in its efforts to buy a bank, it has quietly but tenaciously expanded its foothold in financial services.

In its latest move, announced on Jan. 21, the retailing giant is introducing a no-fee Wal-Mart Discover credit card that offers 1% cash back, which it will launch with GE Consumer Finance in March.

This relentless push into financial services is starting to send shivers through the banking industry. Few believe Wal-Mart will stop with basic services as it applies its low-price, high-volume formula to yet another business category. And while other companies, from Nordstrom to General Motors, have bank and thrift charters or hybrid Federal Deposit Insurance Corp.-insured industrial loan companies (ILCs) in tow, no one trips alarms like Wal-Mart.

ON THE MOVE

Many community bankers are convinced the behemoth won’t rest until it has obtained full banking powers. “It’s not a question of if Wal-Mart is going to be a bank, it’s a question of when,” says D. Anthony Plath, a finance professor at the University of North Carolina at Charlotte.

Clearly, Wal-Mart is on the move. Over the past three years, the giant has steadily built alliances with financial-service providers, such as MoneyGram International and SunTrust Banks, enabling it to offer services such as bargain-price money orders and wire transfers. It has bank branches operated by partners in nearly 1,000 of its massive supercenters.

And it has stepped up the pace. SunTrust is experimenting with nearly 45 in-store bank branches co-branded as “Wal-Mart Money Center by SunTrust,” with plans to expand to about 100 of them by early 2006.

UNDERSERVED CLIENTELE

Already, Wal-Mart customers are reaping the benefit. They can cash payroll checks for just $3, transfer money to Mexico for $9.46, and buy a money order for 46¢. Some competitors charge twice as much. Many are mostly high-margin, highly fragmented businesses in which the poor and immigrants are sometimes at the mercy of unscrupulous operators.

“Traditionally, nonbank vendors of financial services have charged an arm and a leg,” says David Robertson, publisher of The Nilson Report , a newsletter about credit and debit cards. Adds Gary Stibel of New England Consulting Group in Westport, Conn.: “Wal-Mart is giving people in lower-income brackets opportunities in financial services they never had before.”

Financial services could open a rich new vein of profits for Wal-Mart as it seeks to remain a growth company. By one rival’s estimate, the market for services that Wal-Mart already offers is worth about $5 billion a year in fees, leaving plenty of room for it to slash prices while making a profit. As it has with other goods, Wal-Mart will slowly “collapse the price umbrella,” squeezing check cashers and wire-transfer leader Western Union Financial Services, predicts Robert Markey Jr., consultant Bain & Co.’s director for financial services.

SOME CLOSED DOORS

For the time being, though, the basic services it offers represent little more than a rounding error for the $287 billion goliath. Wal-Mart doesn’t break out results for the unit, lumping them into the company’s “other income,” which totaled $2.1 billion in the first three quarters of the last fiscal year. That was up 31% but amounted to just 1% of total revenues.

Still, there’s huge growth potential. Says banking consultant Bert Ely of Ely & Co. in Alexandria, Va.: “They’re developing, in customers’ minds, a link between Wal-Mart and going to the bank. That has powerful long-term implications.”

Not all financial-service suppliers are willing to ride this tiger. Jane Thompson, president of Wal-Mart Financial Services, concedes that “some of the leaders in the industry don’t want to hurt their margins and don’t want to work with us.”

But MoneyGram, with a market share of around 1% in global money transfers, is a distant No. 2 to Western Union, which has 12%. For such players, Wal-Mart promises huge volumes of business through its 3,100 U.S. stores and more than 100 million customer visits a week. As the underdog, MoneyGram was already cost-conscious and focused on growth, not on protecting margins — a perfect partner for Wal-Mart, says MoneyGram Vice-President Daniel O’Malley. And it can’t hurt to learn how Wal-Mart does business, notes SunTrust Executive Vice-President Christopher Holmes, especially if Wal-Mart achieves full-fledged banking status.

END-AROUND?

Could Wal-Mart really become a bank? First, it would have to take on current prohibitions on combining banking and commerce. The laws were designed to prevent a big player such as Wal-Mart from denying credit to competitors or shifting losses from its retail business to an insured bank.

But many expect Wal-Mart to overcome those rules. Ronald Ence, vice-president of Independent Community Bankers of America, says Wal-Mart lobbied last year to expand the banklike powers of the ILCs. A bill that passed the House, but not the Senate, in 2004 would have allowed unlimited interstate banking, but only for those with at least 85% of their business in financial services.

Wal-Mart denies any such lobbying. It tried to buy a savings bank in Oklahoma in 1999, only to be blocked by the Gramm-Leach-Bliley Act, which overhauled federal banking law. And the California legislature halted Wal-Mart’s plan in 2002 to buy a small ILC.

THE SEARS EXPERIENCE

Yet if Wal-Mart were to gain full banking status, it would be able to offer everything from checking and savings accounts to mortgages, car loans, and even small-business loans at prices that rivals could be hard put to match, let alone beat. “There’s no question, they want to have a nationwide financial-services network. If they do, there’s no doubt in my mind they’ll be able to do to community banks the same thing they’ve done to the local grocery store and the local hardware store and the local clothing store,” says the community banker group’s Ence.

