By  on June 17, 2008

Talk about a turnaround.

Wal-Mart not too long ago was making headlines almost weekly as critics lambasted the retailer for its pay practices, pollution and rapaciousness. Now it's being held up as one of the retail world's better corporate citizens. Along the way, Wal-Mart Stores Inc. executives — famously insular and focused principally on what founder Sam Walton would have done — have become more outspoken, open to outsiders' views and adaptable.

Thanks to a multimillion-dollar public relations and marketing campaign, aggressive environmental initiatives and price rollbacks billed as the retailer's very own "economic stimulus package," the company is out to recast itself as a champion of the environment and a benevolent big business.

"Wal-Mart never communicated anything it did," said Allen Questrom, former chairman and chief executive officer of J.C. Penney Co. Inc. and a member of Wal-Mart's board. "The company kept it pretty private. It now realizes that, in this day and age, you have to be part of the community. Wal-Mart is one of the few companies that's very open to criticism. [The retailer] looks at criticism as a way of improving its business."

With its sales improving at a time when its competitors are struggling, Wal-Mart leaders displayed a sense of regained confidence at the annual shareholders meeting on June 6. "All the success feels good, doesn't it?" said president and ceo H. Lee Scott Jr. "You bet it does."

Wal-Mart now is being cited for energy efficiency by organizations such as the nonprofit Climate Group, and hailed for its corporate largesse — the retail giant donated $298 million last year.

Macro events beyond its control — Wal-Mart, the nation's largest employer outside the government, is considered an indicator of the country's financial health — include a downturn in the economy, which has worked in the retailer's favor by boosting sales. The image of the self-professed price leader is no longer under siege, at least for the time being. Even Wall Street, which had grown impatient with the immobility of the company's stock, is taking notice. Wal-Mart's net income in the first quarter increased 6.9 percent to $3.02 billion, beating analysts' estimates by 1 cent a share. First-quarter sales were $94.1 billion, up 10.2 percent over last year's $85.4 billion. Wal-Mart's stock has rebounded, from a 52-week low on Sept. 10 of $42.09, to a 52-week high of $59.95 on June 10.The retailer's programs have quieted some of its most fervent critics. January's Sierra magazine carried the headline, "Has Wal-Mart Warmed to Eco-responsibility?" and praised the company for making strides in improving its fuel efficiency by 25 percent, selling concentrated laundry detergent to reduce packaging, and selling 100 million energy-efficient compact fluorescent lightbulbs within a year (the count is now up to 190 million).

Five years ago, Wal-Mart's name in Sierra likely would have appeared in connection with sprawl or air pollution. A July-August 2004 story, "10 Reasons to Stop Wal-Mart," asked, "Is Wal-Mart trying to muscle into your town? Here are 10 arguments to beat it back."

"[Wal-Mart's] fashion image will never be that of a high-fashion retailer," Questrom said. "They could be a Gap-like store with basics at very affordable prices. I called Lee when the Vogue ad ran in fall 2006 and said, 'Even if you like this, what does this mean to your customer? All around it there's nothing that relates to it.'

"They were being intimidated by the recognition Target [Corp.] was getting," Questrom said. "Wal-Mart was driven by people saying it was boring. John Fleming [executive vice president and chief merchandising officer] is able to bring some level of sophistication that they didn't have before. They're trying to take what Wal-Mart does and move it up 10 percent. John is making color more important and basics more fashionable. They've improved the presentation. They've also modified their expectations. They just brought in Op and Norma Kamali. Wal-Mart has such a big market share — products have to appeal to all people. [Kamali] has to recognize the Wal-Mart customer. It's better to get a current customer to buy more than to try to get a new shopper into the store. Wal-Mart wants to continue to improve apparel and home, but it has to be done very gradually."

Op and Hannah Montana have been cited as key initiatives. The company's overarching goal is to be the price leader for basics such as socks and underwear. However, retail experts said owning the basics market won't help Wal-Mart open stores in places such as New York City, where it needs to locate if it is to continue expanding in the U.S. The retailer will have to go slightly upmarket, something it's tried in the past with mixed results. Consumers in this economy are buying groceries and basics. Fewer are "crossing the aisle" to soft goods. Groceries, with its razor-thin margins, will never be a cash cow.While the retailer claims it became a target by sheer virtue of its size, some of its business practices also have kept it in the news. For example, the company had a policy of routinely locking Sam's Club employees in warehouses overnight without supervision to keep thieves out and limit employee theft. One seriously injured worker stayed at a Sam's Club instead of leaving through a fire exit because he was afraid of being fired. Wal-Mart changed its policy to ensure that every overnight shift at every store has a night manager with a key to let workers out in emergencies.

