By Ann Zimmerman and Timothy W. Martin 
First published by the Wall St. Journal, Sept 22, 2010

Wal-mart Stores Inc. is fighting back against a longtime corporate-sabotage campaign undertaken by grocery competitors to slow its growth.

The Bentonville, Ark.-based retailer recently asked judges to require its opponents to disclose who is footing the legal bills in four out of the dozens of California lawsuits against Wal-Mart that have helped delay the company’s expansion.

Lawyers for Wal-Mart want to know if the protracted environmental suits have been funded not by grass-roots activists, as the company long thought, but rather by competitors. “We believe the court and the community have a right to know who is funding the suits,” said Wal-Mart spokesman David Tovar.

Wal-Mart filed the discovery motions after a June article in The Wall Street Journal said grocery competitors Safeway Inc., Supervalu Inc. and Ahold NV secretly funded hundreds of lengthy battles across the country opposing Wal-Mart’s efforts to open supercenters, which sell groceries and general merchandise. In some instances, the grocery chains’ efforts were aided by grocery-worker unions, which fear that Wal-Mart will suppress industry wages and benefits.

The grocers hired Saint Consulting Group, a land-use firm based in Massachusetts, to carry out antidevelopment campaigns against Wal-Mart using political tactics and suits to delay or derail the opening of Wal-Mart stores, the Journal said.

In two of the four California cases involving Wal-Mart, the Journal reviewed internal Saint documents that showed the consulting firm was hired by Safeway to thwart Wal-Mart’s expansion.

In all, Safeway hired Saint to organize more than 30 campaigns against Wal-Mart projects in the state in the past eight years.

One of them resulted in a court decision that made it more difficult to build big-box stores in California, according to Saint internal documents that list the company’s projects, clients and billing numbers.

Safeway, based in Pleasanton, Calif., didn’t return calls seeking comment.

Pat Fox, president of Saint, acknowledged his firm was hired to organize opposition to hundreds of Wal-Mart projects, but he declined to name his clients.

“The work we do helps to level the playing field as regular citizens try to fight back against the world’s largest retailer and the impact of big-box development in their communities,” Mr. Fox said.

Saint maintains that the Journal’s account came from disgruntled company employees who want to harm the firm.

Wal-Mart lawyers estimate that about a third of the company’s stores in California were challenged by local groups prior to 2002, but once it began trying to open supercenters selling groceries, almost every store faced opposition.

Wal-Mart recently combed through dozens of legal cases brought against it. It zeroed in on suits involving the California towns of Merced, Realto, Elk Grove and Galt, all of which claimed that Wal-Mart-based developments violated the California Environmental Quality Act, which requires cities to subject building projects to stringent environmental-impact studies before approving them.

Wal-Mart says it chose these cases because they were at a procedural stage that permitted the filing of discovery motions.

The Journal’s review of Saint documents indicates that Safeway hired Saint to organize opposition in Merced and Elk Grove, though the documents don’t specify whether Saint paid the plaintiffs’ legal fees. The judge handling the Merced case has granted Wal-Mart’s request for discovery.

Wal-Mart has been trying to open a distribution center in Merced for four years. The city has an unemployment rate of about 20%, and the company projects the center would provide about 1,200 jobs with average pay of $17.50 an hour for fulltime workers.

But a group calling itself the Merced Alliance for Responsible Growth is vehemently opposed. In advance of a summer 2009 city council vote on the project, it published a 12-page newspaper with such headlines as “Wal-Mart Jobs Threaten Lives.”

One article, citing a trucking magazine story about Federal Bureau of Investigation prostitution stings at public truck stops, suggested that the distribution center could be a magnet for prostitution, drugs and crime, possibly involving the local high school.

The anti-Wal-Mart newspaper was paid for by Saint using Safeway and union funds, according to two former Saint employees who were interviewed by the Journal.

The Merced Alliance didn’t return calls seeking comment. Saint’s Mr. Fox declined to comment on specific allegations or events.

In 2008, the United Food and Commercial Workers union in California spent $58,000 on the Warn Merced Project, described as a Wal-Mart project in an annual report filed by the union with the U.S. Labor Department.

“Hiring Saint and other organizations…is within our First Amendment rights,” said Jill Cashen, a union spokeswoman.

Merced’s city council approved the distribution center in September 2009. The Merced Alliance for Responsible Growth filed suit 30 days later, claiming that Wal-Mart’s environmental review was flawed. A judge heard oral arguments on the case earlier this month, but hasn’t yet ruled.

The Merced case follows a battle against Wal-Mart in Bakersfield, Calif., earlier in the decade.

A group called Bakersfield Citizens for Local Control consisted of a Saint employee who used an alias and posed as a resident volunteer, several union workers, and a Bakersfield resident who was paid by the plaintiffs’ lawyers who brought the case, according to former Saint employees.

To dissuade the Bakersfield city council from approving one of two shopping centers that were to include Wal-Marts, the group tried to prove that the site was a habitat for the endangered San Joaquin kit fox.

Then, when the city council nonetheless approved the project, Bakersfield Citizens sued, arguing that the two Wal-Marts might force other stores to close.

In 2005, a California appellate court agreed that the potential for blight should be taken into account, overturning the city’s approval of the two shopping-center sites.

