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    Published on: December 11, 2003

    Since several of the stories in this morning's MNB concern Wal-Mart (hey, don't shoot the messenger - we can't help it if the Bentonville Behemoth dominates the news some days), it only seems fitting that many of the day's emails also concern the company…especially its impact on Southern California and the grocery strike there.

    MNB user Tom Brown wrote:

    Probably this would be hard to verify now, but I strongly suspect that the wage and benefit concessions being sought would not by themselves sufficiently meet the Wal-Mart threat.

    There most likely also need to be changes in assortment, work methods and pricing and maybe even store consolidations. Wal-Mart will get some market share when they arrive, but the right changes by the traditional chains would minimize the loss of market share and the loss of jobs.

    I have always felt that there should be more analytical category management at the store level that considers local customers and competition. And people in those position should be well paid. And I do not believe Wal-Mart does this especially well.

    Needless to say, negotiating for the three companies as a single entity could not specifically address the issues I have raised. Too bad.


    We agree. And, to reiterate what Art Turock said in our lead story this morning, the moves have to be strategic, not just tactical.

    Another MNB user had a different perspective on the Southern California labor negotiations and the ongoing discussion of it here on the site. Some of his reaction is to the MNB user who yesterday referred to union bargainers as "cretins":

    I did have…fun reading the "debate" about health care issues inasmuch as I am a retired negotiator who negotiated hundreds of contracts with unions over many years while working for many companies. Whoever the contributor was who talked about "cretins" at the bargaining table is all wet. I was happy to see the professional union negotiators show up since it was a vast improvement over the guys who would threaten management's kneecaps when the issues got sticky.

    The down side was that neither of them would be able to define a paradigm as anything but something that was a nickel short of a quarter. They weren't stupid, they were just mostly corrupt. The health and welfare trust funds, and the hundreds of millions of dollars that flow through them, in my experience, are really something that the unions will not change. There are far too many husbands, wives, sons, daughters, mistresses, cousins, etc making six figure salaries at these funds for them to be subject to serious reform.

    Even though a few union bosses have gone to prison over the years, the Labor Department and Justice Department have for the most part been unwilling to deal with the massive corruption and waste in most of these funds.

    Additionally, the structure of the benefits encourages overuse and abuse, which exacerbates the inflationary pressure on health care costs for everyone in the country, not just the relatively few union members who enjoy these benefits.

    Whenever I discussed these issues with the union negotiators, they always took the position that if a company could not afford the union rates, then the company needed to go out of business. I saw scores of big chains do so over the years, and thousands of former union members are now working for far less at places like Wal-Mart. And lets face it, these people are not studying to be rocket scientists or brain surgeons, either. But that is the price a person pays for blind obedience to union bosses. So to expect the union to be willing to change is silly, when they are really looking out for their own interests and not their members, and to expect the unionized chains to be able to survive when people have a choice to buy cheaper groceries at a non-union chain is equally unsophisticated.

    It is why unionized companies in the private sector represent fewer than 9 percent of total private employment, compared to nearly 30 percent when I negotiated my first contract. It is far easier to let "nature" take its course than to fight about it. It takes two sides to make an agreement, and the number of union negotiators I met over the years who could face the political reality of explaining the issues or even be willing to discuss them could fit into a telephone booth.


    Yet another MNB user wrote:

    I read MNB almost every morning. I find it to be interesting, balanced, broad ranging, humorous and every morning I leave it knowing something I didn't know before. Can't ask for much more than that.

    Sometimes the odd piece or opinion annoys me, but never have I, "lit my hair on fire", over anything I have read on MNB. That is until yesterday!

    I spent thirty plus years earning my living at the bargaining table. During that time, I have sat across from excellent negotiators, good negotiators, not-so good negotiators and even the odd terrible negotiator. I have, however, never sat across the bargaining table from a "cretin"!

    Most negotiators have a 90 percent success rate at concluding collective agreements without any job action. I personally know several who have box scores in the 98 percent range. Hardly the work of, "cretins".

