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Wal-Mart
 

Wal-Mart Stores, Inc. () was founded by Sam Walton in 1962. It is the largest retailer in the world and was formerly the largest corporation in the world based on revenue for 2004 (see Fortune Global 500). In 2006, it was surpassed by three of the major global oil companies.

There has been much criticism of Wal-Mart. Specific areas of controversy include the company's foreign product sourcing, treatment of employees and product suppliers, environmental carelessness, extraction of public subsidies (corporate welfare), availability of prescription contraceptives at Wal-Mart pharmacy counters, and store impacts on local communities and businesses.

Business

Wal-Mart operates retail department stores selling a range of non-grocery products, though emphasis is now focused on the "supercenters" which include more grocery items. Wal-Mart also operates Sam's Club, a "warehouse club" (similar to Costco and BJ's) that sells merchandise, often in large quantities or volume, to customers who pay an annual fee for the privilege of shopping there.

In addition to its wholly-owned international operations, Wal-Mart owns a 42% stake in The Seiyu Co., Ltd. in Japan, with a proposed $597 million to increase its stake to 50%. This purchase has been approved by Seiyu Group shareholders and The Seiyu will be consolidated into Wal-Mart International in FYE 2006.

In September 2005, Wal-Mart acquired 33.3% of the Central American Retail Holding Company (CARHCO), and in March 2006, increased its holdings to 51%. Wal-Mart Central America was formed from the 375 supermarkets and other store formats, operating in 5 Central American countries: Guatemala, El Salvador, Honduras, Nicaragua and Costa Rica.

In the past, Wal-Mart operated dot Discount Drugs, Bud's Discount City, Hypermart*USA, OneSource Nutrition Centers, and Save-Co Home Improvement stores. In 1990, Wal-Mart acquired The McLane Company, a foodservice distributor. In 2003, McLane Company was sold to Berkshire Hathaway.

Wal-Mart stock is publicly traded on the New York Stock Exchange under the symbol WMT, and it is a component of the Dow Jones Industrial Average.

Competition in the United States

Wal-Mart's chief competitors in low-end general merchandise nationally include Sears Holdings Corporation's Kmart chain and Target. Many smaller regional chains, such as Meijer in the midwest, are also competitors. Wal-Mart's move into the grocery business has also positioned it against major grocery chains such as HEB, Kroger, Albertsons, Publix, Giant Eagle, Safeway, Winn Dixie and many other regional chains and independents. Chief competitors of Wal-Mart's Sam's Club division are Costco, with a slightly higher gross than Sam's Club outlets, as well as the smaller BJ's Wholesale Club chain operating mainly in the eastern United States.

Some people believe that Wal-Mart has driven smaller businesses out of the market. A niche has been carved out of Wal-Mart's dominance by several retail corporations.Stilgoe, John. Wal-Mart giant can be tamed The Boston Globe, November 23, 2003. Accessed January 11, 2006. By focusing on a small number of low-cost products, dollar store retailers such as Family Dollar and Dollar General have successfully competed head-to-head with Wal-Mart for home consumer sales. In 2004, Wal-Mart responded by testing their own dollar store concept, a subsection of some stores known as "Pennies-n-Cents."Berner, Robert. "Out-Discounting The Discounter." Business Week. May 10, 2004.

Employees

Wal-Mart refers to its employees as "associates," and encourages managers to think of themselves as "servant leaders." Each shift at every store, club, and distribution center is supposed to start with a store-wide meeting where managers discuss with hourly employees daily sales figures, company news, and goals for the day. This may or may not be true in practice.

All Wal-Mart stores in the United States and Canada have employees referred to as "people greeters". They are the associates who take care of the store entrance and welcome shoppers. They also play a role in loss preventing shoplifting by inspecting bags, though shoppers are under no obligation to allow inspection of their shopping or personal bags unless they are detained as a suspect.

There has been heavy criticism of Wal-Mart's treatment of its workers, including low pay and the controversial "lock-ins" During a "lock-in," night managers lock the employees in the building overnight, supposedly to prevent theft. Workers are then unable to leave. As of 2004, this practice was in effect in approximately 10% of Wal-Marts in the U.S. In one case in Florida, an employee was "deathly ill" according to coworkers, yet the manager refused to come immediately to unlock the building. Instead, the manager told the employees to "Fine * one of the mattresses. Have him lay down on the floor."

