Case - Wal-Mart

For exclusive use , 2015
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WAL-MART IN 2005 (A)
Our company does have a soul.

—Donald G. Soderquist, Vice-Chairman, Wal-Mart
at the company’s 1997 annual meeting
Give me a W! Give me an A! Give me an L! Give me a Squiggly! Give me an M!

Give me an A! Give me an R! Give me a T! What’s that spell? Wal-Mart! Who’s
number one? The Customer! Always!
—The Wal-Mart Cheer
(recited daily in 4,500+ stores throughout the world in various languages)
By 2005, 13 years after its legendary founder Sam Walton died, Wal-Mart was the largest
company in the world, a global economic force, and the juggernaut of American retail, having
occupied the number one spot on the Fortune 500 for several years and having surpassed even
ExxonMobil and General Electric in size and numbers. Wal-Mart was the largest private
employer in the United States and the biggest corporation in the world, with more than
1.6 million “associates” (employees). (See Exhibit 1 for 2004 statistics.) Reported sales were
$285.2 billion, with profits of more than $10 billion, and the company’s 2004 revenues
represented “a stunning 2.3% of U.S. gross domestic product.”1 Only two other companies had
ever approached that figure: Marshall Field’s with 2% in the 1880s, and Sears with 1% in the
early 1980s. Domestically, there were 1,321 discount stores, 1,761 Supercenters, 86
Neighborhood Markets, 552 Sam’s Clubs, and 459.2 million square feet of sales space.
Internationally, there were 1,596 stores. Wal-Mart estimated that it served more than 138 million
customers weekly. (See Exhibit 2 for Wal-Mart’s 11-year financial summary.)
1
“Wal-Mart’s Mega-Growth Continues, But is its Image Getting a Bit Tarnished?” Strategic Management
Knowledge@Wharton, 21 April 2004, http://knowledge.wharton.upenn.edu/article/965.cfm (accessed 27 June
2005).
This case was prepared by Research Assistant Jenny Mead under the supervision of R. Edward Freeman, Elis and
Signe Olsson Professor of Business Administration, Darden Graduate School of Business. It was prepared using
public sources and was written as a basis for class discussion rather than to illustrate effective or ineffective
handling of an administrative situation. Copyright  2006 by the University of Virginia Darden School Foundation,
Charlottesville, VA. All rights reserved. To order copies, send an e-mail to sales@dardenpublishing.com. No part of
this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form
or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the
Darden School Foundation.
This document is authorized for use only in MBE554LCOA 2015/1 by FABIO DE BIAZZI, from January 2015 to April 2015.
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In general, the Wal-Mart brand comprised an array of astonishing facts, statistics,

dimensions, and profitability and size indicators. Both U.S. Treasury and Fed officials, for
example, considered Wal-Mart a “bellwether” in checking the country’s economic health. It did
more business than Target, Sears, Kmart, JCPenney, Safeway, and Kroger combined. Its
$285 billion in sales approached Saudi Arabia’s gross domestic product. In 2004, the company’s
sales had accounted for 7.58% of all nonauto retail sales in the United States. Wal-Mart’s
computer system, housed in Bentonville, Arkansas, reportedly held three times more data than
the computers of the United States Internal Revenue Service2 and was second only to the
technology system of the Pentagon—headquarters of the United States Department of Defense
and the nerve center for military and defense command and control. The company’s growth had
been phenomenally quick. In 1970, there were 38 stores in three states; in 1980, 276 stores in 11
states; in 1990, 1,500 stores in 33 states; and in 2000, almost 4,000 stores in the United States
and other countries.
Since its inception, Wal-Mart had racked up 100 straight financial quarters of growth and
profitability, stumbling for the first time only in 1995 with a down quarter. So important was
Wal-Mart’s business to developing countries that “[s]ome send emissaries to the corporate
headquarters in Bentonville, Arkansas, almost as if Wal-Mart were a sovereign nation.”3 And, in
a telling detail, although there were no direct flights from New York City to the Arkansas capitol
of Little Rock, there were two direct flights daily to Bentonville, population 25,000.4 Some
economists and academics even credited Wal-Mart with a global sea change in the economics of
manufacturing and retail, reversing “a 100-year history in which the manufacturer was powerful
and the retailer was sort of the vassal….It turned that around entirely. Now the retailer, the mass
global retailer, that’s the center….the power, and the manufacturer becomes the serf, the vassal,
the underling who has to do the bidding of the retailer.”5
Yet with all its accomplishments and impressive growth, Wal-Mart in 2005 had an
enormous number of stakeholder problems. Its stock price, robust for many years, had stagnated.