But a more extensive environmental impact report concluded that the area could accommodate the Wal-Mart stores. One opened in fall 2009 and the other in March 2010.

• See our huge collection of articles, studies, internal documents and more on Wal-Mart and big box stores.
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Click on the title of any book for purchasing information. Find an independent bookstore near you.

The Wal-Mart Effect : How the World’s Most Powerful Company Really Works–and How It’s Transforming the American Economy by Charles Fishman (2006) – Fishman provides original research and a thorough, balanced analysis that will discomfort both Wal-Mart’s backers and foes. Articles like this and this preview the book’s content and quality.

In Sam We Trust by Bob Ortega (1999) – Then-Wall Street Journal reporter Ortega wrote this definitive biography of Wal-Mart founder Sam Walton. It’s extensively researched, well-written and a hefty 413 pages (out of print, but readily available).

Wal-Mart: the Face of Twenty-First Century Capitalism Edited by Nelson Lichtenstein (2005) – This title’s twelve chapters, each by different authors, are based on papers submitted conference at UCLA.

Up Against the Wal-Marts: How Your Business Can Prosper in the Shadow of the Giants by Don Taylor and Jeanne Smalling Archer (1994) – An excellent and relatively timeless resource for business owners in all fields. Provides ideas to help independent business owners compete successfully against chains.

Anti-Walmart Books

The Bully of Bentonville by Anthony Bianco (2006) – Not yet reviewed. The writer is a reporter for Business Week Magazine.

Slam-Dunking Wal-Mart by Al Norman (1999) – Though the book is geared toward folks working to stop individual big box stores, there’s good, broadly applicable organizing information as well. Also by Al Norman: The Case Against Wal-Mart (2004).

Nickel and Dimed by Barbara Ehrenreich (2002) – Not reviewed. The author goes undercover as a Wal-Mart employee and reports on her experiences.

Selling Women Short by Liza Featherstone (2004) – Not reviewed. Featherstone covers the pending women’s class-action lawsuit against Wal-Mart for alleged illegal discrimination in pay and promotion.

The United States of Wal-Mart (2005) by John Dicker – Not yet reviewed.

Pro-Walmart Books

The Wal-Mart Way: The Inside Story of the Success of the World’s Largest Company by Don Soderquist (2005) – Not reviewed.

 Documentary Films

Talking to the Wall by Steve Alves (2004, 57 min.) – An engaging film that profiles a fight against Wal-Mart in a single Massachusetts community, but also provides interesting history, such as an overview of the U.S. anti-chain store movement of the 1920s and 30s.

Independent America (2005, 81 min) by Hanson Hosein and Heather Hughes – These two journalists entertain as well as inform as they document their travels across the U.S. investigating battles between “mom and pop” and corporate chains (including Wal-Mart). Includes interview with ReclaimDemocracy.org’s founder.

Wal-Mart: The High Cost of Low Price (2005, 97 min) – This Robert Greenwald film provides a compelling case against Wal-Mart, especially when interviewing former executives. We published this discussion guide to help lead folks from critiquing one corporation to understanding the structural problems Wal-Mart exemplifies.

Frontline: Is Wal-Mart Good for America? (2004) – An informative PBS special that covers many topics, with a focus on Wal-Mart’s use of overseas “sweatshops.”

Why Wal*Mart Works and Why that Makes Some People Crazy! (2005, 72 min) – While we welcome opposing viewpoints, this film is unlikely to persuade anyone not already firmly pro-Wal-Mart.

UCLA Conference on Wal-Mart (2005, 6 hrs) – This DVD collects six hours of panel discussions from a 2005 conference that represented a wide range of viewpoints. Not yet reviewed.

See our huge collection of articles, studies, internal documents and more on Wal-Mart and big box stores.

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By Art Carden 
First published by The Freeman, January, 2010

Walmart is one of the world’s largest, most successful, and most vilified corporations. It was ranked number four in the Fortune 500 from 1995 through 1998, reached number one in 2002 and stayed there until 2009, when it fell behind Exxon Mobil. It’s also the only firm in the top four of the Fortune 500 that is not an energy company.

The concentrated public-relations campaign against Walmart has been moderately successful, and the company has drawn criticism from all sides: Commentators on the left criticize the company for its alleged impact on wages and jobs; those on the right criticized its decision to join the National Gay and Lesbian Chamber of Commerce and to offer “abortion pills” in 2006. Recently, Walmart announced support for mandatory health coverage by large employers, bringing more criticism. Walmart’s handling of the attacks has been less effective than the company would have liked, and its attempts to defend itself have been a distraction.Walmart is one of the world’s largest, most successful, and most vilified corporations. It was ranked number four in the Fortune 500 from 1995 through 1998, reached number one in 2002 and stayed there until 2009, when it fell behind Exxon Mobil. It’s also the only firm in the top four of the Fortune 500 that is not an energy company.

The criticisms too often rely on anecdotes or statistical comparisons that are difficult to interpret. When one considers that Walmart is the world’s largest corporation, with revenues of about $300 billion and almost two million employees, anecdotes that cast the company in a good or bad light are not particularly surprising. Similarly, a simple comparison of employment (or wages) in a city with a Walmart to a city without one is only minimally informative because such comparisons often fail to control for other explanatory characteristics. Current research suggests that the economic, political, and social case against Walmart is exaggerated. Further, Walmart’s “Every Day Low Prices” do not come at an unacceptable social cost in the form of negative spillovers not reflected in prices. Walmart is certainly imperfect, and there are reasons to view the company with a critical eye, but the usual criticisms of the company collapse under the weight of the evidence.

