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Monday, January 18, 2010
It hardly shrieks of billion-dollar glamour. The US nerve centre of the world's largest retailer, Wal-Mart, consists of a collection of low-slung prefabricated buildings along a four-lane highway in north-western Arkansas. Wal-Mart's head office is hundreds of miles from the nearest big city. It isn't even handy for the state capital, Little Rock, which is three and half hours' drive away.
But hopeful merchants beat a path from all corners of the world to hawk their wares here, in a series of bare Perspex rooms along a "supplier corridor". Staff work in spartan cubicles and reminders of the retailer's low-cost culture are constant – in an employee lounge an honesty box invites payment for tea and coffee with a blunt message: "Drinks are not free."
It was nearby, in the main square of the modest town of Bentonville, that Wal-Mart's founder, Sam Walton, opened a discount store, Walton's Five and Dime, in 1951. That shop, now a museum, helped spawn a retail empire that spans 8,100 stores in 15 countries generating $401bn (£248bn) of revenue annually. With a market capitalisation of $210bn, Wal-Mart is worth as much as the gross domestic product of Nigeria.
Four of America's 10 richest individuals are from Wal-Mart's low-profile Walton family, which still owns a 40% controlling stake. The company's portfolio ranges from superstores in the US to neighbourhood markets in Brazil, bodegas in Mexico, the Asda supermarket chain in Britain and Japan's nationwide network of Seiyu shops. Wal-Mart gets many of its products from low-cost Chinese suppliers. The pressure group China Labour Watch estimates that if it were a country, Wal-Mart would rank as China's seventh largest trading partner, just ahead of the UK, spending more than $18bn annually on Chinese goods. A Wal-Mart store in Beijing. Photo: Getty
Perhaps more than any other firm in America, Wal-Mart divides opinion. Unions loathe its relentless downward pressure on wages and its refusal to allow workers to organise. The company has been accused of unfair treatment of older, more expensive, employees. It is facing one of America's largest class-action lawsuits alleging wage discrimination against women and its hypermarkets are routinely blamed for squeezing small shops out of business.
"This is a company with a record of exploitation," says Jill Cashen, spokeswoman for a pan-union campaign group, Wake Up Wal-Mart. "They have not shared their wealth. When you spend your money at Wal-Mart, you're contributing to the wealth of one very rich family and not very many other people."
In reply, Wal-Mart's executives say the company is "saving people money so they can live better". They trumpet the availability of Wrangler jeans for $11.50, laptops for $298 and even an entire Thanksgiving turkey dinner for eight people at $20. Wal-Mart maintains that it is on the side of hard-working families who need to save every penny they can – and the company intends to spread this message globally.
Wal-Mart spent $4.1bn on international expansion in the year to January 2009, and intends to spend between $4.2bn and $4.4bn in the current fiscal year, excluding acquisitions. About a quarter of its sales are outside the US. But oddly, few of its foreign customers are aware that they are shopping at an American multinational.
Unhappy early experiences outside American shores have prompted an outbreak of new thinking at Wal-Mart. The company has embraced something of a "stealth" approach to growth. Its stores are emblazoned with an array of different names around the world – Maxibodega in Costa Rica, Todo Dia in Brazil, Despensa Familiar in Honduras and the awkward-sounding Best Price Modern Wholesale in India.
"We learned very early in the process that you simply can't take a superstore in the US, pull it out of the ground and plant it in another country and expect that to be a successful strategy," says Mitch Slape, Wal-Mart's head of international business development.
During earlier decades, the firm's approach to expansion was simple. It built US-style out-of-town discounting superstores around the world and expected shoppers to flock there for bargains. But this didn't always work. Travel patterns, family roles and shopping habits vary. Ventures into Germany and South Korea came to a sticky end with expensive exits in 2006.
Under the new approach, the "front end" of Wal-Mart's stores can look like enlarged family-run convenience stores. The contents, to some extent, are locally focused. Chinese stores offer live crustaceans, while south American outlets are heavy on spicy beans. But the "back end" is a duplicate of the US model.
"From the customer point of view, it might appear to be a certain brand," says Slape. "But everything that is 'back of house' – systems, processes, buying – we can leverage a lot of that globally."
Part of its pluralistic new approach comes from experience in Britain, where Wal-Mart bought Asda for £6.7bn a decade ago. The chain has been a moderate success, delivering consistent results, but Wal-Mart has been frustrated in its efforts to expand. Frustrated, Wal-Mart's former chief executive Lee Scott, who retired this year to make way for new incumbent Mike Duke, reportedly pondered a complete exit from the UK – but ultimately opted to stay put.
