Branding Crisis at Wal-Mart
business strategists insist that companies have to employ "hardball"
tactics constantly on all fronts to succeed. Some of these strategists
point to Wal-Mart as a company that has achieved great success
by following this strategy.
companies that play hardball often grow market share and revenue
at the expense of poisoning their brands. And a toxic brand can
cause significant damage to a corporation. Is this tradeoff financially
worth it, or does playing hardball at the expense of brand image
eventually cause more harm than good?
article will examine Wal-Mart's strategies and explore what the
company has gained and lost from playing hardball. It will also
address how Wal-Mart has attempted or is attempting to resuscitate
its brand and whether these efforts have paid off or appear likely
to be successful.
Wal-Mart has achieved considerable accomplishments. Wal-Mart is
the #1 retailer in the world, with 6,300 stores worldwide employing
about 1.8 million people. Annual revenue is over $300 billion.
By comparison, annual revenue at archrival Target is over $50
billion. Sales and net income growth at Wal-Mart both are about
9.5%. Approximately 138 million customers shop at Wal-Mart weekly.
has a very strong brand attribute of providing everyday low prices.
Wal-Mart advertises that it saves the average working family about
$2,300 a year. Wal-Mart grocery prices are 15% to 25% lower than
traditional supermarkets. An MIT study found that competing grocery
stores lower prices by 5% when a Wal-Mart store comes to town.
is the largest corporate contributor in the U.S., donating about
$170 million annually to support communities and local organizations.
In addition, Wal-Mart accomplished a large-scale and rapid response
to Hurricane Katrina. The company made an immediate donation of
100 truckloads of merchandise, 100,000 meals, and $20 million
in cash. The company put the government to shame in its ability
to deliver these goods. Even Wal-Mart's bitterest critics praise
this impressive effort.
we stop our examination of Wal-Mart here, one might think, "What
a successful and socially-minded company!"
However, Wal-Mart has a dark side that seriously detracts from
its accomplishments. Listed by its critics as alleged sins include:
the company is aggressively anti-union; fails to pay a living
wage to its full-time workers, who start out at about $10.11 an
hour or $21,000 in annual salary; fails to provide adequate and
affordable health benefits to its workers and their families;
pollutes the environment; violates child labor laws; and drives
mom and pop retailers out of business.
alleged or proven sins include supporting foreign sweatshops and
constantly squeezing suppliers to reduce their product pricing
so that these companies struggle financially or go out of business.
company also has been accused of or has lost lawsuits or paid
fines for exhibiting discrimination against women and Hispanics,
forcing employees to work off the clock, denying workers their
lunch breaks, using cleaning contractors that make heavy use of
illegal aliens, and locking workers in stores at night.
are a few specific facts regarding Wal-Mart's dark side. Wal-Mart
faces the largest gender discrimination lawsuit in U.S. history.
It is the subject of a class action lawsuit involving about 1.6
million current and former female employees.
addition, Wal-Mart's annual turnover of hourly workers is 50%.
Some 46% of Wal-Mart's employees' children are uninsured for health
care or rely on state-subsidized health care programs. Finally,
a 2004 Congressional report found that a typical Wal-Mart store
with 200 workers cost federal taxpayers an estimated $420,000
per year in hidden costs, such as Medicaid, children's health
insurance, free school lunches, and housing assistance.
one were to just read this "dark side" section of the
article, one might think, "What a socially and environmentally
While Wal-Mart's sales have continued to grow, the company has
experienced a number of negative consequences from its bad press
and brand poisoning.
the early 1990s, when an NBC expose revealed that Wal-Mart was
placing signs reading "Made in America" over merchandize
in its stores that was manufactured by foreign sweatshops, its
stock price immediately fell 3%.
in 2003 and continuing to 2006, Democrats have attacked Wal-Mart
for its low wages and poor health benefits. Senators Joe Biden,
John Edwards, and John Kerry have attacked Wal-Mart recently for
crushing the middle class.
Kerry said, "It's unconscionable and it's unacceptable that
five of the ten richest people in America are Wal-Mart stockholders
from the same family-worth double-digit billions, but they can't
find the money to secure health coverage for their own workers
and their families." Senator Hillary Clinton, a former Wal-Mart
board member, returned a recent Wal-Mart campaign contribution.
Some political observers predict that this Democratic attack on
Wal-Mart may continue and reach a climax during the 2008 Presidential
to several accounts, Wal-Mart is struggling to establish stores
in the West and Northeast and in urban areas like Chicago because
these areas are more unionized and particularly concerned about
the company's social policies. Wal-Mart has flourished in the
Republican red states, but the company is virtually blocked out
of expanding into Democratic blue states.
reason Wal-Mart is so blocked in the blue states is that it faces
fierce opposition from coalitions consisting of unions, smaller
retailers, churches, environmentalists, and neighborhood activists.