    Sure, some of them I would never invite to my home for dinner, but some have become life-long friends.

    Like everyone else, negotiators are doing a job. On occasion, it is a very difficult job. But, they are doing the very best job they can for those who pay them.

    There are good employers and there are bad employers. There are good unions and there are bad unions. There is one common denominator, no one is perfect!

    I know of one employer who has been unionized since 1898, has never had a strike, never had a lock out, never even had a grievance filed against the company. He is the third generation of his family to run the business. He also has a reputation as one of the toughest negotiators in his industry.

    I have learned that all strike/lock outs end sooner or later. At the end of the day, the solutions may not make everyone happy, but there will be solutions.

    As for the strike/lock out in the Southern California grocery industry. This is a very complex set of negotiations with issues that strike at the very hearts of all those involved. There will be no easy solutions in such a dispute. It will take time, but this too will come to an end.


    MNB user Mike Julian added to the discussion:

    I have followed the many comments from your readers as to what the cause and effect of high wages - low wages, fully paid benefits – partial paid benefits. Is “it” the fault of Wal-Mart, the unions, management or little green men from space?

    All of the comments miss the mark, it is not how much you pay your employees, it is all about how much you get from your employees effort…and this has to do with far greater issues like respect and accountability.

    For instance when the supermarket industry in CA has gone years not worrying about these issues because everyone (major competitors) were in the same boat, it is now easy to blame Wal-Mart or Costco or anyone but oneself for the problems.

    As far as Wal-Mart driving down wages and health care for employees, let’s not be revisionist, the supermarket industry was moving to more part help at lower wages and no health care long before it ever knew about Wal-Mart and groceries.


    Another MNB user wrote:

    The comments made by a reader covering contract negotiations bear consideration. My husband at different points in his career in education sat on both sides of these tables. As an observer, it seems to me that a football mentality takes over where winning at all costs becomes the goal of either side. Listening to reason and reality flies out the window because it would mean that their side might not "win". Both sides are often guilty of "digging in their heels" when it is time to compromise. An outside mediator is necessary in those situations.

    Having had some personal union experience, many times union leadership does not understand those they have been hired to represent. The talk from union officials is much like that of a locker room coach at half time. The person who suffers is the employee who is out wages because of the strike and that money is never totally recouped. The corporation in a sense suffers as well because of lost revenue. But, the person who does not have money for everyday expenses like groceries, utilities and gasoline truly suffers in comparison to a corporation bottom line that is flat or in the red. The little guy has much more to loose and he should not be used as a pawn in a game.


    And MNB user Fred Mills wrote:

    Thank you for your common sense reporting of the California grocery strike/lockout. I also applaud your grace under fire. There a few subjects that creates a polarized conversation as effectively as Union Vs. Management. Most of us forget that it was largely unions that created the standard of living we currently enjoy, and just as many of us fail to understand that capitalistic avarice creates the wealth that supports that same standard of living.

    I believe that the fundamental problem was created when labor and management sought to negotiate long-term contracts that fixed costs for uncontrolled line items such as healthcare. It is unreasonable to expect any company or organization to risk its viability by contractually committing to a benefit where the cost cannot be controlled or predicted. It is also unreasonable to expect employees to give up important benefits without receiving something in exchange.

    I wonder if it is not time for management and labor across all public and private organizations to focus on recalibrating contracts in order to do a better job of sharing predictable wealth. It is time, particularly in an election year, to shine a public light on unpredictable costs such as healthcare, insurance, and retirement benefits. This is an appropriate role for government and needs to be addressed across all segments of employment from the grocery worker to the schoolteacher.

    Thanks again for your levelheaded presentation. I will continue to read and enjoy your morning wake up call.


    Thanks. (It's a lot better than being called a cretin…)




    We had a story yesterday about an outbreak of Wal-Mart neighborhood Markets in the Tampa area, which prompted one MNB user to write:

    Has to have Winn-Dixie execs reaching for their antacid. The Tampa area was one of the few areas where "The Beef People" hadn't lost market share in recent years...until now.

