Wal-Mart's Real Cost

— Meleiza Figueroa

THE LONG-BREWING STRUGGLE between retail giant Wal-Mart and those concerned with reforming its corporate practices burst onto the mainstream consciousness of the American public this past November. An unprecedented convergence of labor, small business owners, environmentalists, activists and communities of faith blossomed into a full-scale movement to change the world’s largest retail company.

Efforts to reform Wal-Mart’s practices are as varied as the many effects Wal-Mart has on communities, workers, and society as a whole. Among these efforts are calls for “higher expectations” of Wal-Mart to be a “good corporate citizen,” for the company to do more in contributing some of its immense wealth and power to help the poor and exploited.

Underlying some of these particular calls for change is a notion that Wal-Mart, or any corporation, can somehow regulate itself according to some higher ethical standard; or that, once shown the error of its ways, it would change for the better.

To assume that Wal-Mart — or any corporation, for that matter — has an interest in acting according to an ethical standard higher than what is required or enforced by law is problematic. The very nature of corporations as profit-accumulating mechanisms contradicts and undermines their ability to regulate themselves.

It is especially problematic in the case of Wal-Mart, which not only extracts profit through the impoverishment of its own workers but derives a large portion of its sales from a continuing base of impoverished consumers.

According to the Wal-Mart legend, founder Sam Walton started the company in 1962 with a mission to “raise the standard of living by bringing affordable goods” to millions of Americans, especially low-income families and the poor.(1) However, the very essence of Wal-Mart stands in direct contradiction with its mission to “raise the standard of living.” In order to fully grasp this contradiction, it is important to understand the mechanisms by which Wal-Mart — like most businesses — extracts its profit.

Relentless cost-cutting and aggressive expansion of market share in order to maintain its rate of profit form the core dogma of the Wal-Mart religion. Following this dogma, Wal-Mart’s “army of priests” engages in practices that seem to do anything but raise the standard of living for its workers and people in the larger community.

Always Low Standards for Workers

No one has internalized the consequences of these practices as much as the people directly affected by them. In Robert Greenwald’s latest documentary “Wal-Mart: The High Cost of Low Price,” the various effects of the retailer’s internal dynamics are compiled and brought home in starkly personal terms. Through the experiences of employees, former managers, overseas factory workers and small business owners — juxtaposed with the surreally upbeat public statements of Wal-Mart CEO Lee Scott — the film exposes for all to see the contradictions between corporate rhetoric and reality within “the Wal-Mart model.”

Employee wages and benefits bear the brunt of Wal-Mart’s cost-cutting ax. In 2001, the only year in which Wal-Mart’s real wage data is publicly available, the average sales employee only made approximately $13,861 per year.(2) A study commissioned by the Wal-Mart Alliance for Reform Now (WARN) and the Wal-Mart Workers Association, which surveyed Florida state earnings records of Wal-Mart employees, found that 60% of workers at Wal-Marts in Florida “were employed in positions that paid or would have paid $4,000 or less in wages for a full quarter of work…$16,000 or less on an annualized basis.”(3)

In “Wal-Mart: The High Cost of Low Price,” Weldon Nicholson, a 17-year former manager at Wal-mart, describes a scene he regularly witnessed in his stores: “No matter what anybody says, they [Wal-Mart workers] are at poverty level…I watched so many people go without lunch that I stopped eating lunch in the lounges…because I just couldn’t stand it. They just wouldn’t eat, and we weren’t allowed to offer them any money…there were people that I’d see that didn’t eat nothin’, they’d take an hour lunch and just sit there.”

