Wal-Mart's Wily Ways

Pelted by bad press and needing some image wax, Wal-Mart last week broke with company tradition by bringing journalists to its headquarters in Bentonville, Arkansas for the company's first-ever media event.

The unusual openness is part of Wal-Mart's image-enhancing PR push involving newspaper ads in major markets, television commercials, support for public broadcasting, grants to major journalism schools and sponsorship of an ABC news program segment about American values.

So far the campaign has drawn fire from trade groups, politicians and activists. And it has added insult to injury for community newspapers, a Wal-Mart casualty the company now badly needs to spread its gospel locally. Wal-Mart's CEO H. Lee Scott said in a January interview with USA Today that the megastore was taking its proactive media campaign to "the very local level," something that undoubtedly will require making friends out of miffed local editors.

Community papers are typically small papers that are independently owned by families or smaller chains, and tend to cover local news. For years, community papers have suffered as Wal-Mart, an infrequent newspaper advertiser, pushes out traditional department stores, the bread and butter of local papers. Department stores accounted for 5.5 percent of non-auto retail sales in 1990 but only 3.3 percent by 2002, according to the Newspaper Association of America. That number is expected to decline to 2.1 percent by 2010. What's more, many retailers went from offering occasional sales that needed to be advertised, to mimicking Wal-Mart's "everyday low prices" model.

Another hit came when Wal-Mart moved into provider groceries, which cut into newspapers' grocery insert revenues. Also, experts say changes in the retail industry, many caused by the giant retailer, are making penny pinchers of surviving retail advertisers who see declining newspaper readerships and high ad prices as reasons to use alternatives like data-based and direct-to-consumer marketing.

"Wal-Mart is a strong user of television, not newspaper advertising," says Len Kubas of Kubas Consulting, a Canadian market analysis company that studies U.S. newspaper markets. "If they do sometimes use print it is primarily for preprints or inserts or circulars that would be distributed by daily or community papers in areas where they have stores."

Ad Nauseum

While the woes of local rags can't all be traced to Bentonville, anecdotal evidence suggests the impact is big. A report co-authored by the Project for Excellence in Journalism and citing statistics by Deutsche Bank Securities, shows superstores' chunk of the general merchandise market went from 16 percent in 1992 to 50 percent in 2004. From 1991 to 2004, retail ad growth at newspapers shrunk from 4 percent to 1 percent.

Such statistics make for cool relations with local papers like Suffolk Life, a community newspaper in New Jersey that took Wal-Mart to editorial task for having "killed off the small retailers ... [and] strangling yet another key member of the community -- the local newspapers." The Business Ledger, a monthly business journal in Delaware, noting the fact that Wal-Mart's managers often lacked the "community involvement skills of their predecessors," has written that "it is no surprise that the community press -- to this day still heavily represented by hard-working family owners -- grew to quietly despise the company, as even the discretionary budgets dried up and the company continued to drive down costs."

Against this backdrop, Wal-Mart bought ads in January in more than 100 major market newspapers across the country, including USA Today, the Wall Street Journal and The New York Times. The ad was a direct letter from CEO Scott, who wrote that it was time for the public to hear the "unfiltered truth" about Wal-Mart. He took issue with "urban legends" about the company and said it was time to set the record straight.