    And, writing about Wal-Mart's Supercenter and Neighborhood Market strategy, MNB user Alex Drew offered the following comments:

    I am not sure if Wal-Mart had anticipated urban backlash for its Supercenter years back when the Neighborhood Markets were just being thought of, but should maybe consider them their "ace in the hole". Being much smaller floor plans these markets could be used to sneak under new city ordinances aimed at diverting larger formatted Supercenters in California and other urban areas.

    Use the Neighborhood Markets to pull the consumer in and introducing them to the Wal-Mart way of life (low, low prices), while fighting these ordinances with the all star "Bentonville Behemoth" legal team.

    Wal-Mart can build demand with these stores and possibly build public support for their Supercenters. Lets face that the public is going to want to lighten the burden on their wallets, and Wal-Mart has the capabilities to do that. After many urban areas see the savings that Wal-Mart can offer them, they will reconsider keeping out the Supercenters.

    It might be a longer road than Wal-Mart anticipated into the California cities and other urban areas, but they will be making money and pulling in more of the flock than just fighting these ordinances in court. They might have their cake and eat it too.


    And they'll pay for that cake than anyone else in the industry. Count on it.
    KC's View:

    Published on: December 11, 2003

    The Times of London reports that Wal-Mart's Asda Group in the UK had made a last-ditch attempt to circumvent a government ruling that it cannot bid to acquire Safeway Plc by offering close to $3.5 billion (US) for just 70 of Safeway's 480 stores - presumably just the ones it really, really wants.

    To this point, federal regulators had ruled that only William Morrison Supermarkets could bid to acquire Safeway Plc - though even Morrison was going to have to divest 53 of the Safeway stores once the acquisition was made. Morrison reportedly is in the process of finalizing its bid for the company, which is expected to be made in the next three weeks; its original bid, earlier this year, was the equivalent of $4.3 billion (US) for the entire company, though the number is expected to be sweetened this time around.

    While Asda officially called the report of the new Asda bid "pure speculation," the company's CEO, Tony De Nunzio, previously told The Times, "We have made our interest in buying Safeway stores well known and that interest remains."

    Neither Safeway nor Morrison was commenting on the report.
    KC's View:
    One can assume that Safeway well could be tempted by this offer, if indeed it has been made. While it might devalue the remaining stores that Morrison would end up bidding for, it almost certainly raises the ante for Morrison to come in with a more attractive bid over the next few weeks.

    Without understanding the ins and outs of the British regulatory structure, we also can guess that if this new Asda offer is for real, it would send this whole deal back into the system. The upshot here might be that any acquisition of Safeway would be further delayed, which likely would devalue the chain even more, and would prevent Morrison from being more competitive. Which would, in the end, help Wal-Mart's Asda Group be more competitive.

    And what the government has been trying to do is make sure the market stays as competitive as possible, without too much power being centralized in any one place.

    This government mandate seems to have no relevance to Wal-Mart and Asda. If we're reading the situation right, no matter what happens, Asda ends up winning.

    Which we suppose is the whole point of being competitive, but somehow just considering this as a possible scenario makes us want to take a shower.

    Published on: December 11, 2003

    The Associated Press reports that a Pennsylvania grand jury is scheduled to start hearing evidence today in the case against Wal-Mart Stores concerning the use of illegal immigrants to clean some of its stores.

    The government is not releasing any details of its case, but only will suggest that it will be a long investigation, with no indictments expected for more than a couple of weeks.

    While Wal-Mart has acknowledged that it is the target of a federal probe, it has said that it is bound by grand jury secrecy rules and cannot comment. It has been reported, however, that Wal-Mart executives would be subpoenaed to testify before the grand jury.

    It was back in late October that officials with the US Immigration and Customs Enforcement (ICE) service swooped down on 61 Wal-Mart stores in 21 states, arresting more than 250 people said to be in the country illegally. In addition, federal officials reportedly searched the office of an unnamed Wal-Mart executive in Bentonville, Arkansas.

