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Averting the P.R. Fiasco: Retailers Taking Action To Build a Better Image

In the post-Enron era, executives from all areas of business, including retail, are taking steps to ensure that their reputations remain solid.

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BOSTON — The recent public relations woes of Wal-Mart have retailers and executives in other industries scurrying to make sure it doesn’t happen to them.

This story first appeared in the November 26, 2003 issue of WWD.  Subscribe Today.

For anyone who considers corporate reputation as a “fuzzy” or “feel good” discipline with little impact on the bottom line, all they have to do is look at the recent problems at the world’s biggest company — walloped by a scandal involving illegal aliens cleaning its stores, a gender discrimination lawsuit and a spate of media investigations probing whether big equals bad.

So it should come as no surprise that Wal-Mart — which arguably has the most polarized reputation in corporate America today — has put fence-mending near the top of its To Do list, according to industry sources and company statements.

In light of this, mass retailers of all stripes, facing public scrutiny and skepticism on everything from employment policies to expansion plans, are recognizing reputation is a significant asset to be developed and protected.

Their efforts to manage reputation go far beyond traditional p.r. or advertising — and include outside consultants, dedicated staff and ties to the highest levels of the organizations.

“The whole concept of corporate reputation has become radioactive,” said Leslie Gaines-Ross, chief knowledge and research officer for Burston Marsteller, a research consultancy working on several reputation projects, including one for a high-profile food services company. “Everyone cares. Everyone is interested. The new generation of ceo’s is on pins and needles investigating their corporate reputations and their audiences.”

Gary L. Davis, J.C. Penney’s executive vice president and chief human resources officer, also believes retailers are under a microscope. “When one thing comes out about a competitor, people will look across the industry to see if you’re doing something similar,” he observed. “Associates watch their leaders, the media questions everything, investment communities want assurance and vendors depend on you to stand by your word. In these times, we must conduct ourselves in an impeccable fashion.”

Davis chairs Penney’s nine-member business ethics committee, which reports to the board of directors and meets at least quarterly. They peruse regular polls of customers and employees, which Davis calls “our scorecards.” They also review the retailer’s corporate ethics statement several times annually. Each new hire, no matter at what level they join Penney’s, must read and sign that statement.

Prompted by its board of directors two years ago, Wal-Mart began a broad investigation into how core constituencies (associates, analysts, customers and civic groups, among others) viewed Wal-Mart. Those findings indicated jobs and community relations were Achilles’ heels. “Community officials did not see us as being flexible or being good enough listeners,” said senior vice president Jay Allen, who heads Wal-Mart’s reputation task force. The body reports to the compensation committee of Wal-Mart’s board, implying the retailer’s top brass are tying paychecks to the company’s public profile.

According to Allen, the second weak spot was “people who did not respect Wal-Mart did not think much of our jobs. They did not see Wal-Mart jobs as valuable or the company as offering good careers.”

One of the sorest spots has been Wal-Mart’s wages, thought to be among the lowest in the retail industry.

Richard Drogin, a statistician hired by the Impact Fund, which is spearheading the Betty Dukes gender discrimination lawsuit against Wal-Mart, reviewed six years of the retailer’s employment data in connection with that case. He concluded experienced cashiers on average earn between $13,000 and $14,000 annually, on wages ranging from $8 to $10 an hour.

WWD spot-checked entry-level wages for holiday help, discovering a Wal-Mart in Hudson, Mass., was hiring cashiers at $7.75 an hour and a Wal-Mart in Hastings, Neb., was offering them $6.25 an hour.

In response to its detractors who claim these aren’t “living wages,” Wal-Mart assembled two massive education, advertising and public relations campaigns internally dubbed the “Good Jobs” and “Good Works” initiatives.

Both have highly visible national television ad campaigns. In the “Good Jobs” ads, single mother employees talk about company benefits and advancement opportunities, while in the “Good Works” spots, an associate talks about volunteering for community improvement projects, noting, “We live here, too.”

Stores now have a “Good Works” bulletin board at the front, with the words “Giving, Helping, Doing” in bright colors over local thank-you letters from organizations that have received donations from Wal-Mart. The retailer appears to be pumping money into these initiatives, significant in itself because it doesn’t part with pennies lightly.