Wal-Mart benefits

According to an October 2005 article in BusinessWeek, Wal-Mart's health insurance covers 44% or approximately 572,000 of its 1.3 million U.S. workers. In comparison, Wal-Mart rival Costco insures approximately 96% of its eligible workers. (article archived on Global Exchange). Further, Wal-Mart spends $3,500 on average per employee for health care while the average money spent for health care per employee for the entire retail industry is $4,800, 27% more. Wal-Mart CEO Lee Scott acknowledged benefits could improve by claiming Wal-Mart employees can get better value from taxpayer funded health care than from Wal-Mart's own health plans: "In some of our states, the public program may actually be a better value - with relatively high income limits to qualify, and low premiums." . Quote taken from April 5, 2005 speech by Wal-Mart CEO Lee Scott. On April 17th, 2006, Wal-Mart announced it was making a health care plan available to part-time workers after 1 year of service, instead of the prior 2 year requirement. One criticism of the new plan is that it provides benefit only after a $1,000 deductible is paid ($3,000 for a family). These deductibles may financially be out of reach for eligible part-time workers. Wal-Mart estimates this change can add 150,000 workers to health coverage plans, if all who are eligible take part. *

The State of Maryland passed a controversial bill in January of 2006 requiring that all corporations with more than 10,000 employees in the state spend at least 8% of their payroll on employee benefits, or pay into a state fund for the uninsured. Wal-Mart, with about 17,000 employees in Maryland, was the only known company to not meet this requirement before the bill passed.

Financial results

Wal-Mart is now the largest grocery chain in the U.S., with 14 percent of all grocery sales—nearly twice the sales of Kroger ($95 billion vs. $51 billion). Wal-Mart also does 20 percent of the retail toy business.

Wal-Mart went public on October 1, 1970. Since then its stock has climbed from 5 cents (split adjusted) to a high of $63 in March 2002. Its stock has dropped more than 20% since then, reaching a low price of $42.31 on September 22, 2005.

For the fiscal year ending January 31, 2006, Wal-Mart reported net income of US$11.2 billion on US$316 billion of sales revenue (3.5% profit margin). It is the largest private employer in the United States, Mexico and Canada. It holds an 8.9 percent retail store market share, with $8.90 out of every $100 spent in U.S. retail stores being spent at Wal-Mart.

Different explanations have been offered for this success:

  • Special attention to site selection and targeting smaller towns had fewer (or no)large competitors and that were less likely to have organized unions than large urban centers. "This strategy gave Wal-Mart a near monopoly in its local markets and enabled the company to ride out the recessions of the 1970s and 1980s more successfully than its then larger competitors such as K-Mart." Head, Simon. Inside the Leviathan. New York Review of Books, v. 51, n. 20, December 16, 2004.
  • Wal-Mart benefits from economies of scale in manufacturing and logistics; the purchase of massive quantities of items from its suppliers combined with efficient stock control help lower Wal-Mart's operating costs. They are leaders in the field of vendor managed inventory— requiring large suppliers to oversee stock control for a category and make recommendations to Wal-Mart buyers. This shifts some labor from Wal-Mart to its suppliers. Wal-Mart's vast purchasing power also gives it the leverage to force manufacturers to change their production (usually by creating cheaper products) to suit its wishes: a single Wal-Mart order can comprise a double-digit percentage of a supplier's annual output.
  • Information Systems: Wal-Mart helped push the retail industry to adopt UPC codes and bar-code scanning equipment. Also, Wal-Mart's focus on cost reduction has led to its involvement in a standards effort EPC Global, Inc., "About EPC Global." Accessed May 5, 2006. to use RFID-based Electronic Product Codes to lower the costs of supply chain
  • Other Automation: Wal-mart has implemented several types of automation that have reduced labor costs including automated UPC scanning devices and automated climate controls.http://www.cob.ohio-state.edu/~kinard_1/russian_dl/course/bis/task/Focus1.html Several of these automation techniques make use of a central computer system residing in Wal-Mart headquarters, eliminating store-specific costs.

Marketing experiments

Corporate governance

Former members of the board of directors of Wal-Mart include Hillary Clinton (1985-1992), who also worked for Wal-Mart as a lawyer, and Tom Coughlin, who went on to be vice chairman. He has since plead guilty to five counts of wire fraud and one count of filing a false tax return related to embezzlement and theft from Wal-Mart while serving as a member of its board.