    While the illegal immigrants were not direct employees of Wal-Mart - they worked for cleaning companies that had been contracted by Wal-Mart, federal law enforcement officials had said they believed Wal-Mart had direct knowledge of immigration violations involving its cleaning contractors.

    Wal-Mart officials denied the allegation, and launched its own investigation into the companies' hiring practices.

    According to the government, employers are responsible for making sure that their employees are legally in the US and able to work, and can face both civil and criminal charges if found to be in violation of immigration laws.

    The arrested people reportedly were from Eastern Europe, Central America, and Asia. The states where arrests were made included Alabama, Arkansas, Arizona, Connecticut, Delaware, Kentucky, Massachusetts, Maryland, Michigan, North Carolina, New Hampshire, New Jersey, New York, Ohio, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, Virginia and West Virginia.
    KC's View:
    All we can think of is watching the evening news and seeing that dopey smiling face that Wal-Mart uses in its commercials doing a "perp walk" out of the grand jury room.

    Okay, maybe it's not that funny. But we're easily amused.

    Published on: December 11, 2003

    Reuters reports that US health investigators have formally linked green onions produced in Mexico to an outbreak of hepatitis A in Tennessee, Georgia, and Pennsylvania that affected more than 500 people and killed three.

    When investigators from the US Food and Drug Administration (FDA) visited the Mexican companies where the onions originated, they reportedly found poor water quality and questionable sanitation facilities; the hepatitis A virus in transmitted by raw or undercooked food contaminated with the feces of someone who has the virus. It can cause jaundice, fatigue, nausea, diarrhea and fever, and the virus can be fatal to those with a chronic liver disease.
    KC's View:
    We got a great email from an MNB user in Pennsylvania yesterday that read:

    I normally shop at Weis Markets and Wegmans here in PA, and was looking for green onions. As you know, there were hepatitis problems associated with green onions recently. Weis just had their regular onion display, but Wegmans had a sign at the onions, informing the customer about green onions and hepatitis. They said they use reputable suppliers whom they trust to deliver the best produce. They also suggested extra cleaning of the onions and cooking them rather than serving them raw.

    Wegmans is just such a class act: anticipating questions, offering clear information and going the extra mile for the customer.


    Absolutely. Weis didn’t do anything wrong; in fact, it did (or didn’t do) exactly what 99 percent of the supermarket industry would do in this case.

    But in a cutthroat environment, this isn't enough. Retailers have to anticipate questions and provide credible, useful answers.

    Most would look at the green onion/hepatitis A outbreak and say, "It happened in restaurants. Not my problem."

    Wegmans, on the other hand, looked at it and immediately saw that there was an opportunity to expand and nurture its relationship with the shopper.

    Bingo!

    Published on: December 11, 2003

    Wal-Mart.

    Some would equate the company behind this name with Ford, General Motors, General Electric, IBM - the great names of American commerce. For others, the name they link with Wal-Mart is Darth Vader…

    Regardless of which characterization is accurate, Wal-Mart represents the single greatest story in American business today. The impact that it has had on other businesses is undeniable. For the supermarket industry alone, Wal-Mart represents the single greatest challenge, the single greatest influence, the single greatest threat. And that's putting it mildly.

    To help us understand the great threat - and the great opportunity - that Wal-Mart presents, we decided to turn to Art Turock.

    Through his speeches and strategic innovation consultations, Turock helps supermarket retailers and manufacturers to achieve sustainable sales growth - and he has now turned his attention to Wal-Mart. He is the author of a new study, Achieving Sales Growth When Wal-Mart Makes the Rules, which details the intricacies of Wal-Mart's unprecedented growth strategy as well as dozens of examples of exceptional retailers who are effectively Wal-Mart-proofing their stores.

    MNB: It would seem to be a singular oddity of the American supermarket industry that even as the customer base became more diverse, mainstream supermarkets became more homogenized. Why do you think the marketplace has been unable or unwilling to embrace these differences?

    Art Turock: We are witnessing a classic example of strategic convergence where the majority of supermarkets operate with the same strategic assumptions that influence their judgments and moves.