Insiders say that competing in Britain's feverishly competitive supermarket industry has taught Wal-Mart a good deal. Asda is now something of a centre for excellence for its global grocery sales. The head of global marketing for Wal-Mart is based at Asda's head office in Leeds. And, in an example of Wal-Mart's global distribution muscle, the Wall Street Journal recently reported that the best-selling wine in the whole of Japan is an own-label Asda Bordeaux.
Britain is Wal-Mart's fourth-largest overseas chain, with 368 Asda outlets, behind Mexico's 1,322 stores, Brazil's 373 sites and Japan's 371 shops. All are dwarfed by the 4,200-strong network of Wal-Marts in the US. Smaller territories include Canada with 313 stores, China at 266 and a newly acquired 238-strong chain in Chile. Russia and India are next in line for focus and Wal-Mart won't be taking half measures – the company only bothers to enter a market if it thinks it can be one of the top few players.
"It's important for us to be in one of the top three positions," says Wan Ling Martello, chief financial officer of Wal-Mart's international operation. "We have to have scale – otherwise it doesn't quite make sense."
That scale gives Wal-Mart muscle – and it is this brawn that, in the eyes of critics, can give it an unpleasantly bullying demeanour. At the very centre of the company's business model is a constant effort to drive down costs to an absolute minimum. Every pound, penny and tenth of a penny per unit of stock turns into millions in a firm of Wal-Mart's size.
"With the scale the company has, the economies of scale it can command, it basically extracts every last nickel out of its suppliers," says Michael Bride, deputy overseas organising director at the United Food & Commercial Workers Union in Washington. "If you're a Chinese supplier and Wal-Mart is pressing you down, you probably can't go and negotiate your electricity rates or your rent down. But you can cut costs when it comes to labour."
An investigation of five factories supplying Wal-Mart by China Labour Watch found "illegal and degrading conditions" according to a report released in November by the New York-based human rights group. At one plant in Dongguan, which supplies candles and Christmas tree lights, it found that workers were required to work 24-hour overtime shifts during busy periods and painted a bleak picture of pay as low as 44 cents (27p) an hour, bathrooms without running water and unsanitary canteens. Although Wal-Mart uses independent auditors to check on ethics at its suppliers, the group found evidence of workers being obliged to sign false pay receipts.
Wal-Mart responded to the report by saying it had begun an immediate inquiry into the factories: "We take reports like this very seriously and we will take prompt remedial action if our investigations confirm any of the findings."
While imbued with an innate conservatism by its founding family, Wal-Mart moved in recent years to introduce higher environmental standards. As of 2007, it says it succeeded in cutting the amount of waste it sent to landfills by 55%. Wal-Mart also wants to be 100% driven by renewable power and recently said that it was purchasing sufficient wind energy in Texas to account for 15% of its electricity in the US.
Under a newly launched "sustainability index," Wal-Mart's suppliers must report to the company on their greenhouse gas emissions, waste reduction initiatives and ethical sourcing. The company is working towards a labelling system to inform customers of the sustainability of each and every product.
Matt Kistler, Wal-Mart's senior vice-president for sustainability, says saving on waste is a no-brainer: "At first it was a little bit of a reaction to the negative pressures as a company we'd been receiving. But very early on, from day two, there was a tremendous appetite not only from an environmental point of view but from a business point of view to do what we're doing."
Yet even these efforts, argue critics, are modest in the context of larger questions over the globalisation of Wal-Mart's business. Wake Up Wal-Mart campaigner, Jill Cashen, says: "It's one thing to bring in a product, ship it from the other side of the planet and stick a label on it telling customers it's sustainable. How much greener would it be if it was produced within 100 miles of where it was sold?"
In North America, Wal-Mart is unashamedly anti-union. When, in a rare case in 2005, workers at a Quebecois Wal-Mart store voted in favour of collective representation, Wal-Mart simply shut it down. The case went to Canada's supreme court, which last month accepted Wal-Mart's explanation that the location was unprofitable.
Overseas, Wal-Mart has proved more flexible – it has worked with unions in Argentina, Brazil and in China, in accordance with local laws. But there are still strong reservations in the public mind about the way Wal-Mart does business.
Back in Arkansas, the Walton family are taking a stab at posterity through the construction of an impressive $50m glass and wood art gallery, Crystal Bridges. Designed by an acclaimed Israeli architect, Moshe Safdie, the 100,000 sq ft (10,000 sq metre) complex is bankrolled by Sam Walton's daughter, Alice, and is intended to put Bentonville on the cultural map with a collection of American art from colonial times to the present.