In a recent SEC filing, Wal-Mart executives identified continued
growth in the U.S. as a critical success factor (or a serious
risk if it fails to happen).
contrast, Target has an image of political correctness that plays
well in the blue states, according to Crain's Chicago Business.
Target opened six stores in Chicago while Wal-Mart fought a three-year
battle for permission to open a single store there.
about Wal-Mart's customers? After all, they're the source of the
company's revenue. In a 2004 McKinsey study for Wal-Mart, the
consulting firm determined that up to 8% of Wal-Mart's customers
had stopped shopping there because of "negative press they
a February 2006 New York Times article, Wal-Mart CEO Lee Scott
acknowledged that bad press "probably" has slowed Wal-Mart's
Wal-Mart's stock has fallen about 11% or over the last five years.
Wal-Mart claims this slump is the result of its customers having
less money and soaring fuel costs, which may be true, but one
wonders how significant a role Wal-Mart's brand poisoning has
or will affect the company's current or future stock price and
financial performance. It seems reasonable to assume that the
sheer volume of Wal-Mart's bad press must have had some adverse
effect on its stock price, either directly or indirectly. For
example, if Wal-Mart loses its ability to expand into the blue
states, this undoubtedly would lower its stock price.
Efforts at Brand Recovery
In 2005, Wal-Mart announced that it had lowered the cost of health
insurance for its workers; however critics pointed out that Wal-Mart
lowered monthly premiums by raising deductible amounts to unaffordable
has pledged that it will reduce energy use, increase fuel efficiency,
and minimize solid waste. Environmentalists commend these goals
but remain critical of the company in terms of the land-use impact
of new stores in rural areas, covering fields or wetlands and
prompting customers to use extra gasoline getting to stores.
introduced a TV advertising campaign in August 2006 with the following
· Saves the average working family $2,300 per year
· Creates tens of thousands of jobs per year
· Offers eligible employees health insurance for only $23
· Moved 150,000 uninsured people onto health insurance
· Is one of largest corporate contributors to local charities
company also has announced a transformation strategy that includes
the following steps:
· Broadening customer appeal
· Enhancing the workplace
· Improving operations and efficiency
· Driving international growth
· Making unique contributions to the community
June 2006, the company also discussed plans to increase diversity
among senior executives, offer more robust employee health plans,
increase disaster relief, and reduce its impact on the environment.
Wal-Mart funds lobby groups such as Working Families for Wal-Mart
that aggressively attack Wal-Mart's critics. Having these "dirty
business" groups at an arm's length from Wal-Mart is one
of the company's smartest moves to protect its brand. This is
a defensive tactic, though, not a reform.
Will the Jury Decide?
Will Wal-Mart achieve these admirable goals and recover or build
a positive brand image? The jury's way out on that one. In a 2005
article in Business New Hampshire, a PR consulting firm president,
Katie Paine, said that Wal-Mart remained too focused on earnings
for too long to the detriment of the firm's public image and civic
responsibilities. She said Wal-Mart's 2005 publicity push was
aggressive but transparent. "The media isn't buying it,"
she said. "It's way too little too late."
entirely plausible that the situation described by Ms. Paine will
continue indefinitely. This would mean that Wal-Mart has poisoned
its brand to the extent that it loses additional customers, its
stock continues to slump, and its ability to expand into blue
states essentially remains blocked.
customer and public perceptions generally are slow to change,
Wal-Mart would have to make major genuine and successful reforms
across a wide range of "dark side" issues and publicize
them widely over an extended period of time before customers,
other consumers, and watchdog groups concede that Wal-Mart is
changing for the better and deserves a brand upgrade.
would be wise to earn the praise of well-respected third-parties
that will have far more credibility than Wal-Mart in publicizing
reforms. For example, if the Sierra Club pronounces Wal-Mart an
environmentally responsible or "green" company, wouldn't
that carry much more weight than a press release from Wal-Mart?
of the social criticism of Wal-Mart stems from perceptions that
it treats its employees poorly regarding wages and benefits. According
to business historians, Sam Walton, the founder of Wal-Mart, was
famous for pinching pennies, which included keeping a careful
eye on payroll expenses. At the same time, however, he continually
rallied the employees by reminding them they were important team
members and created a profit sharing program that backed up his
promised a truck driver that he'd make at least $100,000 in profit
sharing if he stayed with company long-term. The truck driver
accumulated over $700,000 in profit sharing during his tenure
with the company. Wal-Mart critics say the company has forgotten
the "human side" that balanced Walton's "hardball
side"-a balance that was critical to the company's success.
time will demonstrate whether Wal-Mart can profitably recover
is Managing Director at Outward
Insights, a Boston-based competitive intelligence and strategic
planning consulting firm. He runs the company's Silicon Valley
Office. He also is an adjunct professor at Stanford University
and a member of the ZIBS Panel of Experts.