As Nicholson explains, “…if you [a Wal-Mart manager] can squeeze every dime out of ‘em, you go for it.” A look at the statistics shows that this attitude seems to be clearly systemic. Work off the clock and through meal breaks is widely reported among employees. As of 2005, Wal-Mart faced 44 class-action lawsuits in 31 states over wage and hour abuses.(4) In December 2005, a California jury ruled that Wal-Mart illegally deprived over 100,000 California workers of their lunch breaks, ordering Wal-Mart to pay a record $172 million in damages.(5)

Jon Lehman, a former manager who had been with Wal-Mart for 19 years, explains in the film how he was taught to “cheat workers out of overtime” by altering timecards in the store’s computers — an offense for which Wal-Mart is also facing class-action suits in California and Massachusetts.(6)

Wal-Mart’s failure to provide affordable healthcare benefits for a significant percentage of its workers is also well documented.  Its waiting period of six months for full-time workers and two years for part-time workers to become eligible for health benefits is more than double the waiting period offered by similar businesses.(7) According to a recently leaked internal memo, Wal-Mart acknowledged the fact that “46 percent of Associates’ children are either on Medicaid or are uninsured.”(8)

Even when enrolled in Wal-Mart’s insurance plan, the deductible (up to $1,000) can prove to be too much of a burden on workers’ already inadequate wages. Diane Devoy, a former Wal-Mart worker from Florida, describes her difficulty coping with the insurance costs: “When I first started at Wal-Mart, I had my kids on the Wal-Mart insurance…it got to the point where it was too much to handle, I just couldn’t afford it…I had to pay my premiums at work, and when I took them to the doctor, I still had to pay. I always had to pay a chunk of money.”

For Edith Arana, a six-year Wal-Mart veteran from Southern California, and her family, it came down to a choice: “He’s sick, we eat…which one do we do? Well, let’s give him an aspirin.”

To supplement Wal-Mart’s inadequate wages and benefits, many of its employees are forced to receive public assistance in order to survive. A report by the House Democratic Education and Workforce Committee concluded that a typical Wal-Mart store employing 200 people costs taxpayers $420,750 per year in public assistance for its employees, adding up nationally to an cost of over $1.5 billion per year.(9)

Employees also claim that Wal-Mart even encourages its workers to go on public assistance. As Diane Devoy — who received WIC and Medicaid assistance while working full-time at Wal-Mart — observes, “It’s pretty bad when you [Wal-Mart] need to tell your employees that ‘all these benefits are available for you…because we’re not paying you enough money.’”

Donna Payton, another worker from Florida, works full-time at Wal-Mart and receives Florida state Medicaid for herself and her children, is on the food stamp program, and lives in Section 8 housing.

When asked by one of the film’s co-producers whether Wal-Mart was aware of her dependence on multiple public assistance programs, Payton acknowledged that the company was indeed aware, since it had to verify her status as an employee during the application process. She remarks that Wal-Mart is “a billion dollar corporation… so I don’t see why they cannot offer a better medical package for their associates, so that we can afford to get our families on insurance.”

Wal-Mart is also extraordinarily efficient in creating a “culture of fear” among its workers, to suppress any efforts by employees to speak out and fight for better working conditions. While Wal-Mart publicly touts its “Open Door policy” whereby workers can presumably air grievances with the company, threats of retaliation hang over the heads of employees who do attempt to address their grievances or — worse yet — organize. A segment in the Wal-Mart documentary details the company’s unionbusting tactics, including its successful efforts to intimidate Colorado auto service workers into voting down a union.

Even talking publicly about Wal-Mart’s unjust labor practices is extremely difficult for many workers. Luisa Dantas, a co-producer on the film, spent months talking to Wal-Mart employees around the country attempting to find people who would talk about their experiences on film, a task that proved much more difficult than she had anticipated:

“When the time came to find current Wal-Mart employees to interview for the film, it quickly became apparent that most of the workers I encountered were terrified to speak about the problems and injustices they experienced on a regular basis. The culture of fear at Wal-Mart is so pervasive because the majority of the company’s hourly workers live precariously from paycheck-to-paycheck.  The fear of retaliation is palpable, and the few brave souls who do speak out are often chastised by friends, family and co-workers for putting their jobs in jeopardy.”

When confronted with questions of accountability on Wal-Mart’s labor issues, Wal-Mart CEO Lee Scott attempts to ensure that the buck stops anywhere but the company headquarters in Bentonville, Arkansas.  In the film, he asserts in a news interview that he is “proud that we have the benefits we have, and the wages we have.”