Does Walmart Squeeze Workers and Suppliers?

Economists Jerry Hausman and Ephraim Leibtag argue that we systematically overstate the rate of price inflation because we don’t account for Walmart’s and other big-box companies’ impact correctly. Walmart claims to save consumers $2,500 per capita per year. This is probably an overestimate, but studies I have done with Charles Courtemanche of the University of North Carolina-Greensboro do suggest that Walmart increases our options.

Critics claim that Walmart can deliver low prices because it destroys jobs, lowers labor standards, and squeezes suppliers. The data, however, do not support the first two, while the third is misleading. Retail labor market studies by University of Missouri economist Emek Basker show that Walmart modestly increases retail employment. Critics are quick to counter by questioning the quality of those jobs, correctly noting that Walmart pays less than its unionized competitors. However, this should be qualified. Union pay scales restrict the labor pool from which unionized stores can hire: If the union contract specifies minimum compensation of $12 per hour, then people whose labor cannot produce at least that much in revenue will not be hired. Since Walmart is an open shop, it has no such artificial floor for the productivity of the people it can hire. Those who would not be employable under union conditions are made better off despite the illusion of exploitation.

The company’s critics correctly point out that the last several decades have seen a large gap open between manufacturing and retail wages. But these data must be interpreted with caution because immigration and changing labor participation have altered the distribution of the workforce. People who are today earning Walmart’s “Every Day Low Wages,” as the critics call them, might not have participated in the labor force several decades ago and their wages would not have appeared in the official data.

Supposedly, Walmart drives small local mom-and-pop retailers out of business, spreading economic havoc and weakening a community’s social fabric. In a paper published in Economic Inquiry , West Virginia University economists Andrea M. Dean and Russell S. Sobel fail to detect a statistically significant effect of Walmart on self-employment, the number of small businesses, or bankruptcy among small businesses. It is true that Walmart causes some businesses to close, particularly in sectors that directly compete with the company. However, these businesses can be replaced by businesses in other sectors. In a summary of their research that appeared in the Spring 2008 Regulation magazine, Dean and Sobel offer the example of Main Street in Morgantown, West Virginia, which was decimated by Walmart but which soon recovered as clothiers and electronics stores were replaced by small businesses in other industries.

They also discuss the obvious objection that perhaps Walmart’s wake leaves a swath of low-value, low-wage businesses. They show, however, that Walmart penetration does not appear to reduce the values of small
businesses. Stacy Mitchell, author of The Big-Box Swindle, argues that Dean and Sobel’s result relies on an incorrect interpretation of Census data. For their part, Dean and Sobel say Mitchell misunderstands the data. If they are correct, the effects of Walmart’s penetration are consistent with what economists believe about technology and economic growth as well as with Joseph Schumpeter’s well-known concept of “creative destruction.” Walmart’s expansion allows people to produce more with fewer resources and less labor, which frees those resources and that labor to move into other occupations.

Walmart also allegedly uses its raw bargaining strength to extract concessions from suppliers. It is usually able to get lower prices, but it also provides something of great value in return: access to its supply chain and logistical support. While anecdotes of Walmart’s hard bargaining abound, a 2001 Journal of Retailing study by Paul N. Bloom and Vanessa G. Perry found that while dealing with Walmart can hurt financial performance for companies that do only a small share of business with the company, “large-share suppliers to Wal-Mart perform better than their large-share counterparts reporting retailers other than Wal-Mart as their primary customers.” Bloom and Perry note that Walmart offers access to broad markets and that companies taking advantage of this prosper as a result.

Sweatshops

Another common refrain is that Walmart and other large retailers obtain their goods from third-world “sweatshops.” In an important 2006 study published in the Journal of Labor Research, economists Benjamin Powell and David Skarbek showed that “sweatshop” labor paid better than the alternatives. In a June 4, 2008, article for the Library of Economics and Liberty, Powell summarizes this research and points out that criticisms of “sweatshop wages” (like those aimed at a factory in Honduras making clothes for Kathie Lee Gifford in 1996) invariably compare the wages and working conditions to American rather than Honduran working conditions—a comparison he calls “irrelevant” because of restrictions on international labor mobility. Sweatshops are a blessing, not a burden. As Powell points out, sweatshop wages more than double the average in some countries. Unfortunately, boycotts and legislation will not improve working conditions around the world. Powell summarizes the conditions that create low wages in countries like Honduras:

Wages are low in the third world because worker productivity is low (upper bound) and workers’ alternatives are lousy (lower bound). To get sustained improvements in overall compensation, policies must raise worker productivity and/or increase alternatives available to workers. Policies that try to raise compensation but fail to move these two bounds risk raising compensation above a worker’s upper bound, resulting in his losing his job and moving to a less-desirable alternative.