    Two assumptions are most crippling to profitability. First, the assumption that shoppers overwhelmingly want low price, so strategies aim to maximize operational efficiency. Second, the targeting of the same customer - the middle to lower income family that lives within a 5-10 minute drive from the store and who shops for national brands at low price. Put the two together and what you get is what most supermarket strategies deliver as a differentiator: location convenience and low price.

    So all it takes is a more efficient supercenter, club store, or limited assortment player to move in and these points of differentiation vanish.

    The fundamental problem is the preponderance of copycat strategies and lack of innovative thinking and entrepreneurial risk taking. Every supermarket executive has heard the phrase, “Differentiate or die,” yet judging by the overwhelming move towards strategic convergence, many supermarkets are not opting to differentiate.

    MNB: Some would argue – and we would be among them – that the mainstream supermarket business has missed an enormous opportunity for growth by taking such a singular approach to the business. But there is another argument that says that a homogeneous approach to marketing is what Americans want – and that Wal-Mart’s success is best evidence of that. How would you respond to these arguments?

    Turock: There are two schools of strategic logic operating here and both can produce highly profitable businesses. One school says that you target customer segments and deliver highly customized products and services. Witness the success of West Point Market, which serves fine arts enthusiasts and gourmet shoppers with specialty products, or Whole Foods, which focuses on a health conscious shoppers.

    The second school says to target a core value desired by the mainstream shopper, and deliver this value noticeably better than any rival.

    Fundamentally, Wal-Mart solved a classic retailing compromise: “ We can give you highly customized products and services OR we can give you low prices. Pick one.” Wal-Mart refuses to live in an either-or world. For their massive target customer, they deliver the right product at the lowest price noticeably better than many supermarkets.

    Wal-Mart encroached on the supermarket industry because of four leverageable conditions: 1) inelastic pricing, 2) fragmented, 3) high volume, and 4) inefficient distribution. In understanding what drives their growth strategy, it’s apparent Wal-Mart is not a retailer. They’re in the distribution business. Their competitive advantage is derived from superior logistical capabilities.

    MNB This brings us back to the increasing importance of efficiency in the supermarket industry – which if I’m reading your report correctly, you believe has had the effect of making the customer irrelevant. Is it your contention that despite all the technology available to the industry, and all the investment made in efficiency initiatives, the industry has lost touch with the customer?

    Turock: Certainly the industry has taken on a number of technology-based initiatives promising both cost savings and sales growth. But the results have been one-sided. Mergers produce cookie cutter stores, as the uniqueness of local stores erodes in favor of becoming more like the acquiring chains prototype format. Private label boosts margins over that available with national brands, but usually don’t deliver higher quality like Trader Joe’s or Costco’s Kirkland brand. Loyalty cards get shoppers to switch purchasing decisions based on a special discount, rather than establishing a true loyalty to the total retailer brand. From the start of concentrated ECR activities in 1991 through 1997, with an adjustment for inflation, income figures showed a glaring 17.2 percent decline in sales per square foot. Because of the predominant efficiency mindset, these technology-based initiatives produce lower costs but never approach the anticipated sales growth.

    Meanwhile, this efficiency obsession left the market wide open for encroachment by “alternative formats” that introduced new value for consumers. C-stores provided longer hours and shorter checkout lines for quick trip shoppers. Supercenters provided one-stop shopping for bulk shopping trips. Category killers introduce highly customized product assortments and services, and offer superior product knowledge. Meal solutions favor the time conscious shopper who lacks time to prepare ingredients from scratch. Alternative formats were the first to solve these customer needs, while supermarkets worked on efficiencies and lost touch.

    MNB: Still, Wal-Mart is clearly the most efficient, homogeneous retailer in the country. Is its success testament to the fact that and the end of the day, the perception of low price is always the most important thing?

    Turock: One hundred million shoppers a week visit Wal-Mart stores, many attracted by the brand promise, “Always low prices—Always!” But don’t forget that a powerful secondary benefit of the Supercenter is the convenience of one-stop shop, as evidenced by Wal-Mart’s conversion of two-thirds of their general merchandise stores into supercenters.

