January 19, 2007

Wal-Mart's Continuing Paltry Gains

As this quote from the WSJ of January 4th attests, Wal-Mart continues to suffer after a nearly flat holiday season in same-store sales. This is the second year in a row that Wal-Mart did not come close to meeting its holiday targets:
"Wal-Mart notched a gain in same-store sales in December of 1.6%, beating its earlier prediction of a "flat" result to a 1% gain."

...."Wal-Mart in recent months has suffered a spate of same-store sales gains in the low single digits, including a 0.5% gain in October and a 0.1% decline in November. The retailer has blamed the swoon primarily on several short-term factors, including the disruption for shoppers caused by its efforts to remodel hundreds of stores and a fallback from strong sales gains in late 2005 and early 2006 generated
by hurricane-recovery efforts in the South."
Interestingly, every other major retailer showed December gains, as is usual. For example, the same WSJ article concludes with the following:
"Wal-Mart's arch rival, Minneapolis-based Target Corp., on Thursday reported a December same-store gain of 4.1%."
Conspicuously absent from this analysis is the effect that Wal-Mart boycotts are having on the retailer. But in fact, Wal-Mart is highly aware of this impact, which was galvanized in 2005 by evangelical Christian groups joining labor groups hostile to Wal-Mart's relentless dedication to low prices at the costs of its employees' salaries and benefits, as well as its suppliers who must comply with Wal-Mart's price demands or suffer being shut out by the world's largest retailer. A Kantian ethicist might aptly claim that Wal-Mart is using its employees and suppliers merely as a means to the ends of its consumers, i.e., subordinating the interests of the former to those of the latter.

Wal-Mart has thus created an extensive corporate relations campaign in the wake of such boycotts. The Wall Street Journal should at least explore this factor in Wal-Mart's struggles in an effort to provide a complete explanation for its slumping growth. It has a duty to uncover why the world's largest retailer systematically fails to see any same-store sales surge over the holidays, when every other retailer across the board sees gains.

Perhaps then Wal-Mart will begin to realize that corporate social responsibility is not defined near-exclusively by its service to consumers, but by its treatment of stakeholding workers and suppliers as well. Ultimately, ignoring the demands of the current widespread and growing boycotts against it—now joined by prominent political figures—imperils its stockholders' long-term interests.

Wal-Mart has hit a growth-wall also because it's approaching market saturation in the U.S. And when a company becomes dominant in any industry, it naturally becomes a target for ethical reformers, especially when those reformers see the company's actions as especially egregious. A telling example is McDonald's, which was targeted in the past, first for its use of polystyrene and more recently for its mistreatment of animals. Each time, the company took a leadership role in making significant positive changes. And its continuing success is partly responsible for such progressive responses.

If Wal-Mart is to retain its leadership position, it's going to have to learn to change with the times. Its recent prodding of GE to produce more energy-efficient light bulbs to sell in its stores is a refreshing sign, though one that requires little or no sacrifice. But on the labor side, all indications remain that whatever it gives with one hand (better employee health benefits) it immediately takes back with the other (salary caps, alleged age discrimination, and layoffs of workers without adequately flexible schedules). Such double-dealing will convince precious few that the company is serious about being a good corporate citizen. It seems that whenever corporate social responsibility requires a real sacrifice, say, having to raise prices slightly, it can never reconsider its guiding dogma of "Always low prices. Always."

It will be interesting to see if social pressure forces (or inspires) it to finally embrace a more balanced approach to that fundamental mission. Can the low-price-leader make exceptions to its principles? Morally, it would seem that it should.