1. Business Strategies and Employment Practices of Wal-Mart and other Mass Retailers

2. Backdrop 1.Economic pressures on employers Globalization of capital markets and production Advances in information technology Changes in financial markets 2.Institutional changes Deregulation of industries Decline in unions Decline in minimum wage Have resulted in:  Reorganization of work and production  On net, deterioration of front-line jobs

3. Retail trade 18% of workforce (23.3 million workers) Low wages, few hours, few benefits, little training Major segments are:  Hard goods: department stores, specialty stores, mass discounters  Food: supermarkets, upscale grocers, mass discounters

4. Upheaval in the industry Strong increase in competition has led to an intense focus on cost-reduction  Industry maturation: “the overstoring of America”  Two new market entrants: “category killers” (Toys-R-US) and mass discounters (Wal-Mart)  Rapid consolidation of the industry – no more mom-and-pop stores  Increased power of shareholders in the stock market

5. The Wal-Mart model Immense coordination problem: Tens of thousands of products Shipped to more than 3,000 stores via 103 distribution centers Stores manned by a million workers serving more than 100 million customers weekly (domestic) The answer: “Just-in-time” linking of: 1. buying products from manufacturers 2. distributing them to the retail stores 3. selling them to customers

6. Three keys to success 1)Technology: Integrated inventory management Barcode at cash register Real time inventory updates Linked back to warehouses and suppliers Automatic replenishment 2)Relationship with suppliers Focus on core set of manufacturers Cut out middle men Relentless pressure for bigger discounts Require help in delivery and stocking products Require integration into Wal-Mart’s IT systems

7. Keys to success, continued…. 3) No investment in front-line workers Starting wages $6-$7 per hour; yearly raises 25 to 30 cents an hour Even department heads start at only $8/$9 an hour Chronic understaffing Full-time is defined as 28 hours/week: allows Wal-Mart to increase the hours without hitting up against the mandatory over-time limit Health benefits: workers must contribute 40% There is no pension plan; stock options plan hollow Virulently anti-union: growing evidence of wage & hour and labor law violations

8. Upshot Wal-Mart emphasizes reengineering process, not the workplace The model is extremely efficient, productive, profitable  Wal-Mart outperforms other retailers on almost every measure of productivity, sales, and profits  Has had profound impact on industry practice, throughout the supplier chain  Now the biggest private employer in the country  Near monopoly status in hard goods

9. How Wal-Mart’s First Mover Advantage Pays Off Wal-Mart is first to locate discount stores in cities with less than 50,000 population. Wal-Mart targets greater than 25 percent of all retail purchases in those cities. In 1987, 33% of Wal-Mart’s stores are in “single store” towns with no direct competitors compared to 12% for the industry. In 1993, W-Mart has 22% of stores without competition from either K-Mart or Target; K-Mart & Target do not compete with W-Mart in only 18% and 15% of markets, respectively. Wal-Mart’s store prices are 6 percent higher in “no competition” markets than in markets with direct competitors (for every 10 percent more stores without competition, W-M makes.06% higher overall profits, or.10 x.06) In 1987, 1.3% of W-Mart’s higher profits [.21x.06] are due to no competition. Wal-Mart incurs lower advertising costs, wages, and rents by locating in small town markets. 1 2 3 4

10. 10 All That Data Is Mined! - Doing it since 1990 Analysis of its 90 million shopping cart transactions per week - To see how the purchases of the different items are related. - Company can then better identify items to market together. Obvious examples: - Charcoal and tongs go alongside the barbecue grills - Tiny baggies next to the pretzel boxes so Mom can pack snacks for the kids A not so obvious example! - Customers who buy Barbie dolls (it sells one every 20 seconds) have a 60% likelihood of buying one of three types of candy bars Source: Forbes, Sep 5, 1997

11. 11 Bentonville, Arkansas, Does Not Come to the World - The World Comes to Bentonville! It Buys the Most Company% of its total sales to Wal-Mart Tandy Brands Accessories39% Clorox23% Revlon20% PJR Tobacco20% Procter & Gamble17% It Sells the Most Products CompanyWal-Mart’s U.S. market share Dog Food36% Disposable diapers32% Photographic film30% Toothpaste26% Pain remedies21% Source: “One Nation Under Wal-Mart; Fortune, Feb. 18, 2003

12. Can quality service help? High quality customer service requires skilled workers (Nordstrom’s, Home Depot) But there is also growing demand for fast, no- frills service and cheap products (McDonald’s, Wal-Mart) These two definitions of “good service” have led to segmentation of industry and job quality – and this is unlikely to change

13. Can new technology help? Technology has had a major impact on industry But effect has primarily been on back-end of retail operation Has not affected the actual work that sales workers do, has not increased demand for skill  Store workers still ring up sales, stock and neaten shelves, and handle lay-aways

14. 14 The Price of Becoming a Behemoth - A Rash of Lawsuits & Negative Publicity Its Giant Stores: Symbols of “Big Retail”  Blamed for the destruction of entire communities  “Eliminates jobs when it moves into a new community”  “Drives down retail wages in that community since Wal- Mart’s low price forces other businesses to lower their prices and hence their wages. Company’s Pursuit of Low Prices  Crushes Kmarts and mom-and-pops alike  Decline in U.S. manufacturing jobs as both Wal-Mart & its Vendors turn to cheaper overseas sources Class Action Suit for Sex-Discrimination  6 women filed a suit in 2001 alleging that Wal-Mart doesn’t fairly pay & promote women  Federal judge ruled in 2004 that the suit could proceed as a class action covering 1.6M current and former female employees