But even on Wal-Mart's home turf, visitors are far from unanimous in their verdicts on the company. "It's a symbol of free enterprise – the success of the free enterprise system," says John Niccum, a pensioner visiting Sam Walton's original Five and Dime store, now a museum.
But Kay Heaton, an AT&T telecoms employee from Missouri, is dubious: "It's beating the heck out of the little man. It kills the little guy who offers an independent service, from an independent business."
Founding father
Samuel Moore Walton, the founder of Wal-Mart, was born on 29 March 1918 on a farm in Oklahoma. His father moved the family from town to town in the 1920s after quitting farming and becoming a mortgage broker. When the Great Depression hit in the 1930s, Walton took any job that was going to supplement the family income but eventually graduated from the University of Missouri in Columbia with a business degree. Three days after leaving college, in 1940, he joined JC Penney on the retailer's management trainee scheme, where he picked up some of the traits that were to characterise his business life, including his penchant for "managing from the floor". He was paid $75 a month.
When the US entered the Second World War in 1942, Walton joined the army intelligence corps and when fighting ended, he borrowed $20,000 from his father-in-law and used his own savings of $5,000 to buy a store in Newport, Arkansas. He quickly proved his business acumen by snapping up a women's lingerie distributor two years later, when rayon women's underwear was becoming all the rage.
Walton had to sell his Newport store after failing to renew the lease, but he did not let the setback slow him down. He snapped up another in Bentonville and renamed it Walton's Five and Dime. By the end of the Fifties he had more than a dozen stores across Arkansas, Missouri and Kansas. But the first to be branded Wal-Mart – a name created by Walton's assistant Bob Bogle – did not open until July 1962 in Rogers, Arkansas. It was an instant hit but the second, launched two years later, nearly ended in disaster. Opening in a heatwave, the store soon reeked of manure from donkeys been hired for children's rides.
The company officially incorporated as Walmart Stores in 1969 and the following year, Walton raised $5m by taking the company public on the New York Stock Exchange. The chain rapidly expanded in the 1970s and 1980s, opening its 1,000th store in 1987, and Walton lived to see it overtake Sears in 1991 to become the largest retailer in the US. He died in 1992 as the richest man in America, though he still drove a battered pick-up truck and made a habit of getting $5 haircuts.
Richard Wray
But hopeful merchants beat a path from all corners of the world to hawk their wares here, in a series of bare Perspex rooms along a "supplier corridor". Staff work in spartan cubicles and reminders of the retailer's low-cost culture are constant – in an employee lounge an honesty box invites payment for tea and coffee with a blunt message: "Drinks are not free."
It was nearby, in the main square of the modest town of Bentonville, that Wal-Mart's founder, Sam Walton, opened a discount store, Walton's Five and Dime, in 1951. That shop, now a museum, helped spawn a retail empire that spans 8,100 stores in 15 countries generating $401bn (£248bn) of revenue annually. With a market capitalisation of $210bn, Wal-Mart is worth as much as the gross domestic product of Nigeria.
Four of America's 10 richest individuals are from Wal-Mart's low-profile Walton family, which still owns a 40% controlling stake. The company's portfolio ranges from superstores in the US to neighbourhood markets in Brazil, bodegas in Mexico, the Asda supermarket chain in Britain and Japan's nationwide network of Seiyu shops. Wal-Mart gets many of its products from low-cost Chinese suppliers. The pressure group China Labour Watch estimates that if it were a country, Wal-Mart would rank as China's seventh largest trading partner, just ahead of the UK, spending more than $18bn annually on Chinese goods. A Wal-Mart store in Beijing. Photo: Getty
Perhaps more than any other firm in America, Wal-Mart divides opinion. Unions loathe its relentless downward pressure on wages and its refusal to allow workers to organise. The company has been accused of unfair treatment of older, more expensive, employees. It is facing one of America's largest class-action lawsuits alleging wage discrimination against women and its hypermarkets are routinely blamed for squeezing small shops out of business.
"This is a company with a record of exploitation," says Jill Cashen, spokeswoman for a pan-union campaign group, Wake Up Wal-Mart. "They have not shared their wealth. When you spend your money at Wal-Mart, you're contributing to the wealth of one very rich family and not very many other people."
