Wal-Mart influence across U.S. grows

By Greg Schneider and Dina ElBoghdady
Washington Post

Wal-Mart, known for selling goods at rock-bottom prices, has forced other retailers to follow suit or fall behind. Advertiser library photo

A Wal-Mart and Sam's Club will open next year in Honolulu. For retailers, competing with Wal-Mart means not just holding down wages, but curbing healthcare costs. Wal-Mart workers typically earn $7-$8 an hour. Advertiser library photo • Sept. 19 2003

But Bukrim, 48, figures he wouldn't have that career option today. Young people who hire on now get minimum wage and no health benefits, then leave after a few months. Bukrim said the future that he saw in grocery work no longer exists.

To Bukrim and other workers — as well as Kroger Co. executives — the juggernaut driving that change is the store's most-feared competitor, Wal-Mart Stores Inc.

"All we've heard is Wal-Mart this and Wal-Mart that," said Kroger cashier Victoria Marano. "They want to be like Wal-Mart so they can compete."

Wal-Mart, the world's biggest retailer and the nation's biggest private employer, has become so powerful that its practices reverberate throughout the U.S. economy. About as many people work for Wal-Mart — 1.3 million — as serve active duty in the U.S. military. Its most recent annual sales — $245 billion — are greater than the gross domestic product of Switzerland. It's no wonder the company has more than 3,000 stores in the United States; on Oct. 29 Wal-Mart opened 39 stores, and it once opened 47 in a day.

Next year, the company will open a 317,000-square-foot Wal-Mart/Sam's Club center on a 10.5-acre site in Honolulu known as the "Ke'eaumoku superblock."

Because it wields enormous buying power, Wal-Mart influences the makers of virtually all household products, dictating everything from pricing to packaging. What's more, Wal-Mart's mania for selling goods at rock-bottom prices has trained consumers to expect deep discounts everywhere they shop, forcing competing retailers to follow suit or fall behind.

Part of the reason the chain is able to offer a microwave oven for under $30 or a 24-can package of Sam's Choice cola for $3.64 or a gas-powered lawn mower for under $150, for instance, is that it contracts with outside janitorial services — some of which have questionable hiring practices — and relies heavily on lower-paid part-time workers, say unions and competitors.

Wal-Mart's vast, nonunionized workforce earns a typical wage of about $7 to $8 an hour. Unionized workers at Kroger, by contrast, said they were making between $11 and $13 an hour, with full health benefits. About 62 percent of Wal-Mart workers are eligible for benefits, but less than half of the workforce participates. Critics say the low participation is because Wal-Mart requires steep employee contributions.

As other retailers follow Wal-Mart's lead, workers without technical training are feeling a tightening squeeze. And untrained people entering today's workforce the way Bukrim did three decades ago have dwindling odds of reaching the middle class.

"These are jobs that have historically yielded a middle-class lifestyle," said Jared Bernstein, an economist with the Economic Policy Institute. "But with a much more lean and mean approach to services, many of those jobs are going by the wayside."

Nowhere is that shift more evident than at supermarkets, such as Kroger, which have seen Wal-Mart rocket to the top of their industry in only 10 years. Bukrim and 70,000 other unionized workers at the Kroger, Safeway and Albertsons chains in several states — including West Virginia, California and Kentucky — are now on strike or locked out in a conflict over wage and benefits changes their employers say are necessary to compete with Wal-Mart.

Some economists argue that the Wal-Martization of the American workforce is simply the free-market system functioning as it should. Gary Stibel, founder and principal of the New England Consulting Group, said Wal-Mart has saved consumers more than $20 billion through its discount pricing. Figuring in Wal-Mart's pressure on other retailers to lower prices, savings top $100 billion, he said.

"In this day and age, the United States needs more companies like Wal-Mart to create jobs, even if not at the highest pay," Stibel said.

Wal-Mart morphed from a single store in Rogers, Ark., in 1962 into a retail powerhouse by mastering the art of low pricing in a way that has transformed its competitors, its suppliers and the industries it now dominates — including groceries, toys and apparel.

Founder Sam Walton pioneered the "supercenter" retail phenomenon. His use of technology such as bar code price scanners and his reinvention of the supply chain, with stores reordering stock only as needed instead of keeping mountains of goods in warehouses, changed the way of business in America.

"Wal-Mart creates its own weather," said John Challenger, chief executive of Challenger, Gray & Christmas Inc., a Chicago outplacement firm that tracks retail jobs. "It sets the standards in many ways for retailers throughout the country."

Kmart Corp., which dwarfed Wal-Mart only 15 years ago, filed for bankruptcy protection in 2002 and eliminated 57,000 positions in part because it tried to compete with Wal-Mart on prices and failed. FAO Inc., the iconic toy seller, filed for protection from its creditors in part because it did not try to compete with Wal-Mart on prices. Both retailers have since emerged from bankruptcy proceedings. And since Wal-Mart began aggressively expanding into groceries in the past decade, some national supermarket chains have gone bankrupt.

It's within the food sector that the nonunionized retailer is most affecting labor relations in this country, said Ira Kalish, a global director at Deloitte Research.

For supermarkets, which operate on razor-thin profit margins, labor is perhaps the highest cost of doing business, said Michael J. Silverstein, a senior vice president at Boston Consulting Group.

"The less you pay (for labor), the lower your prices can be," Silverstein said. "The grocery store is a war zone, and the weak are going down fast — and with them go a lot of jobs."

Wal-Mart's supercenters have labor costs 20 percent to 30 percent lower than those of unionized supermarkets, according to a study from consulting firm Retail Forward. So groceries at Wal-Mart cost about 15 percent less than the competition, the study said.

Retail Forward concluded that for every Wal-Mart Supercenter that opens in the next five years, two supermarkets will close their doors. That means the supermarket industry could lose 2,000 more stores over the next five years, or 400 a year.

Wal-Mart is applying the same heavy pressure on grocery suppliers that it exerts on makers of other consumer goods, leaving them beholden to the retailing giant for a significant part of their revenue. Wal-Mart made up 30 percent or more of U.S. sales for Clorox Co., Gillette Co., Mattel Inc. and Procter & Gamble Co. in fiscal 2002, according to Fitch Ratings.

For retailers, competing with Wal-Mart means not just holding down wages, but curbing healthcare costs.

A report by the AFL-CIO said the retailer insures only about 45 percent of its work force. Wal-Mart workers must pay about one-third of the cost of their healthcare premiums, while employees at other large companies typically pay 16 percent to 25 percent, the report said.

The result is that many Wal-Mart workers transfer the healthcare burden either to their spouse's employer or to government agencies, the report said.

Wal-Mart defends its practices, arguing that its employees have generous access to insurance and that worker contributions to health care — $57 per two-week pay period for a family plan — are in line with the rest of the industry.

As for wages, Wal-Mart's entry-level jobs "are not designed for someone who is the sole support for a family" but for those looking to advance, said Mona Williams, Wal-Mart's chief spokeswoman. About two-thirds of Wal-Mart's managers were once hourly workers for the chain.