The company also faces the largest class-action sex discrimination lawsuit in the U.S., certified in 2004, on behalf of 1.6 million current and former employees.

At times, Wal-Mart executives have behaved as if they couldn't be bothered with public opinion. "We never judged ourselves by the media coverage because we're the place where nine in 10 Americans shop," said Nick Agarwal, a Wal-Mart spokesman. "We need to keep telling [people] who we are and what we do. It's not about public relations, it's about the hard work that takes place in the store. It's very easy for those who don't regularly shop with us to think that the media coverage means more than it does. We remain one of the favorite places for Americans to shop."

In a subsequent conversation, Agarwal said: "If there are things that we can do better, we change them. We're reflecting the outside in as well as the inside out. Good retailers listen to their customers."

And, while the company has become more willing to listen to opposing views, its critics claim the retailer still has a long way to go. "Wal-Mart has made some progress, but the progress is not what we should expect from the largest company in the world," said David Nassar, executive director of Wal-Mart Watch. "It gave $298 million to charity. Americans aren't looking for a handout. We work hard and expect to be treated fairly by our employer. Wal-Mart needs to reform. It needs to reduce the amount of energy it's using for every dollar it earns. Producing so much in China increases Wal-Mart's carbon footprint. Wal-Mart heard the criticism and is trying to do something to address it. All the changes it's made so far have passed costs onto someone else, whether it's a health care plan that's increasing costs for workers or environmental initiatives that pass costs on to suppliers."While Wal-Mart's environmental program seems impressive, Nassar wonders: "Is it substantive or is it p.r.," deflecting attention from thornier issues such as workers' pay and health benefits? Does it really matter as long as the company is working toward greater sustainability?

"Wal-Mart's [green] initiatives did, indeed, start as a marketing campaign," Nassar said. "A p.r. firm is managing Wal-Mart's sustainability [efforts]." (Adam Werbach, former president of the Sierra Club, took on Wal-Mart as a client of Act Now, the environmental consulting firm he founded in 2005. Werbach since has sold his firm to Saatchi & Saatchi S' global p.r. and green marketing division, where he is ceo and maintains the Wal-Mart account.)

As for the issue of pay, the company's wages and health care plan may not be as generous as some advocacy groups would like, but the retailer is not alone. Wal-Mart and Target pay about the same amount, but as the world's largest retailer with two million employees worldwide, Wal-Mart gets more criticism. On its Web site, Wal-Mart says its average hourly wage for a regular full-time associate in the U.S. is $10.86 an hour. But by using the average, rather than the median rate, the hourly pay skews higher when factored in with the pay of top executives. Still, Wal-Mart's pay scales are competitive with many of its peers, even if those retailers are much smaller than the Bentonville, Ark., behemoth. Bernie Hesse, who heads legislative action and special projects at Local 789 of the United Food and Commercial Workers Union in St. Paul, said both Wal-Mart and Target do intensive wage surveys. "Target and Wal-Mart mirror each other," he said. Unlike Target, which has chosen to fly below the radar, "Wal-Mart will come to the table to discuss issues," said Hesse. "Target is so constricted."

Wal-Mart is increasingly using its size to lower pricing and influence national policy, as it's doing with its $4 generic prescriptions, recently expanded to include $4 over-the-counter medicines. The retailer, which calls the $4 program its latest "health care reform," appears determined to flex its muscles where it feels it's needed.

At the annual meeting, Scott said he'll continue to speak out. "We're in the middle of one of the most exciting presidential campaigns in history," he said. "Regardless of who wins the election in November — and what party they are from — we stand ready to work with the new president and the next Congress. We believe we can be an effective partner...and leaders who want to get things done will seek Wal-Mart as a partner."The retailer has weighed in on issues such as minimum wage and sustainability. Having to publicly defend Wal-Mart policies has given Scott "the courage to be part of the national discourse," said Leslie Gaines-Ross, chief reputation strategist at Weber Shandwick, a New York p.r. firm. "For the company that never spoke, they're in your face today. It is different. Their revenues are up and more shoppers are shopping there. Whatever they've done has gotten them back into some good graces."