Though he admits that problems in the treatment of employees exist, in Wal-Mart’s eyes the blame rests with individual managers at the store level. Quoting the company’s founder, Scott says, “I think Sam Walton would tell us, just as he did before he passed away, that the number one thing in this company is our associates, and we’ve got stores that aren’t treating associates as well as they should be treated.”

Store managers, however, attest to the great pressure placed on them by the home office to reduce labor costs as much as they possibly can. Jon Lehman states on camera that “the company doesn’t allow the stores enough payroll dollars on their budget to get the job done, and the job is enormous…this company is raking in the dough on sales.”
Labor is the most controllable cost in a Wal-Mart store, and managers like Lehman, Nicholson, and Stan Fortune (another 17-year former manager) bear witness to the pressure placed upon them to “keep reducing that expense.”

Wal-Mart’s Larger Impact

In a world where there is no “free lunch,” Wal-Mart continually expects to get more for less, and “less” comes at the expense of their workers, their suppliers, and American taxpayers — many of whom are their own consumers. While Wal-Mart is not solely responsible for the downward economic trends that add people every day to their core consumer base of low-income, unemployed and poor Americans, its practices exacerbate them to a great extent.

The company is legendary for squeezing its suppliers of retail goods, in order to keep wholesale prices as low as possible. Celia Clancy, executive vice president of apparel at Wal-Mart, “gives her buyers a ‘Plus One’ mandate every year: For each item they handle, they must either lower the cost or raise the quality.”(10) To meet that mandate, suppliers are compelled to outsource their manufacturing to countries that offer ever cheaper labor, victimizing workers abroad while displacing others at home.

According to the Bureau of Labor Statistics, manufacturing jobs in the United States have declined from 19.3 million in 1980 to only about 14.4 million today.(11) While Wal-Mart is not the only company responsible for this staggering 25% evisceration of the once-robust American industrial workforce, specific examples of Wal-Mart’s pressure on suppliers such as Carolina Mills, Rubbermaid and Levi’s to move operations overseas illustrate Wal-Mart’s role as more of an active collaborator in this process than it cares to admit.(12)

As Wal-Mart aggressively pushes into new markets (another internal memo revealed that Wal-Mart plans to open 484 stores next year), its presence in a community also tends to depress wages in the surrounding retail sector, as other businesses close down or cut their own wages to stay competitive with the big-box behemoth.(13)

A study from the UC Berkeley Labor Center, drawing upon fifteen years of data on actual store openings, found that Wal-Mart’s presence drives down wages in urban areas, resulting in the loss of $4.7 billion in the take-home pay of retail workers each year.(14) At a recent conference sponsored by Wal-Mart, another study by David Neumark at the Public Policy Institute found that, in general, Wal-Mart stores reduce payrolls per worker by about 3.5%, and overall employment in the retail sector by 2-4%.(15)

Meanwhile, its billion-dollar advertising/PR wing attempts to cultivate a mass market from the growing numbers of Americans living in poverty, by deluging target communities with ads and “charm offensives” appealing to those on a tight budget.

Those on the bottom rungs of the economic ladder form an enormous portion of Wal-Mart’s consumer market. According to The Nation, “A 2003 study found that 23% of Wal-Mart Supercenter customers live on incomes of less than $25,000 a year. More than 20% of Wal-Mart shoppers have no bank account, long considered a sign of dire poverty. And while almost half of Wal-Mart Supercenter customers are blue-collar workers and their families, 20% are unemployed or elderly.”(16)

Wal-Mart draws many of its own customers into a form of mutual dependency: Wal-Mart derives a critical portion of its sales revenue and profit from a base of people who — due to economic trends toward which Wal-Mart is a major contributor — cannot afford to shop anywhere else.

Corporate Priorities

How can Wal-Mart raise the standard of living for millions of families through low prices, when the practices involved in obtaining low prices (and extracting a profit at the same time) effectively contribute to economic processes that are increasingly impoverishing those families?