According to New York-based Competitive Media Reporting, Wal-Mart spent $178 million on TV advertising in the first six months of this year. A “Good Works” ad runs nearly every morning on NBC’s top-rated “Today Show,” at an average cost of $50,000 to $60,000 for 30 seconds, estimated Walter Coyle, senior vice president and media director for ad agency Pedone & Partners.

In addition to buying all the national television airtime, the retailer has a reputation team of about 17 employees at headquarters, the reputation task force and one of the largest networks of community-relations staffers spread across the U.S. Wal-Mart would not comment on the extent of its investment in reputation-building campaigns or the size of its community affairs staff.

This month, Wal-Mart created an office of diversity, charged with developing a pool of qualified women and minority candidates. It tapped one of its top-ranking female executives, Charlyn Jarrells Porter, to run the office and recruited the head of AT&T’s foundation and corporate social responsibility programs, Esther Silver-Parker, to serve under Porter. Although Wal-Mart denies it, some observers believe the move is connected to the Betty Dukes gender discrimination case, which stands to become the largest class-action suit of its kind.

“In our internal training piece, we’re working with the senior management so they can go out and spread the word,” noted Allen. “We want people out in the community who can be reputation warriors for us.”

Addressing reputation at the company’s analysts meeting at its Bentonville, Ark., home office in September, Wal-Mart president and chief executive Lee Scott sounded a determined note, saying Wal-Mart will not waste energy “getting our detractors to love us,” but that it was important to become more skillful at “not creating the ammo that allows people to attack us. They attack us because they want to slow us as a company.”

Scott said he’s driving the message down to the rank-and-file. “The one person who does something bad gets held up as a poster child,” he said. “Rather than be defensive, we need to step up and teach our people the cost of exposure on all 1.4 million of us.”

Acknowledging the “disconnect between who Wal-Mart is as a retailer and who Wal-Mart is as an employer,” Marie van Luling, head of public relations firm Manning, Selvage & Lee’s corporate practice, said Wal-Mart has an opportunity to turn things around and, in so doing, reset the benchmark on corporate responsibility.

“Wal-Mart is seen as a leader in many of the ways it does business,” she said. “If it is successful on the other side of this [gender discrimination] lawsuit, I think it will be perceived as a leader in all aspects of how it does business.”

As Wal-Mart’s case illustrates, the days when a company could bank on a solid reputation by simply being law-abiding and writing an occasional check to charity are gone.

Wal-Mart isn’t the only retailer looking to mobilize reputation as a key corporate asset. Target, as well, seems to be cognizant that every business decision is stronger with a reputation underpinning. The company’s red-and-white Visa card, one of its major revenue sources in recent quarters, is prominently linked to a program donating 1 percent of the cardholder’s spending to a school of choice.

Experts give the retailer kudos for the card initiative, as well as for the simple, focused messages on charitable giving that are at every register and store front.

“Wal-Mart might do just as much good, but Target has certainly been more effective at communicating its contributions to its customers,” noted George Whalin, president of Retail Management Consultants in San Marcos, Calif. “Of the three big discounters, Target has the best reputation, partly because it has done a fabulous job of embracing women’s causes.”

Kmart has yet to take the wraps off a major reputation-restoring initiative, but it has charged its new ad agency, Grey Global Group, with “looking at everything under the sun when it comes to redefining Kmart,” said the retailer’s spokeswoman. “We’re putting every decision through a filter of how it would be seen by our customers and stakeholders.”

Reputation management is inherently tricky, mostly because “reputation” is a fluid asset, composed as much by public perception as by facts. Rochester, N.Y.-based research firm Harris Interactive attempts to quantify reputation by assigning companies a “reputation quotient” derived from public surveys of everything from a company’s financial performance to its level of social responsibility.

The top-ranking company for the past two years, Johnson & Johnson, scored an 82.14 out of 100. Retailers ranked in the 2002 RQ, the latest available, scored fairly well, near or above the 70-point benchmark for positive credibility, according to Joy Marie Sever, director of Harris Interactive’s reputation practice. Target scored a 73. Sears and J.C. Penney scored 70.9 and 69.3, respectively, a difference Sever called statistically insignificant. Kmart trailed sharply, at 53.4.

Wal-Mart, always an unusual case, scored highest of any ranked retailer, with a 75.2. But the retailer also made the list of top 10 “worst companies” for reputation in a poll Harris conducted simultaneously.

Whether or not a retailer was ranked depended on how many independent mentions the company received (either as a “best” or “worst” company) in Harris’ survey of roughly 8,000 households.