(See Exhibit 3 for stock history.) The giant retailer was accused of many things: sending
American jobs overseas, destroying local “Mom and Pop” businesses, encouraging ugly urban
sprawl, paying its workers low wages with mediocre and often unaffordable health benefits,
discriminating against women and minorities, and forcing some employees to work overtime
without pay. Unions had long been vocal about Wal-Mart’s robust anti-union stance, and at the
beginning of 2005, two unions, the AFL-CIO (American Federation of Labor-Congress of
Industrial Organization) and the UFCW (United Food and Commercial Workers), jump-started a
2
Richard Ernsberger, Jr., Stefan Theil, Bianca Toness, Alexandra A. Seno, William Underhill, and Amy L.
Webb, “Wal-Mart World; Can the Arkansas Giant Export Its Price-Cutting Culture Around the World?” Newsweek
International (20 May 2002): 50.
3
Abigail Goldman and Nancy Cleeland, “An Empire Built on Bargains Remakes the Working World,” Los
Angeles Times, 23 November 2003.
4
Paul Harris, “Comment: The Observer Profile: Lee Scott: Market Leader,” the Observer News (Guardian
Newspapers Ltd.), 12 September 2004, 27.
5
For detailed information, see “Shopping for Subsidies: How Wal-Mart Uses Taxpayer Money to Finance Its
Never-Ending Growth,” Good Jobs First, May 2004, www.goodjobsfirst.org/pdf/wmtstudy.pdf (accessed 25
January 2006).
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new and more vigorous unionizing campaign, “Wake-Up Wal-Mart!” Critics also claimed that
both state and local governments had subsidized Wal-Mart to the tune of an estimated $1 billion
for the jobs provided by its distribution centers and stores.6
In addition, there were many lawsuits against the company, including 27 from as many
states accusing Wal-Mart of violating wage-and-hour laws (in the first of those to go to trial,
Wal-Mart had been found guilty of systematically forcing employees to work overtime without
pay). The company had also fired three high-level executives in December 2004 for ethics
violations. “Wal-Martization” had entered the vernacular as a term referring to encroaching “big
box” retailers; in the past decade, a strong anti–Wal-Mart movement had developed. News that a
Wal-Mart was arriving in town was often greeted with a storm of protests and, in several states—
California, New York, and Illinois—the company was forced to abandon new store openings
because of public outcry. In 2004, 13 communities scattered around the country kept
Supercenters from opening. Web sites sprung up to publicize a negative view of the chain,
among them http://www.letsstopwalmart.com and http://www.sprawl-busters.com, and the
nonprofit Wal-Mart Watch, an arm of the Center for Community & Corporate Ethics, issued an
negatively slanted annual report on Wal-Mart that was deliberately similar in appearance to the
retailer’s own annual report, as well as reports with incendiary titles such as “Shameless: How
Wal-Mart Bullies Its Way Into Communities Across America.”
Despite all the issues and criticism, Wal-Mart continued to attract shoppers with its low
prices. Many people publicly and privately admired and respected the company. Fortune
magazine had named it the “Most Admired Company” in 2003 and, although he had died in
1992, Wal-Mart’s famous founder, Sam Walton, was still revered within and outside the
company. A broader view of the company was positive, with some economists claiming that
Wal-Mart’s legendary “tightfistedness” “helped hold down the inflation rate for the entire
country.”7 Research by the McKinsey Global Institute estimated that Wal-Mart’s efficiency
produced 4% of the growth in the U.S. economy’s productivity from 1995 to 1999.
Justified or not, Wal-Mart attracted a variety of reactions to its every move and was, to
many, “an inescapable touchstone for so many of the social, urban, labor, and global issues that
confront 21st-century Americans.”8 Some considered the company “capitalism at its finest,”
while others saw it “as a predator, responsible for low wages, suburban sprawl, and lost jobs.”9
Along the way, Wal-Mart was termed many things, including: a “template for U.S. companies,”
“a substitute town square,” “a death knell for small-town merchants,” “an absolute benchmark
for successful management,” 10 “the Beast of Bentonville,” “champion of the cheap,” “a Goliath
6
Mark Albright, “Wal-Mart Stops Smiling at Critics,” St. Petersburg Times, 6 April 2005, 1-D.