Faced with a choice between self-regulating in order to be a “good citizen” and maximizing profit, corporations — whose sole real obligation is to their shareholders — inexorably choose the latter. Wal-Mart CEO Lee Scott declared as much at Wal-Mart’s 2005 annual shareholders’ meeting: “If we keep our prices low, and raise our average wage substantially we would, in fact, decrease our profitability disproportionately and sacrifice a healthy chunk of what it is that our shareholders expect from us.”(17)

In Lee Scott’s mind, the expectations of those shareholders (including the four remaining members of the Walton Family and their $90 billion, 40% interest in the company) seem far more important than any expectation to fulfill the basic living and healthcare needs of his own “associates” (as hourly Wal-Mart employees are called).

Wal-Mart claims that its consumers can “vote with their feet” and shop elsewhere if they do not like its practices. But when the wages paid to its own workers remain at poverty levels, many have very little choice but to “vote” for the company store. Diane Devoy recalls that “the money I did get went right back into Wal-Mart. I’d get my check, have it deposited…go shopping.”

As long as Wal-Mart perceives that its profits derive from suppressing costs (especially labor costs) and expanding its market share of low-income consumers, it will find no reason to voluntarily limit its own corporate behavior — except where it can make cosmetic changes in order to stave off negative press, and serve its own interests at the same time.

For example, Lee Scott recently unveiled a new “affordable” health care plan for employees in certain areas, which would be available for as low as $11 a month. Wrapped in enough PR, it supposedly signaled a generous turn for the better in terms of health care. However, a deeper look at the plan shows that it shifts a significant burden of costs onto the employees, requiring a $1,000 deductible and out-of-pocket payments as high as $300 for prescriptions.(18)

At the same time, an internal memo suggested saving more on healthcare costs by redesigning job descriptions to “dissuade unhealthy people from coming to work at Wal-Mart.”(19) The true purpose of the so-called “Value Plan” was to improve its media image while the company prepared to cut healthcare costs even further.

In addressing Wal-Mart’s many problems, image seems to be everything. In 2005, the company implemented a high-powered advertising campaign seeking to counteract its “negative image” in the press.  It established a “war room” of PR professionals, including veterans of past Presidential campaigns.(20) The company’s highly expensive efforts in this area indicate where it perceives the root of its problems to lie: with the press, not in the exploitative nature of its business practices.

Wal-Mart’s strategy is built on an assumption that problems could be solved through more skillful presentation of its “side of the story” and not through any kind of substantive change in its practices, an assumption sufficiently non- threatening to its bottom line.

Another Wal-Mart — and World — Is Possible

To expect Wal-Mart to take it upon itself to become a kinder, gentler “Beast of Bentonville” is inadequate. If we truly wish to effect real change for the better in the lives of Wal-Mart workers and its customers, we as a society of workers, consumers and citizens must stand up for our own interests. History has shown that the few times corporations have conceded to better their practices (at any expense to themselves) have almost always been when people have organized and demanded, and governments have required, that they do so.

In the case of Wal-Mart, bills have already been introduced at the state and national levels demanding accountability and change in the practices of large retailers, especially in regards to healthcare.

In January 2006, the Maryland state legislature — overriding Governor Robert Ehrlich’s earlier veto — passed the unprecedented Fair Share Health Care Fund Act, which requires large employers to spend a mandatory minimum amount on health insurance for their employees.(21)

Cities like Chicago and Los Angeles, and over a hundred others, have enacted living-wage ordinances requiring large retailers to pay a living wage to their employees.(22)
Other towns have placed size caps on stores within their boundaries, and many have passed ordinances requiring economic and environmental impact studies before the approval of any large retail projects. Many of these were passed due to the grassroots, independent organizing efforts of concerned citizens in their own communities.