But do shoppers care about Wal-Mart's stewardship of the environment and employee pay or do they simply want low prices? "Our most recent survey found that current and prospective Wal-Mart customers are concerned about the company's practices," Nassar said. "Regular shoppers are more likely to say they shopped less at Wal-Mart because of the company's labor and business practices."

"Their reputation hurt their sales," said Gaines-Ross. Research by "Zogby [International, a firm that tracks public opinion]...found it was impacting consumers' buying. The word of mouth about how Wal-Mart treated employees was extremely robust. It turned off people with small household incomes."

Wal-Mart's low-income consumers were also put off by the retailer's foray to more stylish and pricier environs. Ads in Vogue magazine for Metro 7 and the line's skinny jeans, fake fur vests and fur-trimmed capris, didn't sell well in Peoria, Ill. "There's always this push-pull" between Wal-Mart's old guard and those who want to go upmarket, said Hesse.

Nonetheless, Wal-Mart has used its position as a low-price retailer to win new shoppers and generate positive press. The company calls its price rollbacks an "economic stimulus package." When it comes to aiding when disasters such as Hurricane Katrina strike, the company "realizes there's a job to be done," said Questrom. "If the government fails, Wal-Mart steps in because that's its customer base. Business has been able to more effectively do things than government. If Wal-Mart can help the New Orleans market [after Katrina], it's ultimately helping itself" by getting residents back into their homes. They'll need to buy clothing and staples, preferably at Wal-Mart.

"News coverage comes in cycles," concluded Eric Dezenhall, ceo of Washington-based crisis management firm Dezenhall Resources. "You sort of have these attacks and then these resurrections. A few years ago it was so awful, that to some degree there was nowhere else [for Wal-Mart] to go but up. Some of their success can be attributed to their actions and some of it to the cycle shifting, and the fact is, they couldn't go much lower. They've done a good job of pointing to tangible programs, such as environmental issues. It's certainly not helpful to be under constant siege. The objective of a p.r. program or crisis management is to stop the attacks. Where Wal-Mart has been largely effective is in diminishing the steady drumbeat of attacks. Whether this has any impact on sales is anybody's guess. The reason companies undertake certain goodwill efforts is to address shareholder and employee concerns, and the concerns of their critics. It doesn't necessarily correlate that consumers will buy more stuff. A lot of what Wal-Mart is doing is designed to minimize heartache, not improve sales."If some of Wal-Mart's "goodwill efforts" are aimed at employees, as Dezenhall suggests, the company may be speaking to the converted. At the annual meeting, Joss Stone, Jennifer Hudson, David Cook and Tim McGraw sang to an audience made up largely of associates wearing blue or red vests. They cheered wildly every time an executive took the stage and clapped energetically during speeches. Scott presented a montage of positive newspaper clippings on a JumboTron, noting that there were many favorable stories about Wal-Mart in the press this year, but the workforce, taught to distrust the media, didn't cheer.

One story Scott didn't include in the montage of upbeat headlines concerned Deborah Shank, a former employee left permanently brain-damaged after a car accident. Shank received hundreds of thousands of dollars in an accident settlement that her family earmarked for future nursing home care. Wal-Mart sued to recover the money its health plan paid — if a worker collects damages in an injury suit, as Shank did, a company has that right — and won. In March, Keith Olbermann named Wal-Mart "The Worst Person of the Year" on his MSNBC "Countdown" show.

Observers pointed to the Shank case as an example of how far Wal-Mart has come and how quickly it can fall. "It's almost like a bell curve some days," said Hesse. "They'll hit a home run on some days and then they'll trip." Wal-Mart on April 1 issued the statement: "Occasionally, others help us step back and look at a situation in a different way. This is one of those times. We have all been moved by Ms. Shank's extraordinary situation....Wal-Mart will not seek any reimbursement for the money already spent on Ms. Shank's care, and we will work with the family to ensure the remaining amounts in the trust can be used for her ongoing care. We are sorry for any additional stress this has put on the Shank family."

"The pressure on Wal-Mart has been more intense this year than it's been since 2005," Nassar said. "The Shank story got more press than any other story since 2005. We are not backing off."

Shank notwithstanding, Gaines-Ross said Wal-Mart was shocked into changing. "It knew its business and reputation were at risk," she said. "Lee Scott has taken criticism seriously. He faced the critics and worked with them, holding town meetings. Wal-Mart put the right people in place, made quick decisions, took the heat and, in some instances, didn't back down. They have their own side of the story. They don't just let the story be written by the critics."

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