Wal-Mart Licks Its Wounds

Poor Wal-Mart just can't seem to catch a break. There they are, the monks of Bentonville -- who, according to company legend, share hotel rooms on business trips rather than drive up the price of pantyhose -- toiling away to make the good life affordable to the impecunious masses. And what do they get? Nothing but grief. The Democrats are running against Wal-Mart in the fall congressional elections, and not just the wild-eyed progressive ones. Centrist Hillary Clinton returned a $5,000 donation from the company, citing its inadequate health benefits, and Joe Biden just attacked it because he doesn't see "any indication that they care about the fate of middle-class people."

Then Andrew Young, the former civil rights leader-turned-Wal-Mart-flack, pulled a Mel Gibson, lashing out at the company's small business, ethnic, competitors: "I think they've ripped off our communities enough. First it was Jews, then it was Koreans and now it's Arabs; very few black people own these stores." Wal-Mart quickly distanced itself from the remark, as did Young himself. He stepped down from his Wal-Mart job, though he has not yet followed Mel's example by seeking counseling from leading Korean fruit vendors.

The Young meltdown aside, Wal-Mart blames its troubles on the unions it has worked so hard to bar from its stores. They're so touchy, those unions! They take offense just because the Wal-Mart orientation for new hires includes a 12-minute video on the evils of unions, portraying them as little better than extortionists. They get all bent out of shape every time a union sympathizer is fired by Wal-Mart on some trumped-up charge like using profanity or being discourteous to customers. They jump up and down when Wal-Mart is caught making its associates work overtime for no pay, or locking them into the stores at night.

But the cruelest blow to Bentonville is a sudden decline in profits -- down 26 percent in the second quarter of '06 -- the first decline in 10 years. Wal-Mart blames, first, the failure of its attempted expansion into Germany, where apparently folks don't cotton to smiley faces and people greeters; and second, high gas prices in the USA. According to the New York Times, Wal-Mart CEO H. Lee Scott "hinted that those [gas] costs seemed to be prompting consumers to shop less frequently." There's one big advantage to the little Jewish-, Korean- or Arab-owned shop: Usually, you can walk to it.

The profit drop suggests a deep contradiction in Wal-Mart's seemingly altruistic goal of bringing abundance to the American working class. According to Wal-Mart defenders, those low prices hinge, not only on improvements in productivity, but on the low wages and benefits offered to Wal-Mart's workers. In other words, you've got to squeeze one part of the working class -- the 1.3 million Wal-Mart employees -- to fill the shopping carts of the others. How much the employees are squeezed is hard to determine: Wal-Mart claims to pay an average of $9.68 an hour, which doesn't sound all that bad. But Wal-Mart has a record of falsifying data on employee hours to conceal unpaid overtime work, so why should we believe them about anything?

There were signs, even before the recent profit drop, that Wal-Mart was beginning to be priced out of the reach of its own employees. I was surprised, in my brief stint as a Wal-Mart associate, that our ladies' wear was too costly for many of my co-workers. (In Nickel and Dimed, I told the story of a $7 an hour associate who could not afford a $7 polo shirt of the kind we were required to wear.) If you earn $7, $8, or even $9 an hour, you're not buying new clothes anyway; you're going to Goodwill or consignment stores. As for the offerings of Wal-Mart's Electronics and Lawn and Garden departments, for my co-workers, these weren't even on the distant horizon.

Then there are Wal-Mart's sagging Christmas sales. Christmas is of course a retailer's defining moment, and in the last two years, Wal-Mart desperately slashed its prices as the holiday approached. But both in '04 and '05, Wal-Mart's Christmas take was disappointingly low (Target and Costco did better, as did the luxury stores like Nordstrom.) Who buys their Christmas presents at Wal-Mart? It's the $7-$10 an hour crowd that dreams of Christmas shopping at Wal-Mart, and for the last two years, there hasn't been much under their trees.

Now of course Wal-Mart associates are not a special breed of celibates who have taken a vow of poverty. They are the spouses and live-in grown children of carpenters, home health aides, baggage-handlers and truck drivers. When Wal-Mart workers can't afford health insurance or new school clothes, the whole working class begins to flail. Furthermore, the Wal-Mart business model increasingly betrays what was once the operating principle of American capitalism, as explained by Henry Ford the First: You've got to pay your workers enough so that they can buy your product; that's what keeps the system going. When the American majority can't buy the very goods they manufacture or sell, that system is cruising for a bruising.

With their business model crashing down around them, the monks of Bentonville are already moving on to Plan B. Forget the working class, which was so ungrateful anyway, and move up-market. They're redesigning their stores to be more appealing to the J. Crew and Whole Foods crowd. They've added organic foods and $2,000 flat-screen TVs to their wares. The poor will have to fall back on those Jews, Koreans and Arabs.


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