Unwillingness to recognize this can lead to policies that do more harm than good. Abuses undoubtedly occur, but Walmart has the resources to be able to have an effective monitoring program—not necessarily because of explicit humanitarian impulses, but because consumers are willing to pay for the guarantees and assurances that they are not buying the products of slave labor. Since consumers demand information about the conditions in which those who make these goods labor, it is in Walmart’s best interests to monitor carefully the conditions in which people produce the goods they obtain from abroad.

The thesis that Walmart’s ethical-standards monitoring is an elaborate ruse is tempting, and a ruse might pay off in the short run. However, Walmart should be disciplined by the capital market. Failure to provide consumers with what they demand—guarantees about international labor conditions, for example—at the price they are willing to pay will hurt long-run profitability and, therefore, the stock price. It is wise to read with a critical eye, but if Walmart’s managers are running a systematic campaign of misinformation, then they are failing in their responsibility to shareholders. Someone who discovered such a ruse would be in a position to profit handsomely by acquiring Walmart stock and fixing the problem.

Walmart, Communities, and the Environment

In his 2000 book, Bowling Alone , political scientist Robert Putnam documented a decline in “social capital”—which he defines as “networks and norms of reciprocity” that hold communities together—in the United States since the 1950s.  Walmart has been accused of contributing to this phenomenon. In a 2006 study agricultural economists Stephan Goetz and Anil Rupasingha reported evidence that Walmart reduced several measures of social capital like census participation, voting, and a measure they themselves constructed. However, in a study published in Public Choice in early 2009, Charles Courtemanche, Jeremy Meiners, and I use Putnam’s data to show that there is no identifiable, systematic negative relationship between increased Walmart density/longevity and measures of noneconomic “quality of life” or civic participation. As Walmart penetration increases, we cannot tell that people spend systematically less time with friends or less time civically engaged.

Others have alleged that Walmart erodes American values. United States of Wal-Mart author John Dicker calls the company a “conservative cultural gatekeeper,” and right-wing critics like those who operate the Christian website www.saveWal-Mart.com took Walmart to task for joining the National Gay and Lesbian Chamber of Commerce. (The company discontinued this affiliation in 2007.) Using similar data and methods to those used in our study of social capital, my coauthors and I were unable to find a systematic relationship between Walmart’s penetration and individual values. It appears that while people get their groceries at Walmart, they get their politics and their values elsewhere.

Finally, Walmart has been criticized for its alleged contributions to environmental degradation, but its cost-cutting has considerably reduced the amount of packaging manufacturers use. This was particularly important in 2008 as gas prices hit record highs. A May 29, 2008, article on CNNMoney.com used Hamburger Helper as an example: To meet Walmart’s demands, General Mills produces “denser pasta shapes” that can be put into a box that is 20 percent smaller, saving “890,000 pounds of paper and eliminat[ing] 500 trucks from the road.” Conditions create solutions: Walmart has been able to use recent increases in fuel prices to trim additional fat from the supply chain and to innovate in ways that will lead to permanent increases in productivity.

Discrimination, Health Care, and Subsidies

Finally, Walmart has been criticized for alleged systematic discrimination against women and for aggressive patterns of seeking local government subsidies. Walmart is the defendant in the largest class-action civil rights lawsuit in history— Dukes versus Wal-Mart, in which an estimated 1.6 million women allege a decades-long pattern of discrimination—but the central tenet of the case is inconsistent with Walmart’s alleged morbid obsession with profits. In spite of their incompatibility, these criticisms often appear side by side. There are conditions under which firms can maximize profits while discriminating in employment, but before we can reconcile discrimination with profit maximization we have to prove that these conditions are in place. Otherwise, the hypothesis of profit maximization works against discrimination and discrimination works against profit maximization. If an employer insisted on discriminating by refusing to hire productive women or by paying them less than they were worth, he would create profitable opportunities for competitors to scoop up members of the victim group and earn profits by paying them something closer to their market value. An employer’s ability to discriminate will be sharply limited by competitive pressure.

Walmart’s critics have also argued that the company places undue burdens on the government’s public health infrastructure. But this is a “problem” that exists because that infrastructure exists and not because of Walmart as such . One could argue more plausibly that by paying better than their employees’ next-best alternatives, Walmart actually relieves some of the pressure on the public health infrastructure. The critics also miss that Walmart’s existence provides a larger pool of resources that can be taxed to provide these benefits.

One robust criticism remains: Walmart has sometimes used the State to redistribute resources to itself and to cripple its competitors. Walmart is aggressive about seeking subsidies, such as acquiring properties through eminent domain, from governments eager to “attract new jobs” and new tax revenue, as critical groups like Good Jobs First, WalMartWatch.com, and WakeUpWalMart.com point out. These subsidies distort patterns of economic activity and sometimes can have the perverse effect of taxing one firm to subsidize a competitor. The problem is compounded further by the alleged need for more subsidies to redevelop areas blighted in Walmart’s wake. This issue provides a setting in which Walmart’s critics can play a constructive role.

In 2005 Walmart supported an increase in the minimum wage, and in July 2009 it earned a front-page mention in the Wall Street Journal for teaming up with the Service Employees International Union and the Center for American Progress to advocate mandatory employer-provided medical coverage. Walmart’s seemingly counterintuitive advocacy is a classic example of what economist Bruce Yandle terms the “Baptists and Bootleggers” phenomenon. Among the supporters of Prohibition were Baptists, many of whom felt that consuming alcohol is a sin, and bootleggers, who stood to profit handsomely if the government crippled potential legitimate competition. In the health care scenario the “Baptists” are groups that believe everyone has a fundamental right to health care. The bootleggers are large firms (like Walmart) that know that mandates will hurt their smaller competitors.