In reply, Wal-Mart's executives say the company is "saving people money so they can live better". They trumpet the availability of Wrangler jeans for $11.50, laptops for $298 and even an entire Thanksgiving turkey dinner for eight people at $20. Wal-Mart maintains that it is on the side of hard-working families who need to save every penny they can – and the company intends to spread this message globally.
Wal-Mart spent $4.1bn on international expansion in the year to January 2009, and intends to spend between $4.2bn and $4.4bn in the current fiscal year, excluding acquisitions. About a quarter of its sales are outside the US. But oddly, few of its foreign customers are aware that they are shopping at an American multinational.
Unhappy early experiences outside American shores have prompted an outbreak of new thinking at Wal-Mart. The company has embraced something of a "stealth" approach to growth. Its stores are emblazoned with an array of different names around the world – Maxibodega in Costa Rica, Todo Dia in Brazil, Despensa Familiar in Honduras and the awkward-sounding Best Price Modern Wholesale in India.
"We learned very early in the process that you simply can't take a superstore in the US, pull it out of the ground and plant it in another country and expect that to be a successful strategy," says Mitch Slape, Wal-Mart's head of international business development.
During earlier decades, the firm's approach to expansion was simple. It built US-style out-of-town discounting superstores around the world and expected shoppers to flock there for bargains. But this didn't always work. Travel patterns, family roles and shopping habits vary. Ventures into Germany and South Korea came to a sticky end with expensive exits in 2006.
Under the new approach, the "front end" of Wal-Mart's stores can look like enlarged family-run convenience stores. The contents, to some extent, are locally focused. Chinese stores offer live crustaceans, while south American outlets are heavy on spicy beans. But the "back end" is a duplicate of the US model.
"From the customer point of view, it might appear to be a certain brand," says Slape. "But everything that is 'back of house' – systems, processes, buying – we can leverage a lot of that globally."
Part of its pluralistic new approach comes from experience in Britain, where Wal-Mart bought Asda for £6.7bn a decade ago. The chain has been a moderate success, delivering consistent results, but Wal-Mart has been frustrated in its efforts to expand. Frustrated, Wal-Mart's former chief executive Lee Scott, who retired this year to make way for new incumbent Mike Duke, reportedly pondered a complete exit from the UK – but ultimately opted to stay put.
Insiders say that competing in Britain's feverishly competitive supermarket industry has taught Wal-Mart a good deal. Asda is now something of a centre for excellence for its global grocery sales. The head of global marketing for Wal-Mart is based at Asda's head office in Leeds. And, in an example of Wal-Mart's global distribution muscle, the Wall Street Journal recently reported that the best-selling wine in the whole of Japan is an own-label Asda Bordeaux.
Britain is Wal-Mart's fourth-largest overseas chain, with 368 Asda outlets, behind Mexico's 1,322 stores, Brazil's 373 sites and Japan's 371 shops. All are dwarfed by the 4,200-strong network of Wal-Marts in the US. Smaller territories include Canada with 313 stores, China at 266 and a newly acquired 238-strong chain in Chile. Russia and India are next in line for focus and Wal-Mart won't be taking half measures – the company only bothers to enter a market if it thinks it can be one of the top few players.
"It's important for us to be in one of the top three positions," says Wan Ling Martello, chief financial officer of Wal-Mart's international operation. "We have to have scale – otherwise it doesn't quite make sense."
That scale gives Wal-Mart muscle – and it is this brawn that, in the eyes of critics, can give it an unpleasantly bullying demeanour. At the very centre of the company's business model is a constant effort to drive down costs to an absolute minimum. Every pound, penny and tenth of a penny per unit of stock turns into millions in a firm of Wal-Mart's size.
"With the scale the company has, the economies of scale it can command, it basically extracts every last nickel out of its suppliers," says Michael Bride, deputy overseas organising director at the United Food & Commercial Workers Union in Washington. "If you're a Chinese supplier and Wal-Mart is pressing you down, you probably can't go and negotiate your electricity rates or your rent down. But you can cut costs when it comes to labour."
An investigation of five factories supplying Wal-Mart by China Labour Watch found "illegal and degrading conditions" according to a report released in November by the New York-based human rights group. At one plant in Dongguan, which supplies candles and Christmas tree lights, it found that workers were required to work 24-hour overtime shifts during busy periods and painted a bleak picture of pay as low as 44 cents (27p) an hour, bathrooms without running water and unsanitary canteens. Although Wal-Mart uses independent auditors to check on ethics at its suppliers, the group found evidence of workers being obliged to sign false pay receipts.