Over 130 communities have also blocked Wal-Mart from building stores within their cities.(23) Communities that engage in “site fights” have the power to directly affect Wal-Mart’s bottom line, an effective alternative to the unlikely prospect of a general boycott. A report by the New York-based investor advising firm Bernstein Research Call notes that local “site fights” which limit Wal-Mart’s square-footage growth can have a significant impact on its stock value, affecting the company where it hurts the most.(24)

In conjunction with community and legislative reform efforts, new ways are being conceived to help workers organize in the face of Wal-Mart’s aggressive unionbusting tactics. The Wal-Mart Alliance for Reform Now (WARN), a coalition of community and labor groups, recognizes the critical importance of grassroots community involvement both in local site fights and in organizing around workers’ issues. Together with ACORN, it has helped create, and continues to support, the Wal-Mart Workers Association (WWA), an independent workers’ rights group organized in Florida by Wal-Mart workers for Wal-Mart workers.

Wade Rathke, Chief Organizer for ACORN and a leading member of the WARN coalition, suggests a rethinking of traditional big-labor strategies, to think past collective bargaining and “go to first principles: workers getting together wherever it is easiest — and safest — to talk not only about issues — wages, hours, and benefits — but also about aspirations — ending discrimination, promoting job advancement, and improvements in working conditions and community reinvestment.”

These efforts “would build democratic organizations which advocate for changes in public policy as well as representing workplace grievances.” To do so, workers “will need a strong alliance of support in the community acting in concert with them and protecting their efforts to create space for organization and struggle… it will be essential that there be a direct, independent, and large base of support for the alliance and the association so that countervailing levels of public support can be created in the marketplace to offset the tactics that will be predictably taken by the company.”(25)

Organizing along these lines has resulted in some real gains among WWA members. Donna Payton, who has joined the WWA since her participation in Wal-Mart: The High Cost of Low Price, has secured a raise and promotion that had been long denied her.  Also, her willingness to be outspoken about her situation has empowered many of her fellow workers to step up and make their voices heard as well. At an organizers’ conference held in St. Petersburg, Florida in September 2005, she reported that “a lot more associates now are comfortable, they want to talk, they want to tell their story.”(26)

Another WARN organizer explains that “our philosophy of change, and of organizing, is getting at folks’ self-interest…we start campaigns very locally on what kinds of change they want to see done in their neighborhoods.”(27) Starting with the basic framework of what kind of community and quality of life people really want to have — instead of what concessions they can try to wring out of a company uninterested in change — gives both workers and communities a solid, proactive base with which to challenge corporations like Wal-Mart. They can set their own “price of admission,” by developing essential standards to which those companies must conform in order to locate within their neighborhood.

This type of strategy — empowering workers and communities to stand up for their own interests in demanding change from Wal-Mart — can teach valuable lessons for organizing on issues beyond the retail giant. While its titanic size, economy of scale and current media prominence make Wal-Mart a particular focal point for raising awareness on issues of economic justice, it does not necessarily drive (though it certainly contributes to) the larger processes that result in the impoverishment of millions of people in America and around the world.

Still, the conclusions drawn as to Wal-Mart’s priority to maximize profit, and its subsequent unwillingness to self-regulate, do apply across the corporate world — after all, corporations cannot be “expected” to effectively regulate their own behavior, just as a pride of lions cannot be “expected” to suddenly become vegetarians.

It is possible for corporations to reform some of their most egregious practices, if pressured enough from below to acknowledge and accommodate the interests of their consumers, workers, and neighbors. By setting a standard for defending their interests in terms of the specific relationship with Wal-Mart, people can realize the power within themselves to hold their own in the face of challenges from any and all others that may seek to impose the “Wal-Mart model” upon them.

If people can envision and fight for the kind of community they would like to see in regards to Wal-Mart, one can imagine what else can be envisioned and accomplished by active, organized communities in the world beyond the big box’s sliding glass doors.

Notes

Quotes from Lee Scott and Wal-Mart workers are from the film “Wal-Mart: The High Cost of Low Price.”