There is also reason to believe that Walmart’s business model is partially underwritten by transportation subsidies. Critics often overlap with people who criticize the American “love affair” with the automobile. The two are related. While it is true that, all else equal, Walmart has been good for consumers, it is also an unintended consequence of the massive subsidies to transportation infrastructure that created today’s urban sprawl. To the degree that Walmart is undesirable, it is a symptom of a larger pattern of interventionism rather than a cause.

Perhaps most unsettlingly, Walmart’s embrace of the proposed health care mandates and advocacy of a higher minimum wage illustrates a disturbing truth about the reality of doing business in the twenty-first century. By backing President Obama’s health care proposal, Walmart might be able to use this to fend off more damaging legislation later. In short, Walmart could be aiding and abetting what Ayn Rand called “an aristocracy of pull.” A 2006 volume of critical essays called the company “the face of twenty-first-century capitalism.” If twenty-first-century capitalism means competition by politics rather than competition by production, we will see lower economic growth as a result. This does not excuse the company’s use of the coercive power of the State for its own benefit, but Walmart is an effect rather than a cause.

The economic, political, and social case against Walmart has been tried and measured against the best available data. For the most part, it has been found wanting. We are left with a rather flimsy criticism, which is that for all its virtues (or at least its non-vices), Walmart is aesthetically unappealing. This visceral reaction to capitalist aesthetics has been called “the yuck factor,” and economist Alvin Roth has argued that we have to take “repugnance” seriously as a political constraint. However, just because I find another’s choices repugnant, I don’t have the right to supplant those choices with my own. People have argued that what happens in someone’s bedroom is none of the government’s business. By the same logic, what someone puts in his or her shopping cart is none of the government’s business. Even if Walmart causes people to make bad aesthetic choices, the civility necessary for a functioning society must take over.

Walmart’s “Every Day Low Prices” policy has been alleged to reduce labor standards, to squeeze suppliers, to decimate small retailers, and to tear the social fabric. In virtually every instance, the empirical evidence available suggests that what Charles Fishman called The Wal-Mart Effect is at best positive, at worst benign. Walmart is a retailing innovator and a force for competitors and suppliers to reckon with. As a social phenomenon, however, the alleged negative spillovers from Walmart are greatly overstated.

Art Carden teaches in the department of economics business at Rhodes College.

© 2009 Art Carden

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“Project Impact” may take away shelf space from non-compliant companies

By Jack Neff 
First published by Advertising Age, July 20, 2009

Batavia, Ohio — Walmart has launched an aggressive push to have marketers divert their consumer media and marketing budgets into the giant retailer’s growing ad budget and in-store marketing programs, using a simultaneous push to clear underperforming brands off its shelves as extra leverage.

In recent months, the country’s largest retailer has been quietly rolling out a system — the cost-supplement initiative — that marketers and industry consultants say directs marketers to divert money proportionate to their share of sales to Walmart marketing programs. Walmart is looking for a share not just of trade-promotion funds but also consumer-ad dollars. The vehicles Walmart wants funded include co-branded TV and other media ads, in-store TV and banner ads on Walmart.com.

Bold play 
It’s probably the boldest retailer grab for suppliers’ consumer-marketing funds ever, if only because the amounts involved are so huge. Some package-goods companies do more than 30% of their U.S. business at the retailer. Complying with Walmart’s guidelines would, in theory, mean a company the size of Procter & Gamble Co. diverting around $1 billion in U.S. media dollars into Walmart’s media budget or marketing and merchandising vehicles — a sum roughly equivalent to what Walmart spent on all of its own measured media last year, according to TNS Media Intelligence.

To be sure, there’s no evidence any major marketers have come close to meeting that demand. If they did, they would either have to make proportionate concessions to other retailers — essentially turning their entire marketing budgets over to the retail trade — or risk violating the Robinson-Patman Act, which requires manufacturers to treat retailers proportionately in trade deals.

Walmart isn’t the first retailer to dream aloud of grabbing suppliers’ consumer-marketing budgets. It’s just the one bringing the biggest clout to bear, particularly as the push for marketing dollars coincides with other elements of its “Project Impact,” through which it’s culling product assortments around 15% on average and as much as 80% in some low-priority categories.

The implied threat for marketers that don’t go along with demands for more marketing funds is an increased risk of delisting, or conversely that ponying up more marketing dollars can help save their space on Walmart’s shelves.

The case of Arm & Hammer 
One case increasingly talked about in industry circles is Walmart’s recent reversal of its decision to delist Arm & Hammer liquid laundry detergent from close to 90% of its U.S. stores.

Walmart eliminated most of the brand’s distribution this spring despite Church & Dwight Co. hiking its marketing support for the brand to record levels last year. But people familiar with the matter say Walmart determined it didn’t need both Arm & Hammer and Henkel’s Purex in most of its stores. Both are value brands with similar consumer propositions and prices, and Purex had a higher market share at Walmart.