    The perception of low price is very important to Wal-Mart’s targeted customer. Because of the clear brand message, Wal-Mart is willing to lose sales from shoppers who place higher value on quality, customer service, distinctive shopping experience, etc.

    The challenge for supermarket chains that need to drive high volumes is that they are likely to overlap Wal-Mart’s target customer, and they can’t be the low price leader without being the low cost operator. Wal-Mart-proofing means coming up with other points of differentiation for their distinctive target customers. Among segments who are not first and foremost shopping price are working women, two paycheck families, well-to-do elderly, get-in and-get-out-fast males, and health-conscious individuals. Most of these segments are expected to continue increasing in numbers.

    MNB: When you write about Wal-Mart’s talent for mass customization, is it just customization of price and supply, as opposed to selection?

    Turock: Mass customization is defined (by Dr. Joe Pine) as “the process of bringing down the costs of customization so each customer is provided with exactly what s/he wants at a price s/he is willing to pay.”

    Wal-Mart’s mass customization is underestimated by most rivals. For instance, my wife, Haley, recently brought a Bissell rug cleaner at Fred Meyer. She later found out Wal-Mart also sold a Bissell for $50 less. After being upset at the apparent Fred Meyer rip-off, she noticed that the made for-Wal-Mart Bissell actually lacked a heating element for the water. For Haley, not having to take the time to heat the water is well worth it especially when she needs to promptly clean up the messes of our two dogs from white carpeting. But Wal-Mart’s targeted customers tolerate the lack of heating element for the extra $50.

    While Wal-Mart is well known for its centralized headquarters buying offices, they also customize to individual stores (Store of the Community program) by using “trait modulars.” A single category can have 150 trait modules (or schematics), which correlate to demographics, geography (e.g., lake-area stores, resort-area stores), and community dynamics (e.g. college towns, retirement areas) . Rather than a buyer in Bentonville, the store manager and department manager have the option of validating the trait for their particular store.

    MNB: The mainstream supermarket industry has kept making poor strategic choices...and then abandoning them when they didn’t prove to be a magic bullet. Why do you think the industry has been so myopic?

    Turock: I actually think the industry has made too few strategic choices. Actually, they created a set of commonly accepted “beat Wal-Mart tactical” choices, such as:

  • Increasing checkout speed;

  • Creating dollar aisles;

  • Initiating a customer friendliness campaign;

  • Staying price competitive in specific high-traffic categories;

  • Increasing private label;

  • Improving the quality of perishables.


  • Sound familiar? But is it working? For the past five years, supermarket sales have reaped average growth of 3 percent, while Wal-Marts sales of groceries and drug related products increased 17 percent. Utilized as isolated moves without a coherent strategic plan, these tactics don’t deliver sustainable growth.

    Few supermarkets execute bold strategies that target minimally contested customer segments (like Basha’s creating dedicated formats for gourmet shoppers, Native Americans, and Hispanic), or deliver unique value (like Ukrop’s extensive meal solutions and integrating a whole health solution in its produce, pharmacy, and natural foods departments).

    To be an innovation leader (e.g., Ukrop’s was about nine years ahead of most supermarkets in meal solutions) requires a willingness to bite the bullet longer than competitors. If the innovation is substantial, it probably loses money at first. In a tight margin industry, few supermarket executives will take that chance.

    MNB: What core competencies do you think would serve the industry best at this time? And is it too late to avoid the Wal-Mart death spiral?

    Turock: The industry has developed many core competencies that serve operational efficiency. But to stimulate organic sales growth, the following competencies are needed: strategic planning, new product introduction, store branding, and data mining. Please notice who in the supply chain already possesses these core competencies? The supplier community. It’s time to rethink the supplier-retailer relationship to encourage strategic collaborations aimed at sales growth.

    Retail Forward predicts the demise of two supermarkets for every new Supercenter, meaning the loss of 2000 supermarkets over the next 4-5 years. After that period, the death toll could actually accelerate as the Neighborhood Markets become more prevalent and Wal-Mart’s presence becomes more saturated. Nevertheless, survival is likely for any supermarket that’s willing to make the tough strategic choices that introduce unique value innovations in their markets.