Wal-Mart responded to the report by saying it had begun an immediate inquiry into the factories: "We take reports like this very seriously and we will take prompt remedial action if our investigations confirm any of the findings."
While imbued with an innate conservatism by its founding family, Wal-Mart moved in recent years to introduce higher environmental standards. As of 2007, it says it succeeded in cutting the amount of waste it sent to landfills by 55%. Wal-Mart also wants to be 100% driven by renewable power and recently said that it was purchasing sufficient wind energy in Texas to account for 15% of its electricity in the US.
Under a newly launched "sustainability index," Wal-Mart's suppliers must report to the company on their greenhouse gas emissions, waste reduction initiatives and ethical sourcing. The company is working towards a labelling system to inform customers of the sustainability of each and every product.
Matt Kistler, Wal-Mart's senior vice-president for sustainability, says saving on waste is a no-brainer: "At first it was a little bit of a reaction to the negative pressures as a company we'd been receiving. But very early on, from day two, there was a tremendous appetite not only from an environmental point of view but from a business point of view to do what we're doing."
Yet even these efforts, argue critics, are modest in the context of larger questions over the globalisation of Wal-Mart's business. Wake Up Wal-Mart campaigner, Jill Cashen, says: "It's one thing to bring in a product, ship it from the other side of the planet and stick a label on it telling customers it's sustainable. How much greener would it be if it was produced within 100 miles of where it was sold?"
In North America, Wal-Mart is unashamedly anti-union. When, in a rare case in 2005, workers at a Quebecois Wal-Mart store voted in favour of collective representation, Wal-Mart simply shut it down. The case went to Canada's supreme court, which last month accepted Wal-Mart's explanation that the location was unprofitable.
Overseas, Wal-Mart has proved more flexible – it has worked with unions in Argentina, Brazil and in China, in accordance with local laws. But there are still strong reservations in the public mind about the way Wal-Mart does business.
Back in Arkansas, the Walton family are taking a stab at posterity through the construction of an impressive $50m glass and wood art gallery, Crystal Bridges. Designed by an acclaimed Israeli architect, Moshe Safdie, the 100,000 sq ft (10,000 sq metre) complex is bankrolled by Sam Walton's daughter, Alice, and is intended to put Bentonville on the cultural map with a collection of American art from colonial times to the present.
But even on Wal-Mart's home turf, visitors are far from unanimous in their verdicts on the company. "It's a symbol of free enterprise – the success of the free enterprise system," says John Niccum, a pensioner visiting Sam Walton's original Five and Dime store, now a museum.
But Kay Heaton, an AT&T telecoms employee from Missouri, is dubious: "It's beating the heck out of the little man. It kills the little guy who offers an independent service, from an independent business."
Founding father
Samuel Moore Walton, the founder of Wal-Mart, was born on 29 March 1918 on a farm in Oklahoma. His father moved the family from town to town in the 1920s after quitting farming and becoming a mortgage broker. When the Great Depression hit in the 1930s, Walton took any job that was going to supplement the family income but eventually graduated from the University of Missouri in Columbia with a business degree. Three days after leaving college, in 1940, he joined JC Penney on the retailer's management trainee scheme, where he picked up some of the traits that were to characterise his business life, including his penchant for "managing from the floor". He was paid $75 a month.
When the US entered the Second World War in 1942, Walton joined the army intelligence corps and when fighting ended, he borrowed $20,000 from his father-in-law and used his own savings of $5,000 to buy a store in Newport, Arkansas. He quickly proved his business acumen by snapping up a women's lingerie distributor two years later, when rayon women's underwear was becoming all the rage.
Walton had to sell his Newport store after failing to renew the lease, but he did not let the setback slow him down. He snapped up another in Bentonville and renamed it Walton's Five and Dime. By the end of the Fifties he had more than a dozen stores across Arkansas, Missouri and Kansas. But the first to be branded Wal-Mart – a name created by Walton's assistant Bob Bogle – did not open until July 1962 in Rogers, Arkansas. It was an instant hit but the second, launched two years later, nearly ended in disaster. Opening in a heatwave, the store soon reeked of manure from donkeys been hired for children's rides.
The company officially incorporated as Walmart Stores in 1969 and the following year, Walton raised $5m by taking the company public on the New York Stock Exchange. The chain rapidly expanded in the 1970s and 1980s, opening its 1,000th store in 1987, and Walton lived to see it overtake Sears in 1991 to become the largest retailer in the US. He died in 1992 as the richest man in America, though he still drove a battered pick-up truck and made a habit of getting $5 haircuts.
Richard Wray
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