In recent weeks, however, Arm & Hammer liquid detergent began reappearing at all the stores it disappeared from a few months earlier. That coincided with the brand making appearances in Walmart’s circular and TV ads earlier this month — appearances that suppliers say are included in a catalog of options with price tags attached.

As Walmart knew, Church & Dwight was nearing completion of a new million-square-foot liquid-laundry-detergent plant, much of it having been planned to serve Walmart when construction began last year, said Burt Flickinger, consultant with the consulting firm Strategic Resource Group. “Financially, Walmart had Church & Dwight over the proverbial barrel,” he said.

Walmart and Church & Dwight have repeatedly declined to comment on the Arm & Hammer merchandising decisions, and a Walmart spokeswoman declined to comment for this story, citing “competitive reasons.”

Leon Nicholas, director of retail insights at WPP consulting firm Management Ventures, said Walmart’s aggressive demands for marketing funds, combined with its program to cull item assortments, is roiling the package-goods industry like no other matter.

Walmart as ad agency 
He declined to comment on specifics of the Arm & Hammer matter because Church & Dwight is a client, but he called Walmart’s cost-separation initiative a “way for suppliers to pony up marketing dollars in order to get more favorable treatment and placement in any number of Walmart promotional vehicles, so that they’re advertising through Walmart, almost as if Walmart were an ad agency now. And as that happens, yes, decisions have been reversed [about product assortment.]”

Walmart, Mr. Nichols said, likewise is preparing to restore some products cut in the cereal aisle earlier this year, primarily for General Mills, though he declined to comment further on the particulars or whether that involved marketing funds, as General Mills is also a client.

Though Walmart is clearly playing hardball, he said, it’s not going as far as many retailers in establishing a “pay-to-play” environment.

“The non-cynical way to put it is that [Walmart] is amenable to listening to supplier arguments that they may have cut too far in their [product] mix,” Mr. Nichols said. “Because they’ve opened up so many marketing opportunities in-store and out-of-store, they’ve opened up the possibility of pitting vendors against each other.”

Walmart long has had an “open-door” policy to appeal merchandising decisions, and Church & Dwight has used it liberally, one industry executive said. It probably didn’t hurt, the executive added, that the company entered the open door with an open wallet.

Walmart still bases buying decisions primarily on consumer appeal and price, Mr. Nicholas said, but it’s increasingly willing to use marketing funds at least as a tie-breaker, and in lower-priority categories as part of a bidding process on what national brand gets to compete alongside private labels.

‘Win, play and show’ 
Walmart’s new strategic system rates categories as “win, play and show” based on their priority to Walmart’s marketing strategy, he said. Likewise, vendors also are being rated as “win, play and show.”

“If you get categorized as a play vendor, you come back, use the CSI tool, use a half million dollars for this, a half million for that, and bang, you’re back in good graces,” Mr. Nicholas said.

But much of what Walmart is asking for falls well outside the realm of traditional trade marketing, he said. “You’ve got social media [like the ElevenMoms blogging community]. You’ve got smart TVs in the store – even if you can’t agree on the LG C1 vs CX brands. You’ve got magazines, TV and radio advertising.”

It’s a substantial departure from the model Sam Walton created, where merchandising decisions were based on price and consumer appeal. And it’s a departure from Walmart’s “House of Brands” philosophy, too, as the marketer funds are being diverted largely to help build the Walmart brand, not manufacturer brands.

That’s one reason Walmart’s message is being received dimly when conveyed from the Walmart sales team to the marketing team at the home office, Mr. Nicholas said.

“The biggest challenge right now for a lot of our clients is the internal battle,” he said. “I’m not saying any client has committed to that percentage notion, but I do know a fair number are filling out that CSI tool and making substantial commitments to Walmart.”

Mimicking Target 
In making the shift, Walmart Chief Merchandising Officer and former Chief Marketing Officer John Fleming have torn several pages out of the book of his old employer, Target, said Mr. Nicholas and industry executives.

“The spark [Walmart logo] is the new bull’s-eye,” Mr. Nicholas said. “And ‘Save money. Live better.’ is the new ‘Expect more. Pay less.'”

But even Target hasn’t gone so far as to require all in-store merchandising material to bear the chain’s logo and trade dress, as Walmart has. That means marketers doing in-store promotions now help pay for the in-store component of Walmart’s campaign.

The campaign from Interpublic’s Martin Agency, Richmond, Va , is clearly the best in the business right now, Mr. Flickinger said. And Walmart is looking to substantially boost weight behind it without actually using its own media dollars.

Many of the changes help manufacturers, too, said one supplier executive, such as the ability to dovetail ads on Walmart’s new Smart Network with end-cap displays. But it’s also at odds with the retailer’s former merchandising meritocracy.

Walmart isn’t really doing anything other retailers haven’t, and its aggressive push is just one indication of the growing importance of shopper marketing, said Chip Hoyt, VP-marketing of brokerage firm Crossmark.

The degree to which manufacturers comply with Walmart’s requests will have much to do with the strength of their brands, he said. A P&G, with a stable of leading brands that consumers likely would leave a store to buy, has considerably more power to fend off raids on its consumer-marketing budget, he said, than marketers of second- and third-tier brands.