    MNB: There seems to be a feeling that if Wal-Mart’s role is to be diminished, it will be because it gets too big or too arrogant...not because anyone has stepped up to compete with it effectively.

    Turock: I agree. If Wal-Mart is going to be slowed down, it will not be because of brilliant competitor strategies. Wal-Mart has competitor-proofed its business from conventional supermarkets that play the low price game.

    The Bentonville megachain has unmatchable advantages in being low cost operator: non-union wages, food categories can be loss leaders in Supercenters, no trade promotion dollars or slotting fees, brand power that lowers advertising costs to .3 percent of sales, and a culture of cost containment.

    In addition to locking out competitors, Wal-Mart locks in customers with its low price brand image. In the mind of deal hungry shoppers is the threat—“If you didn’t buy it at Wal-Mart, you didn’t get the lowest price,” which creates a big cost to switching to another retailer.

    Wal-Mart is more likely to shoot itself in the foot in managing the ripple effects of enormous growth than to be derailed by a supermarket competitor or two.

    MNB: The four issues that some believe are the biggest threat to Wal-Mart are a) unions, b) international challenges, c) government intervention, and d) litigation from a wide variety of sources. Do you agree?

    Turock: Two other factors are more likely to thwart Wal-Mart’s unrestrained growth. First, brand erosion brought by negative media coverage. As Goliath bulks up both in size and global impact, the sling shot brigade grows in numbers.

    According to Progressive Grocer (October 13, 2003), Wal-Mart’s own “reputation research” shows that many Americans view it as a place of dead end jobs, and not a very good corporate citizen.

    The second factor is the challenge of recruiting and integrating thousands of new employees and managers into the Wal-Mart culture, to meet the labor demands of rapid expansion. About 44 percent of its 1.4 million employees will leave in 2003, meaning Wal-Mart will need to hire 616,000 workers just to stay even. In addition, from 2004 to 2008, the company wants to add 800,000 new positions, including 47,000 management slots. No wonder Tom Coughlin, head of retail operations, admits to losing sleep over this issue.

    MNB: Finally, do you think that Wal-Mart as a phenomenon is a good thing for American business and culture? Or long-term, does it foster a lowest-common-denominator approach to business and culture that diminishes this country?

    Turock: Judging Wal-Mart’s impact on America is not a black and white matter. Wal-Mart has a noble mission of making life’s necessities available to people of varying financial means. Toward this end, they have lowered prices to make national brand products affordable for millions of Americans. New England Consulting estimates Wal-Mart saved Americans $20 billion in 2003 alone. Factor in rival retailers price cuts to compete and the savings is $100 billion.

    Economic impact is also favorable. Four percent of the growth in the U.S. economy's productivity from 1995 to 1999 was due to Wal-Mart alone, researchers at the McKinsey Global Institute estimated last year. And economists credit Wal-Mart with curbing inflation.

    Wal-Mart’s growth comes with a price. One is the demise of small businesses. But isn’t this an outcome that inevitably comes with a competitive free enterprise system? Decades back, the supermarket was an alternative format that brought greater efficiency and assortment of national brands at lower prices (same winning formula as Wal-Mart), with the result being the demise of mom and pop groceries.

    However, if Wal-Mart’s competitive advantage comes from illegal or unethical means, then the company is a negative force in American business and culture. The rule of law and business ethics must take precedence over any savings benefits to consumers. If Wal-Mart is found guilty of significant charges of employment violations, like sex discrimination, employing illegal immigrants, failing to pay workers for overtime, then they’re not playing by the rules, and thereby tarnishing ethical business practices. And the jury is still out on these issues.
    KC's View:
    Art Turock's Achieving Sales Growth When Wal-Mart Makes the Rules is a terrific piece of scholarship that we think every retailer should read.

    To order an Executive Summary of the Report and information to purchase copies, call 800-473-8997 or e-mail him at art@turock.com .