Business practices

In 2003, Wal-Mart announced that it would not carry magazines it deemed inappropriate or magazines that generated customer complaints. At the time of the announcement, men's magazines including Maxim, FHM and Stuff were removed from stores.http://money.cnn.com/2003/05/06/news/companies/walmart_mags/ Other titles, such as Redbook, Cosmopolitan and Marie Claire, were moved to displays that obscured the magazines' covers.http://www.guardian.co.uk/usa/story/0,12271,1020794,00.html

Wal-Mart does not carry music albums marked with RIAA's Parental Advisory Label. The store does carry edited versions of those albums. Record labels release edited versions with 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.http://www.familymediaguide.com/features/articles/Ratings_Soup__Music_II-195.html Notably, albums critical of Wal-Mart itself have been removed from the shelves.http://www.metroactive.com/papers/sonoma/01.09.97/walmart-music-9702.html As a specific example, in 2005, Wal-Mart rejected the original cover of Willie Nelson's reggae album, Countryman, which featured marijuana leaves, in an apparent pro-marijuana statement. To satisfy Wal-mart, the record label, Lost Highway, issued the album with an alternate cover, without recalling the original cover.http://www.eonline.com/News/Items/0,1,16920,00.html?tnews Countryman entered the Billboard album charts on July 30, 2005, at number 6 on the Country Album chart and number 46 on the Billboard 200 album chart. Though the Billboard charts do not distinguish between the two different versions of the album, Amazon.com's "Top Sellers" list showed in July that the version with the cover banned by Wal-mart was a much more popular item than the version with the "clean" cover.

Unionization

Wal-Mart has largely thwarted unionization by its U.S. employees with aggressively anti-union tactics. For example, when meat cutters at the Jacksonville, Texas supercenter voted to unionize in 2000, Wal-Mart closed its meat department and began shipping in pre-packaged meats at all stores. Similarly, when workers at a Jonquière, Quebec Wal-Mart voted to unionize, Wal-Mart closed the store five months later, claiming it was due to weak profits. Critics allege Wal-Mart closed the store as an anti-union tactic.

Another store in St Hyacinthe, QC. voted to unionize and Wal-Mart lost a court challengeto the certification process in April, 2006.

The corporation's anti-union policies are a matter of public record via internal documents leaked by present or past employees.

Wal-Mart has released this statement to questions regarding Wal-mart and labor unions on Wal-Mart Facts.com : ''

Criticism

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Over the years, Wal-Mart has become a target of much criticism. Critics, including community groups, grassroots organizations, trade unions, and environmental groups believe Wal-Mart's success derives from business practices harmful to employees, local communities, the economy and the environment. One such criticism derives from the fact that Wal-Mart often drives smaller stores out of business by selling similar goods cheaper price and has been found to engage in predatory pricing (example from Germany).

One common trade criticism derives from Wal-Mart's use of cheap foreign labor to keep their prices very low. According to the AFL-CIO, "Wal-Mart is the single largest importer of foreign-produced goods in the United States", their biggest trading partner is China, and their trade with China alone constitutes approximately 10 percent of the total US trade deficit with China as of 2004. Currently, over 75% of Wal-Mart's merchandise is made in China. Other Wal-Mart goods have been manufactured and imported from such places as South Korea, Philippines, Malaysia, Cambodia, Thailand, and Vietnam. Very few of Wal-Mart's products are made in the United States.

Another topic of criticism is Wal-Mart's policy of enforcing the ratings of the ESRB for video games, which is not required by law.

Reaction to criticism

In 2005, Wal-Mart officials embarked on a public relations campaign to counter some of the criticism it receives, through its public relations websiteas well as through television commercials which show employees who have had a medical emergency and have been sent by Wal-Mart to the Mayo Clinic.

It was reported in the New York Times on November 1, 2005 that in response to increased criticism the public relations firm Edelman had been retained. Edelman has set up an internal "war room", a rapid-response public relations team, staffed with high-profile political operatives to respond to negative media attention.

Wal-Mart's public relations effort has also included e-mailing favorable material to bloggers, some of whom have disseminated it without disclosing that it was written by the company.

"Under assault as never before, Wal-Mart is increasingly looking beyond the mainstream media and working directly with bloggers, feeding them exclusive nuggets of news, suggesting topics for postings and even inviting them to visit its corporate headquarters."