© 2009 Ad Age

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Corporation also aims to become “number one health-care company”

Their brainchildren represent an unlikely step for staid Wal-Mart: One idea calls for urban convenience stores less than a tenth of the size of the company’s supercenters and stocked with groceries geared to more affluent tastes. Another plan calls for stand-alone stores offering a variety of health services and products. The new outlets are being prepared for introduction early next year, the people say.

David Wild, the Wal-Mart senior vice president of new business development, is leading the initiatives. He declined to comment. A Wal-Mart spokesman wouldn’t provide specifics but said, “Our business is constantly evolving, and we’re always looking for new and innovative ways to serve our customers.”

The company may have waited too long to develop successors to its big-box U.S. stores. Analysts now chopping their profit estimates for this and next year say Wal-Mart has seemed tone-deaf to consumer trends. Failed pushes in women’s fashions and home decor continue to sap profits, and high gasoline prices are eating into supercenter visits. Recently, Wal-Mart has tried running ads promoting its low prices as worth the extra travel.

Nonetheless, the smaller stores could help Wal-Mart do more than fend off Tesco. The retailer has been largely shut out from upper-income and urban markets, including those in California and New York. High land costs and local opposition have limited the discounter to just 28 supercenters in California, a tenth of the number in Texas. Smaller stores are less likely to stir up opponents than the hulking 200,000-square-foot big-box stores.

In health care, Wal-Mart sees itself providing an array of services and home-health equipment along with the prescription eyeglasses and pharmaceuticals that it already sells, according to a person familiar with the effort. “In five years, Wal-Mart wants to be on its way to becoming the No. 1 health-care company in America,” that person said.

In April, the retailer announced that over the next three years it would open up to 400 in-store clinics, offering basic services, including school physicals and treatments for sinus infections and allergies. It also said it hoped to have 2,000 clinics in operation in five to seven years. Wal-Mart has already teamed with some big employers hoping to improve employee health by providing standards for electronic health records. If that effort succeeds, it would give the Wal-Mart clinics a boost.

The world’s largest retailer hopes to begin rolling out the new convenience and health-care stores early next year, and it’s looking at locations in California for the pilots. A Wal-Mart spokesman said the company “regularly tests new formats” but declined to describe the effort further.

California has been an embarrassing stumbling block for the Arkansas retail giant. “Wal-Mart doesn’t have a format that works in California,” says Burt P. Flickinger III, managing director of retail consultant Strategic Resource Group. He believes the convenience-store effort is based in the San Francisco area because it is home to the Trader Joe’s chain, retailer of prepared foods and groceries, and it has become the biggest market for Whole Foods Inc. “Wal-Mart really needs to take a strategic stand” in the state, he says.

Tesco’s impending arrival in the U.S. Southwest has accelerated Wal-Mart’s plans. The British retailer is expected to open 30 Fresh & Easy Neighborhood Market stores by February and invest $2 billion in the U.S. rollout over the next five years, according to a spokesman for Tesco’s U.S. operation, which is based in El Segundo, Calif. After the first stores are launched, the company has 70 more stores in its pipeline for early 2008.

“The impact on the competition depends on how fast Tesco rolls out. I think it’ll be fast,” says David McCarthy, a London-based deputy head of equity research for Citigroup. He estimates Tesco could have 500 U.S. stores and U.S. revenue of $5 billion by 2010.

The proposed Wal-Mart stores would fit with U.S. chief Eduardo Castro-Wright’s goal of localizing the retailer’s business. As part of its effort to appeal to a broader range of consumers, Wal-Mart has begun tailoring merchandise and food selections to regional and ethnic groups and tastes. It recently asked fruit vendors to package apples, now sold in plastic bags, in paper sacks similar to those at roadside orchards. And it is reaching out to major suppliers, including Johnson & Johnson and Procter & Gamble Co., for advice.

Wal-Mart could use an injection of new ideas. Its earnings are expected to rise just 3.5% this year, to $12.52 billion, compared with a 10.2% increase just two years ago. The company remains the world’s largest retailer, with sales this year projected to hit $370 billion. But its rivals — Costco Wholesale Inc., Target Corp. and J.C. Penney Co. — have been turning in better comparable-store sales for more than a year.

Food sales are a double-edged sword for Wal-Mart. They represent its fastest-growing business, with revenue rising 14% last quarter and comparable-store sales up about 5% this year. But slim profits mean the company’s overall margins weaken as food’s share of the business gains. Wal-Mart shares hit a new 52-week low yesterday before bouncing back to close at $43.50, up 22 cents on the day.

In addition, Wal-Mart hasn’t successfully incubated new-store concepts since the first supercenter was created in 1988. Its effort to build a conventional grocery business via Neighborhood Market stores has been a modest success at best. The 40,000-square-foot outlets were designed to fill the gap between supercenters. But the company has opened just 124 of them since 1998.

Efforts to start new retail outlets overseas in countries like Germany were stark failures. In contrast, Wal-Mart has had some success entering into joint ventures with local retailers, as it did with Mexico’s Cifra SA in 1991, buying majority control after it understood the market.

Wal-Mart isn’t the only company readying new store formats. Major grocery chains are testing ideas that combine convenience and grocery stores. The third-largest U.S. supermarket chain, Safeway Inc., recently opened Citrine New World Bistro, a restaurant that uses its private-label brands.