Wal-Mart insists its financial plans don’t depend on owning a bank or a thrift. “Our strategy is what you see,” says Wal-Mart’s Thompson, who was once executive vice-president of Sears Roebuck’s credit business. The services Wal-Mart offers are aimed squarely at its core, lower-income customers and employees. Many are among the estimated 56 million American adults don’t have a bank account. “Helping the underserved customer gets right at what we like to be known for,” says Thompson, who joined Wal-Mart in May, 2002.

More important than the unit’s profits, she says, is that these services bring customers into stores more often. She seems to have learned from Sears’ ill-fated 1980s effort to create a financial supermarket with its Allstate insurance, Dean Witter brokerage, and Coldwell Banker Real Estate units. Sears lost focus on its core business and found that many customers didn’t want to buy mutual funds or insurance from the same place that sold them appliances. “My whole thing is about starting with the customer,” says Thompson, who joined Sears in 1988 and took over its credit operation in 1993.

NO DAMAGE YET.

Even though Wal-Mart may be following a gradual approach to avoid Sears’ mistakes, it occasionally hints at bigger ambitions. On its Web site, Wal-Mart describes itself as “a trusted name in financial services.” In stores, it’s slapping its powerful brand on the money centers operating there.

So far, big rivals say Wal-Mart isn’t hurting them. 7-Eleven, which offers check-cashing, money orders, and the like through 1,000 electronic store kiosks, says it’s focused on convenience, not offering the lowest price. Likewise, Eric Norrington, a spokesman for Ace Cash Express, the nation’s biggest check-cashing chain, says Wal-Mart hasn’t affected his company’s pricing or growth. “Wal-Mart has validated the importance of this market segment. That’s attention we welcome,” he says.

But as toy retailers, grocers, and even jewelers have painfully discovered, complacency in the face of Wal-Mart can be suicidal. Given the behemoth’s long interest in the financial arena, technological savvy, cheap capital, and instant national reach, small and midsize banks, in particular, are right to be paranoid. Even big ones should be wary. “The mistake would be to stick your head in the sand and try to convince yourself that Wal-Mart is not a factor,” says Bain’s Markey.

For no matter what the obstacles, Wal-Mart seems determined to be a force in finance.

© 2005 Business Week

State must subsidize health care for Wal-Mart workers more than those of any other employer

Wal-Mart, with 9,617 employees listed as receiving benefits from the program, said it offers a health plan available to full-time workers after six months and to part-time employees after two years.

Critics said the high cost of the retailer’s insurance is out of reach for low-income workers who are forced to turn to publicly financed health insurance.

The figures come from a survey conducted during the past two months of TennCare rolls and Labor Department data, requested by The Chattanooga Times Free Press. It shows the number of TennCare enrollees who were employed by Tennessee companies at some point during the year.

The top 20 companies on the list employed 68,303 TennCare recipients — roughly 6 percent of the 1.3 million people now on the state’s health care plan.

State officials said they would continue to look at the data, as it may be somewhat imprecise because of high employee turnover rates at the private companies.

“The fact of the matter is there is a trend here that large employers have a large number of TennCare enrollees on the rolls, and we have to find out what’s behind that,” said TennCare spokesman Michael Drescher.

Wal-Mart, with about 25 percent of the company’s 37,000 workers on TennCare, tops the list of businesses with employees on the expanded Medicaid program. Wal-Mart is the state’s largest private employer.

Wal-Mart spokesman Dan Fogleman called the retailer’s benefits “competitive.”

“If there are some of our associates who have decided for some reason not to participate in our health plan, we don’t know the reason,” he said.

Phil Mattera, a research director for Good Jobs First and a Wal-Mart critic, said the list of employers with Medicaid-dependent workers shouldn’t include the largest and most profitable companies in the country.

“There was a time when the biggest company in the land — Ford Motor Co. in the early 20th Century and General Motors after World War II — set the pace for raising wages and benefits,” he said. “Wal-Mart seems to be leading us downhill and, in effect, using the government to help pay for its expansion by not giving its workers a sufficient health benefit plan, in many instances.”

A study in California found that Wal-Mart workers there cost that state an estimated $32 million because of their reliance on public assistance programs.

Temporary employment agencies represented seven of the top 10 companies with employees on TennCare, while Chattanooga-based Krystal Co. was ninth on the list with 3,183 employees. Goodlettsville-based discount retailer Dollar General was 10th.

Gordon Bonnyman, executive director of the Tennessee Justice Center, suggested that the state should offer reforms that allow large companies such as Wal-Mart with low-wage earners to buy into TennCare or other insurance health insurance.

“It would be good if we could get private employers to pitch in and do their fair share, and take advantage of the economy of scale and volume that TennCare provides,” Bonnyman said. “Nobody understands volume discounts like Wal-Mart.”

© 2005 Associated Press