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Is Wal-Mart's charm offensive for real?

Last week Wal-Mart Stores Inc. proposed a lower-cost health care plan for its employees, promised an environmental initiative and called for a boost in the minimum wage. Is the company's latest charm offensive for real?
/ Source: The Associated Press

Wal-Mart Stores Inc. has accelerated a campaign to polish its image by proposing a lower-cost health care plan for its employees, promising an environmental initiative and calling for a boost in the minimum wage.

But the world’s largest retailer is finding that by trying to please everyone — the public, politicians, shareholders and Wall Street — it may please no one.

The company, which grew to be a $285 billion giant by relentlessly focusing on price, has come under a barrage of criticism in recent years for how it treats workers, diversity in the workplace and its environmental record.

Critics complain that the initiatives launched last week are merely publicity stunts. At the same time, the company seems to have lost some of its competitive edge to retailers like Target Corp., and a lackluster economy and high gasoline prices have hurt sales and profits. The 17 percent drop in Wal-Mart’s stock price this year reflects the company’s woes. And now a scathing documentary to be released nationally next month, will put the retailer in its crosshairs.

Wal-Mart’s opponents call its new health care plan inadequate because workers would still have a $1,000 deductible. And they term the company’s advocacy of a higher minimum wage as a self-serving attempt to boost the buying power of its low-income customers.

“This is a desperate attempt to remake their faltering image,” said Chris Kofinis, spokesman at Washington-based Wake Up Wal-Mart, one of Wal-Mart’s harshest critics. Opponents argue Wal-Mart’s pay and benefits drive down those at other companies trying to compete.

Even some conservative allies aren’t embracing Wal-Mart’s fuzzy approach.

“Wal-Mart had a pure position earlier” as a capitalist company, said Tim Kane, economist at the conservative Heritage Foundation. “Now they are muddying the waters by trying to offer a softer image. It leaves them vulnerable to charges that they are insincere.”

An internal memo — obtained by Washington-based Wal-Mart Watch and publicized by the New York Times — appeared to undercut Wal-Mart’s charm offensive. (Wal-Mart provided a copy to The Associated Press after it learned the New York Times was planning a story.) The memo, written by a company benefits executive to the board, suggested ways to cut soaring medical costs by hiring more part-time workers and discouraging unhealthy job applicants by including physical activity in all jobs.

One longtime Wal-Mart associate, who declined to be named for fear of retaliation, said the memo left a lot of employees angry. He said many employees fear Wal-Mart will stop paying for their health insurance.

Wal-Mart spokeswoman Mona Williams says the debate underscores that health coverage is “the No. 1 problem facing our nation today.”

Wal-Mart said it spent approximately $2,200 of the total annual cost of $3,000 per associate for single health care and $6,000 of $8,800 for family coverage in 2004.

Burt Flickinger, managing director of consulting firm Strategic Marketing, estimates that Wal-Mart spends 70 percent less per employee on all benefits, including health care and pension plans, than unionized retailers. Union shops, which include supermarkets and wholesale clubs, pay anywhere from $10,000 to $30,000 in all benefits per full-time employee.

Such a stark difference may not be surprising, given Wal-Mart’s focus on cutting costs to maintain its edge as the low-price leader. But it certainly highlights its dilemma going forward.

“Wal-Mart is continuing to mature as a company, and this requires us to think about our business in a new way,” Williams continued. “Many of the issues we have dealt with from a defensive posture are now seen as an opportunity to embrace proactively and become a more innovative and competitive company as a result.”

On Tuesday Wal-Mart will reach out to critics by holding a conference in Washington to study its impact on the economy. The company hired Global Insight Inc. to conduct an independent study, giving the firm's economists access to internal data on wages and benefits.

But the strategy could backfire: The gathering will also feature some unflattering presentations from economists.

Wal-Mart says it has listened to critics, employees and shoppers over the past year. But how much it is willing to sacrifice to please its opponents remains to be seen.

In the memo, Wal-Mart acknowledged that health care is one of the most pressing reputation issues it faces. But how will it keep escalating costs down while still being perceived as a good citizen?

Wal-Mart’s benefits costs jumped to $4.2 billion this year, from $2.8 billion in 2002, and the company noted that its workers are getting sicker than the national average, particularly with obesity-related diseases.

At the same time, the company acknowledged the current insurance plan is unaffordable to many people. In fact, less than half of Wal-Mart employees are on company insurance, compared with more than 80 percent at Costco Wholesale Corp.

David West, executive director for The Center for a Changing Workforce, a non-profit research group, says the company’s new health care alternative — which cuts premiums by 40 to 60 percent — is inadequate because it still has a $1,000 deductible. Costco’s deductible is $200.

Critics should not underestimate Wal-Mart’s ability to come out ahead. It has grown to be the world’s largest company by its ability to react to changes quickly.