April 2006 entries appearing on the websites Whitedust and Slashdot reported that Wal-Mart's public relations wing has been involved in an edit war of the company's Wikipedia article for the past two years. Tactics cited include removing unfavorable information, shunting unfavorable information off to separate articles, and including copious passages of positive information. *

Economic impact studies in the United States

As Wal-Mart is the second-largest corporation in the world in terms of 2005 revenue, it significantly impacts economies wherever it operates. At least two dozen studies have been conducted to determined the nature and extent of this effect, most of which are indexed here or [http://reclaimdemocracy.org/walmart/big-box_studies_reports.php here. Kenneth E. Stone of Iowa State University has published several studies on Wal-Mart. In 1997, Stone found that small towns "lose up to 47 percent of their retail trade after 10 years of Wal-Mart stores nearby."

In 2003, Stone collaborated with Georgeanne Artz, also of Iowa State University, and Albert Myles of Mississippi State University to show that there "are both positive and negative impacts on existing stores in the area where the new supercenter locates."

A study by Russell S. Sobel and Andrea M. Dean, found that though Wal-Mart openings cause some small businesses to close by offering lower prices, it also creates opportunities for other small businesses and that as a result, "the process of creative destruction unleashed by Wal-Mart has no statistically significant impact on the overall size of the small business sector in the United States."

Studies by Michael Hicks and Kristy Wilburn (then at Marshall University) estimated effects of Wal-Mart on employment, retail structure and wages in West Virginia (see "The Locational Impact of Wal-Mart Entrance: A Panel Study of the Retail Trade Sector in West Virginia"). A later study by Hicks evaluted Medicaid, Foodstamps and TANF costs nationwide (see "Does Wal-Mart Cause an Increase in Anti-Poverty Program Expenditures?"). Two other studies by Hicks of State and Local taxes and expenditures in Ohio's counties and labor market dynamics in Pennsylvania also estimate some perceived benefits and costs of Wal-Mart. All of these studies are available at: http://ideas.repec.org/e/phi52.html

In 2002, the state of Georgia's 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. A 2002 study by Emek Basker of the University of Missouri examined the impact of Wal-Mart on local employment. Basker found that Wal-Mart's entry into a county increased net retail employment in that county by 100 jobs in the short term. Half of this increase disappeared as other retail establishments close or reduce employment over a five-year period "leaving a long-run statistically significant net gain of 50 jobs." Basker's Study, which did not distinguish between low-paying and high-paying jobs, did not comment on whether the increase in jobs was a net economic benefit or loss for the county. In 2004, the University of California, 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.

Another 2004 study, by Stephan J. Goetz and Hema Swaminathan (Pennsylvania State), reported that U.S. counties with more Wal-Mart outlets showed increasing rates of family poverty relative to those with fewer. The authors advanced three possible explanations for this effect:

  • Wal-Mart may displace of workers from higher-paid jobs in the retailers it drives out of business
  • Wal-Mart may provide lower levels local philanthropy than the replaced businesses
  • By reducing the number of independent local businesses, Wal-Mart may shrink the pool of local leadership and reduce social capital, "an essential ingredient for economic growth to occur."

A 2005 study by Jerry Hausman of MIT and Ephraim Leibtag of the USDA found that because the Bureau of Labor Statistics does not take into account lower prices at discount retailers, like Wal-Mart, that food at home inflation was overstated by as much as 15% per year. Another 2005 study the same authors measures the effect on consumer welfare of the presence of discount retailers. A 2005 study by Global Insight commissioned by Wal-Mart found the company has had a positive net economic impact on the U.S. economy . From 1985-2004, Wal-Mart "can be associated with a cumulative decline of 9.1% in food-at-home prices, a 4.2% decline in commodities (goods) prices, and a 3.1% decline in overall consumer prices," and that this has saved consumers $263 billion in that time frame ($2329 per household). Also in that time period, it is responsible for the creation of 210,000 net jobs for the economy. The study indicates that "nominal wages are 2.2% lower, but given that consumer prices are 3.1% lower, real disposable income is 0.9% higher than it would have been in a world without Wal-Mart." Other papers presented at the conference contradict some of Global Insight's claims.

Statistics

Wal-Mart Television Network

The Wal-Mart Television Network is an in-store network showing commercials for products sold in the stores, concert clips and music videos for a recording artist's media sold in the stores, trailers for upcoming movie releases, and news. According to Wal-Mart and its advertising agency, it is seen by 130 million customers a month, which would make it the fifth largest network in America.Wal-Mart Is Upgrading Its Vast In-Store Television Network The New York Times, February 21, 2005. Accessed April 29, 2006..

Wal-Mart in popular culture

See also

References

Further reading

External links

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