Wal-Mart Tries Its Hand At Spin
NorthJersey.com - April 6, 2005
By Joan Verdon

For 43 years, Wal-Mart executives let their stores do their talking for them, and took the phenomenal sales growth as a sign that American shoppers love the company.

Now, battered by negative headlines they say have hurt their company's stock price, top executives are speaking out loud and clear.

"I'd suggest a better headline is 'Wal-Mart is great for America,'" CEO and Chairman H. Lee Scott told more than 50 journalists Tuesday at a gathering the company billed as its first media information event.

Scott and other top Wal-Mart executives fielded unscreened questions from reporters and discussed initiatives they will take this year to improve the image of the world's biggest retailer.

But just as the discounter has been dogged by criticism over the past year, it was dogged by critics at its own conference. A group of community activists from Inglewood, Calif., staged their own media event at the conference to denounce Wal-Mart for pushing a ballot initiative last year to allow it to circumvent state and local regulations and build a supercenter there. Wal-Mart's initiative was rejected by voters.

And labor activists journeyed to Arkansas to grab the ears of reporters at the conference, a few miles from Wal-Mart's headquarters in Bentonville.

Wal-Mart, which had annual sales last year of more than $285 billion worldwide, has suffered a string of public relations hits the past year. It faces a class action lawsuit accusing it of discriminating against its female workers. In March, it paid an $11 million federal fine for allowing subcontractors to exploit illegal aliens. It's been accused of locking overnight workers in stores, and of firing workers who attempt to unionize.

Those hits have come at a time when communities in labor-friendly urban areas are opposing the company's plans for new stores. And the stock is trading roughly $10 lower than a year ago and at the same levels as in December 2000.

Tom Schoewe, the company's CFO, said Tuesday that "headline risk" has impacted the stock price, along with concerns by Wall Street that same-store growth is slowing and expenses are rising faster than sales.

But Schoewe presented figures showing that the company, which opens an average of 400 to 500 stores a year, saw total revenues in fiscal 2005, which ended Jan. 31, rise $29 billion, or 11.3 percent, from fiscal 2004. Earnings per share rose 18.7 percent in the same period.

Same store sales increased in fiscal 2005 by just 2.9 percent compared to the prior year. That rate is much slower than the company saw in prior years, for instance in 2002 when the rate was 5.9 percent.

Schoewe said the slowing down is due to Wal-Mart's strategy of market saturation. That means that when sales grow rapidly at one store, Wal-Mart will open a second store nearby, which reduces sales growth at the first store, but increases the company's market share.

New Jersey is one of the areas the company has targeted for new stores. The strategy is to open multiple stores within a short distance of a distribution center to realize economies of scale.

Mike Duke, president and CEO of the Stores Division of Wal-Mart, said the company has launched three initiatives this year to boost sales. Wal-Mart, Duke said, will be making its stores "an even better place to work." Also, it will make stores more appealing to female shoppers with better assortments and cleaner stores. And it will become even more aggressive in cutting prices.

And Scott made a statement that could have big impact for North Jersey retailer Toys "R" Us this Christmas. He said he directed his toy buyers to be very aggressive in pricing toys for the 2005 holiday season, after a less-aggressive pricing strategy in 2004.

Wal-Mart executives, however, did not make any promises that they would increase wages or benefits for employees, despite repeated questions from reporters suggesting that a small increase in store prices or a small decrease in company profits could improve the standard of living for the company's 1.5 million U.S. workers.

Scott and other executives said the fact that they receive thousands of applications every time they open a store rebuts arguments that its workers are poorly paid or mistreated. Scott charged that most of the attacks against the company are the work of labor unions representing supermarket employees who are trying to protect the "status quo."

"The union leadership has declared war on Wal-Mart," Scott said.

Scott said Wal-Mart is not going to match wages or benefits at stores that "would like to continue to be rewarded for operating |in ways that are less efficient and less meaningful to their customers, and continuing to pass those inefficiencies off in the form of higher prices."

Wal-Mart's public relations staff said they organized the conference "to get to know" the media and to "put a human face" on the corporation. Public relations chief Mona Williams asked reporters to "try to clear your mind of everything you've heard or read about Wal-Mart" and view the company with "a clear slate."

Public relations experts interviewed before the Wal-Mart media conference began called the event a gamble.

"It's really a high risk game," said Howard Rubenstein, the Manhattan public relations czar who is the first person celebrities call when they tangle with the tabloids. But Wal-Mart could stem the bad publicity tide, he said, "if they have real transparency, acknowledge what they've done that was wrong and announce details on how they'll correct it, and not just try to be totally defensive."

Michael Beckerman, president of Beckerman Public Relations in Bedminster, said the fact that Wal-Mart staged such a "high-risk, high-reward" media event is a sign that the negative headlines are hurting. "If they were doing well in the public's view and in the media, they would never do something like this, with all the risks attached to it," Beckerman said. "They've been taking a beating lately, and that hurts them with a number of their constituencies - vendors, lenders, shareholders and, most of all, their consumers."

Wal-Mart, which continues its media event today, sought to control some risks by barring photographers and broadcast crews from the press conferences. But it couldn't prevent a group of critics from Inglewood from holding a rival press conference in the same hotel.

"California taxpayers can't afford Wal-Mart," said the Rev. Altagracia Perez. "The rest of us in the state of California subsidize the richness of Wal-Mart," she said, adding that Wal-Mart pays its workers so little that many still need to collect food stamps and Medicaid benefits.