Bill Margaritas, senior vice president for worldwide communications at FedEx Corp., considered a role model for its polite couriers and its corporate focus on reliability and community safety, has worked extensively with Harris Interactive on reputation research. He called reputation “an asset that can be harnessed in the marketplace. It’s a tailwind when you’re on offense and a life preserver in a crisis.” Margaritas said the number of requests he receives across a variety of industries to speak on the topic has risen. “It could take up all my time if I let it,” he said. “What people are realizing is reputation is the day-to-day actions that bring the brand to life. It is equity you can tap into, in a crisis situation or when you’re trying to do something new [such as] entering a new market.”

FedEx uses training, newsletters, an internal TV network and its Intranet to “impress upon [employees] that the stronger our reputation is, the more competitive and successful we will be,” said Margaritas.

The push to examine and manage reputation is more than just a post-Enron pendulum swing, said Charles Fombrun, founder and executive director of the Reputation Institute, a New York-based think tank. In his book, “Reputation: Realizing the Value From Corporate Image,” Fombrun argues companies have become “modern icons for our mass society.”

As such, he continued, companies are “increasingly subject to the scrutiny of a demanding audience. More than ever before, they are in the limelight.”

Paul Argenti, professor of corporate communications at Dartmouth’s Tuck School of Business, who worked on reputation initiatives with Kmart in the early Nineties, said “scorecard” programs like Penney’s are now crucial to ensure there’s no gap between executive perception and ground-level reality. “Companies need to measure the effect of the things they do,” he noted. “They need to monitor how the media is reporting on them. They need to do polling with employees to see how leadership is perceived. It’s becoming more critical.”

In Fombrun’s estimation, retailers stumble in their “tendency to focus on brand-building to the neglect of other reputation staples, like employee and community relations. They should take lessons from the pharmaceutical industry, which learned it’s the credibility of the company that makes you trust the drug.”

Indeed, a good reputation accrues all sorts of benefits, from an ability to attract and retain talent to more clout with suppliers. Experts sited Penney’s reputation for having a tight-knit and plain-dealing corporate culture as part of the reason it attracted top-shelf talent Allen Questrom. In turn, Questrom’s reputation has kept investors, media, Wall Street and vendors consistently speaking of Penney’s “turnaround story,” even though quarterly performance has shown misses along with successes.

There’s also a bottom-line return on a good reputation. Studies have shown companies topping Fortune’s “Most Admired” list enjoy price-to-earnings ratios “consistently well above the average returns,” according to van Luling. P/E ratios reflect investor confidence as much as actual performance. In contrast, a poor reputation can expose a company to media cynicism, government scrutiny, lawsuits and even customer boycotts. All these impact the bottom line. Wal-Mart’s miss of its third-quarter earnings — a blue-moon event for the retailer — set some Wall Street analysts wondering whether a spate of negative publicity had impacted results, or would be likely to do so in the future.

UBS analyst Gary Balter wrote in a research note after the retailer missed its third-quarter earnings, “Recent negative publicity is not likely to help what we see as deteriorating appearances at many Wal-Mart stores and may gradually impact the multiple.”

Consumers are “increasingly aware of a company’s activities outside the product they’re selling,” said Fombrun. “In that context, reputation acts like a magnet. It either attracts consumers toward purchasing or repels them.”

No company better illustrates the attract-repel paradox than Wal-Mart. Although the company enjoys a sterling reputation in the business community and with millions of loyal customers, its image as a corporate citizen has become sullied. Power-play battles with communities, organized labor and parts of its own associate populace have created festering wounds.

Babson College professor James Hoopes, who covers Wal-Mart in social history courses, said the world’s biggest company has become “the Standard Oil of our time. It gets heaped with every problem we have in corporate America now. It’s a huge problem.”

By its sheer size and clout, Wal-Mart will always draw negative attention —some of it merited, some sour grapes and some irrational fear.

Speaking at its annual analyst meeting, ceo Scott alluded to the burden of bigness, noting, “We find disadvantages of size come without any work at all, but the advantages of size require a great deal of coordination and work.”

But while Wal-Mart takes the most public lumps, other mass retailers aren’t immune to the same sort of troubles.

“This idea that big is bad — that the more successful you are, the more likely you are to be evil — that strikes at all categories,” said Dartmouth’s Argenti. “Any of the big companies could be tarred with that brush.”