FamilyMart Co., the third-largest convenience store operator in Japan, has opened 12 Famima convenience stores in the Los Angeles area and plans 250 U.S. stores by 2009. “This is a big, big target,” says Hidenari Sato, Famima’s vice president of U.S. operations.

Analysts say Wal-Mart hasn’t been able to penetrate the markets where wealthier America resides. “In the Northeast Corridor, California and Chicago you have 33% of U.S. income and retail sales. Yet these areas account for 10% of [Wal-Mart] stores and less than 2% of their supercenters,” says Greg Melich, a retail analyst at Morgan Stanley.

© 2007 Dow Jones Company

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Forbes’ analysis shows suppliers’ profit margins drop as percentage of business done with Wal-Mart rises

By Tom Van Riper
First published by Forbes.com, April 23, 2007

A bottom feeding investor might be intrigued by an electronic games maker called Handheld Entertainment, a San Francisco-based company that’s trading at about a third of its 52-week high of $7.78 a share. While the company lost $12 million last year, it competes in a business where one big hit can turn things around.

“Wal-Mart can be your best customer and your most difficult one at once,” says Walter Todd, a money manager at Greenwood Capital Management. “There’s kind of a constant push and pull.”

Business leaders, politicians and academics have debated the “Wal-Mart effect” on the U.S. economy for several years now. Mostly, they’ve been locked into the usual topics of low prices versus low wages, environmental concerns and discrimination toward workers. It’s been enough to spur the Wal-Mart PR machine to work overtime trying to soften the company’s image.

But other big pistons in the economic machine–institutional stock traders–are now basing more decisions on a different type of Wal-Mart effect. That is, measuring risk in consumer staple companies like Procter & Gamble and PepsiCo, in part, on how dependent they are on Wal-Mart to generate sales. Just as minimal diversification makes any investment portfolio more risky, a maker of laundry detergent, cosmetics or soft drinks could be flirting with danger when a high percentage of sales are pushed through a single retailer.

“Investors like to have better visibility into a company’s sales and into supply chains,” says Kevin O’Brien, chief executive of Revere Data, a financial information provider that tracks the percentage of sales that hundreds of companies generate through Wal-Mart. Revere specializes in analyzing corporate influence through a company’s business relationships.

Just ask Newell Rubbermaid, the maker of cleaning products and other consumer staples that hit a slump in the late 1990s, about Wal-Mart’s market power. With the company’s goods not moving at a pace that satisfied Wal-Mart, it lost prime eye-level shelf space. Newell Rubbermaid shares dropped from $50 to $20 between 1999 and 2001 before steadying. They’re now back to $30, but haven’t been close to their highs of eight years ago.

To measure the “Wal-Mart effect” on profits across different industries, Forbes analyzed information compiled by Revere to compare the percentage of sales that various firms generated through Wal-Mart in fiscal 2006 to the gross margins those firms produced during the same period. The survey covered 333 companies in six industry sectors that sell heavily to discounters and other retailers–apparel & accessories, consumer games & electronics, household accessories, food & beverage, personal care and leisure goods.

On balance, 카지노사이트 순위 firms that derive less than 10% of its sales through Wal-Mart averaged 39.1% in gross margin, or the percentage of profit realized before items like fixed costs and interest expense are considered. For those falling between 10% and 20%, gross margin falls to 36.2%. Above 20%, and margin dips a little bit more, to 35.4%. The trend is most pronounced in the apparel & accessories category, where average gross margin drops from 48.7% for companies generating less than 10% of its sales through Wal-Mart, to 28.7% for those selling 20% or more. Food & beverage also shows a big disparity, where the same breakdown shows average gross margins dropping from 39% to 22%.

In all, only 25 of 333 companies managed to beat its sector gross margin average while generating at least 10% of their revenue through Wal-Mart. Only seven that sold over 20% there did it. And the numbers show that company size has little to do with Wal-Mart dependency, at least once you get past the top handful. The 10 companies that sell through Wal-Mart in the highest percentages, a list that includes apparel maker Jaclyn and personal care company CCA Industries, average a relatively paltry $107 million in market cap (CCA is the only top-10 member whose gross margin beats its sector average). But past the top 10, companies that generate at least 10% of their sales through Wal-Mart carry an average market cap of $5.9 billion, more than the $4.9 billion average of those firms that sell less than 10% there.

While Wal-Mart squeezes margins of suppliers of all sizes, it’s still true that smaller companies tend to feel a tighter pinch. For example, beverage company Cott Corporation, even with a market cap in excess of $1.2 billion, doesn’t have the brand strength of Coca-Cola or PepsiCo, whose products are in more demand at supermarkets, convenience stores and other outlets. So Cott turns to Wal-Mart for 38% of its sales, compared to less than 10% for the two beverage titans. The result? Cott’s gross margin of 12.4% last year was about a third the industry average, while Coke and Pepsi both registered over 50%.

But even blue chips aren’t exempt from investors’ scrutiny. A double-digit percentage of sales through Wal-Mart or any other single retailer always raises a red flag.

“I wouldn’t not own a company just for that reason, but if I could choose between two companies that were basically equivalent, I’d choose the one that sells less through Wal-Mart,” Todd says.

© 2007 Forbes.com

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