After years of accusations that it caused the demise of thousands of smaller merchants, Wal-Mart Stores Inc. is undertaking an unusual strategy: helping competing local establishments stay in business.
Wal-Mart recasting itself as a friendly neighbor? It’s the latest course change by the world’s largest merchant as it tries to modify its corporate culture — and the perception that it’s a ruthless competitor obsessed with maintaining its dominance of the retail industry.
Wal-Mart’s proposal to help rival small businesses, from bakeries to hardware stores, focuses on blighted urban markets where the retailer plans to open 50 stores within the next two years. The efforts will range from giving those businesses financial grants to producing free radio ads that will be broadcast on its stores’ radio network.
The image makeover extends to Wal-Mart’s selling floor as well. In recent months, for example, it has embraced organic products from baby clothes to fish caught in ecologically friendly ways.
And the company, which has long been shrouded in secrecy, is trying to appear more transparent. Late last year, it sponsored a debate among a group of economists about whether Wal-Mart is good or bad for the economy. And it’s holding its second annual media conference starting Tuesday near its Bentonville, Ark., headquarters, to share information about the company, from its plans to improve its stores to updates on its employee health care proposals.
The changes are Wal-Mart’s response to critics, particularly union-backed groups, who have long argued that the company has exploited the business model of folksy founder Sam Walton, putting profits before its own employees and towns and cities where it does business.
“The notion that Sam Walton cared about its workers, and the community, those positive aspects have gone,” said Chris Kofinis, spokesman for WakeUpWalMart.com, a campaign group funded by the United Food and Commercial Workers. He described the recently announced moves as a series of public relations stunts.
Analysts say that although Wal-Mart is used to succeeding, it has no guarantees in this endeavor, especially since its core business model — built around offering incredibly low prices — won’t change.
“The culture remains frugal and very focused on costs and price ... It is going to be very hard to change the culture of the company,” said Charles Fishman, author of “The Wal-Mart Effect,” a book on the company’s impact on the national economy. “Their image of themselves is powerfully fixed, and our image as shoppers is very powerfully fixed.”
In fact, as part of its ongoing cost-cutting campaign, Wal-Mart plans to become more reliant on part-time workers, which currently account for about 20 percent of its work force.
Focusing on value, not price
Some analysts say Wal-Mart actually won’t be fixated in the future on offering the cheapest prices, but will try instead to offer the best value in different merchandise categories. A few years ago, customers would not have imagined Wal-Mart selling $5,000 diamond rings or $2,000 plasma TVs, but the retailer is now offering attractive deals in more upscale products.
“I think that Wal-Mart has come to the realization that it cannot be focused on low-prices alone,” said C. Britt Beemer, chairman of America’s Research Group. “They need a broader offering.”
Wal-Mart, whose officials declined to be interviewed, has a lot at stake. Its stock has fallen 20 percent over the past two years, and is now trading at about $45. And the company is finding it harder to sustain profit growth in the high teens as in previous years as it struggles with higher expenses. For the year ended Jan. 31, Wal-Mart said net sales were up 9.5 percent to $312.4 billion and net income rose 9.4 percent to $11.2 billion, or $2.68 per share.
Wal-Mart has also had very public legal problems, from child labor law violations to charges of gender discrimination. It’s also fighting legislation aimed at making the company more generous with its health care benefits; the legislation was in response to charges that many Wal-Mart employees have had to turn to state Medicaid programs for health care.
Meanwhile, the discounter also faces very vocal opposition to some of its store openings and suffered embarrassing revelations that former top executive Tom Coughlin stole money from the company.
That’s why some critics look at some of Wal-Mart’s recent generous overtures with skepticism. Kofinis questioned Wal-Mart’s expansion plans for the inner city. He wondered about Wal-Mart’s real intent behind its proposals for local businesses and store expansion in urban markets.
Health care for part-time workers
Opponents have also questioned the company’s recently announced improvement of health care benefits for part-time workers, which includes shortening the waiting time to be on the company’s health plan. Opponents say that move is undermined by Wal-Mart’s much less publicized plan to rely on more part-time workers, who are less expensive than full-time workers to keep as they don’t enjoy the same level of benefits.
Kofinis believes a larger percentage of part-time workers — JPMorgan’s Charles Grom estimates it could be up to 40 percent over the next 12 to 18 months — will lead to an unhealthy environment at Wal-Mart.
“You are basically creating a turnstile environment, that is based on exploitation and one that minimizes building positive relationships with the company,” Kofinis said.