Experts said all mass retailers have reputation vulnerabilities — or competitive opportunities, depending on how they manage it — primarily on two fronts: jobs and expansions.

Big box stores sitting in asphalt puddles have become the popular symbol of a sedentary, generic, traffic-jammed world. Civic groups routinely question the cost of low prices on community quality of life.

News archive searches turn up battles all over the country against Wal-Mart and virtually every other big box retailer, from Ikea (Somerville, Mass., and Brooklyn, N.Y.) to Kohl’s (Stilwell, Kan.) to Target (Bedford, N.H., and Savannah, Ga.), not to mention the legislative fight raging in California about whether the state will allow retail to become “supercenter-sized.”

Grassroots civic groups have become increasingly savvy adversaries of big retail. They share information, experience and strategy, passing along tips on how to gather signatures or how to rewrite zoning laws. A Montgomery, N.Y.-based citizens’ group, for instance, claimed victory in October 2002 when Target Corp. abandoned plans to build a 1.6-million-square-foot distribution center in their town. The group’s Web site, bearing a crossed-out red bull’s eye and the words “Don’t Target Our Village” is still active as a “guide to other groups.”

Daniel Hurwitz, executive vice president of Developers Diversified Realty, which develops and manages open-air shopping centers, said anti-sprawl groups have become “a huge problem” for all concerned.

Speaking at the International Mass Retail Association’s annual conference, he cited a recent project in Colorado where a civic group threatened to withhold key permits if DDR didn’t ban specific retailers from taking space in the new center. He declined to name the tenants, but called the civic group’s practice “patently illegal.” The retailers “ended up pulling out, even though they had invested a considerable amount in zoning research. They didn’t want the risk of litigating and having it take five to 10 years,” Hurwitz said.

It’s likely both Sears and Penney’s, if they press on with the big-box formats they’re now testing, will need a strategy for allaying community concerns.

For its part, Wal-Mart will focus on “sifting through the concerns that are sincere — traffic, location or other issues. Those things deserve answers,” said Allen. “The irrational resistance — the people who don’t want Wal-Mart to be a success and who tell lies and are not interested in real answers — those we will treat entirely differently.”

Jobs are the second major reputation quagmire for mass retailers, particularly since industry turnover of all jobs is 65.4 percent, according to the National Retail Federation. Part-time workers, including seasonal employees, turn over a staggering 105 percent, NRF found.

It’s no wonder then that at IMRA’s convention, top executives from Wal-Mart, Target, Best Buy and Office Depot, among others, repeatedly cited the difficulty of attracting and retaining service-minded workers. In an audience poll that asked executives to choose their greatest business concern, “hiring people” took the top spot, trumping worries about supply chain and inventory control. The problem is entry-level retail jobs have a near-universal reputation of being low-paying, drab and undignified. Wal-Mart’s alleged misdealings with women and illegal aliens add to the whole sector’s struggle to recruit new talent.

Wal-Mart itself has made reducing turnover a key initiative and has been able to push turnover below 50 percent, according to a spokeswoman. She declined to specify what turnover was before the company began working to reduce it.

Yet, according to Babson College’s Hoopes, national retailers can look for creative ways to erase the stigma of entry-level retail jobs. While raising wages isn’t feasible in this highly competitive industry, retailers could use their clout to lobby for social benefits for their workforce, he suggested, pointing out many of Wal-Mart’s workers struggle to keep a roof over their heads.

“They could push government for more affordable housing, which would be a way of showing their workforce they are concerned about their general well-being.”

Large retailers have advancement opportunities and often, an established culture of promoting from within. At Wal-Mart, climbing three or four levels up could land an associate in a six-figure store manager’s job — a fact the retailer is working hard to publicize in communities where it opens new stores, Allen said.

“That’s a good job in those communities,” he noted.

If retailers can distinguish themselves as considerate, fair employers, they may be able to reap considerable advantage, siphoning off the best prospects from competitors and holding down costly turnover. J.C. Penney’s Davis said he’s seen the company’s reputation — based on founder James Cash Penney’s principles of honor, service and confidence — become a real recruiting asset in the post-corporate-scandals era.

“On campuses where we recruited several years ago, the questions would be ‘How fast can I move up?’ Now they’re asking ‘What is your ethical position?’ which didn’t even come up before,” Davis said. “I think it’s a real credit to the young people joining us in entry-level positions. We’re glad we’ve been working on this for a long time and have an answer for them.”

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