  1. Lee Scott, “Letter from Lee Scott,” WalMartFacts.com <http://www.walmartfacts.com/talkwithus/letter-lee-scott.aspx>.
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  2. Anthony Bianco and Wendy Zellner, “Is Wal-Mart Too Powerful?” Business Week, October 6, 2003. Primary source information on 2001 wage data is from the testimony of Dr. Richard Drogin, in Dukes v. Wal-Mart Stores, Inc.
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  3. WARN/Wal-Mart Workers Association, “Wal-Mart: Real Wage and Turnover Study,” November 17, 2005 <http:// warnwalmart.org/fileadmin/WARNstorage/walmart_study_-_v2__1_.pdf>.
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  4. Wal-Mart Stores 10K Filing, March 31, 2005, 16, Item 3.
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  5. Henry K. Lee, “Wal-Mart Loses Suit Over Lunch Breaks,” San Francisco Chronicle, December 23, 2005.
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  6. John Strahinich, “Judge OKs Employee Lawsuit Against Wal-Mart,” Boston Herald, January 7, 2005 also “Alameda County Suit Alleges Wal-Mart Cheated Workers,” Bay City News, January 20, 2005.
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  7. Rep. George Miller/Democratic Staff of the Committee on Education and the Workforce, “Everyday Low Wages: The Hidden Price We All Pay for Wal-Mart,” February 16, 2004.
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  8. Wal-Mart Internal Memo, via New York Times.
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  9. Rep. George Miller / Democratic Staff of the Committee on Education and the Workforce, “Everyday Low Wages: The Hidden Price We All Pay for Wal-Mart,” February 16, 2004.
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  10. Nancy Cleeland, Evelyn Iritani and Tyler Marshall, “The Wal-Mart Effect: Scouring the Globe to Give Shoppers an $8.63 Polo Shirt,” Los Angeles Times, November 24, 2003.
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  12. Stephen Kinzer, “Treading Carefully, Wal-Mart Enters Labor’s Turf,” New York Times, July 6, 2004.
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  13. Hedrick Smith, “Is Wal-Mart Good For America?” Frontline Charles Fishman, “The Wal-Mart You Don’t Know,” Fast Company, December 2003.
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  14. “Leaked Memo Suggests New Store Goal Grows for ’06,” Progressive Grocer, November 15, 2005.
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  15. Arindrajit Dube, “Impact of Wal-Mart Growth on Earnings throughout the Retail Sector in Urban and Rural Counties,” UC Berkeley Labor Center, November 2005.
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  16. David Neumark, Junfu Zhang, and Stephen Ciccarella, “The Effects of Wal-Mart on Local Labor Markets,” October 2005.
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  17. Liza Featherstone, “Down and Out in Discount America,” The Nation, December 18, 2004.
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  18. Lee Scott, Address at 2005 Wal-Mart Shareholders’ Meeting, as quoted in Wal-Mart: The High Cost of Low Price (2005).
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  19. Michael Barbaro, “Wal-Mart to Extend Health Plan for Workers,” New York Times, October 24, 2005.
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  20. Carl Matzelle, “Oberlin to Vote on Living-Wage Law,” Cleveland Plain Dealer, October 18, 2005.
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  21. Michael Barbaro, “A New Weapon for Wal-Mart: A War Room,” New York Times, November 1, 2005.
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  22. Andrew A. Green, “Wal-Mart Veto Falls,” Baltimore Sun, January 13, 2006.
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  23. Andrew J. Elmore, “Living Wage Laws and Communities: Smarter Economic Development, Lower than Expected Costs,” Brennan Center Economic Justice Project, November 2003.
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  24. List of community victories compiled by the author for Wal-Mart: The High Cost of Low Price, November 2005 <http://www.walmartmovie.com/victories.php>.
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  25. Bernstein Research Call, “Not In My Backyard — An Analysis of Community Opposition to U.S. Big Box Retail,” April 25, 2005.
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  26. Wade Rathke, “A Grand Vision for Modern Labor? Organizing Wal-Mart Workers and Mass Service Industries,” New Labor Forum, Summer 2005.
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  27. Wal-Mart Workers Association promot ional video (forthcoming).
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  28. Site Fighters’ Conference, St. Petersburg, Florida, September 2005.
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ATC 121, March-April 2006