7
Goldman and Cleeland, “An Empire Built on Bargains.”
8
Nelson Lichtenstein, “Wal-Mart: Template for 21st Century Capitalism?” from
http://www.ilcaonline.org/modules.php?op=modload&name=News&file=article&sid=116&mode=thread&order=0
&thold=0 (accessed 25 January 2006).
9
David Faber, “Rare Glimpse into Wal-Mart Empire,” CNBC, November 11, 2004.
http://msnbc.msn.com/id/6454/ (accessed 25 January 2006).
10
“The Wal-Mart Empire: A Simple Formula and Unstoppable Growth,” Strategic Management
Knowledge@Wharton, 9 April 2003, http://knowledge.wharton.upenn.edu (accessed 25 June 2005).
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of previously unimaginable girth,” a “human service station,” an “evil empire,” and “a yardstick
for other Fortune 500 companies.” Wal-Mart was, for some, the “great American contradiction:
No one, it seems, wants one in his or her town, but everyone, it seems, shops at Wal-Mart.”11
Despite the incredible successes of the company from the 1962 opening of its first Wal-
Mart in Rogers, Arkansas, one Fortune reporter summed up Wal-Mart’s predicament in early
2005 in this way: “With characteristic zeal and efficiency, Wal-Mart has marched itself straight
into a management and public relations quagmire.”12
Wal-Mart: The Early Years
Wal-Mart was the brainchild of a man shaped by difficult Depression Era circumstances.
Born in 1918, Sam Walton moved around the Midwest with his family, graduated from the
University of Missouri in 1940, and immediately began a career in retail as a $75-a-week
management trainee for JCPenney. He had originally wanted to attend the University of
Pennsylvania’s Wharton School and become an insurance salesman, but he did not have the
money and, having worked more than three jobs to get through college, did not want to repeat
that experience in graduate school. The “simple truth,” said Sam Walton, was that “I got into
retailing because I was tired and I wanted a real job.”13
After serving as an intelligence officer in World War II, marrying Helen Robson, and
having the first of four children, Walton, enthusiastic about his retail experience at Penney’s,
bought a Ben Franklin store in Newport, Arkansas. He was a quick study in running a retail
business and began experimenting with discount merchandising, a practice that would become a
staple of the Wal-Mart method. Walton’s gregarious personality and superb people skills
contributed to his success, and soon he became a prominent local figure, active in the
Presbyterian church, Rotary Club, and the chamber of commerce.
Unable to renew the lease on the Ben Franklin (the landlord was impressed by the store’s
profitability under Walton’s leadership and wanted to take it over himself), Walton cast about in
Arkansas for another store to acquire. In 1950, he purchased Harrison’s variety store in
Bentonville, a sleepy town of 3,000 close to his wife’s family. He had initially considered larger
towns, but his wife refused to live in a town with a population of more than 10,000. Walton
renamed the store “Walton’s 5 & 10,” expanded it by purchasing the building next door, put in
cash registers at the front of the store for “self-service” (a novel concept in the days when
registers were located throughout stores and clerks would gather items for customers instead of
letting them shop on their own), discounted his merchandise, and immediately became a success.
Realizing that the trend in retail was heavy discounting, Walton segued seriously from “variety”
to “discounting” with the first official “Wal-Mart” in Rogers, Arkansas. From then on, there was
11
Thomas J. Prohaska, “Battling Wal-Mart: Another Dedicated Group in Another Community Takes on a
Retail Giant,” The Buffalo News, 6 July 2004, A-1.
12
Andy Serwer, “Bruised in Bentonville,” Fortune (18 April 2005): 84.
13
Sam Walton and John Huey, Sam Walton: Made In America, (New York: Doubleday, 1992), 17.
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no stopping Sam Walton as he purchased several other stores in Arkansas and small Midwest
towns and lured top management away from other retail businesses. “It turned out that the first
big lesson we learned was that there was much, much more business out there in small-town
America than anybody, including me, had ever dreamed of.”14
In the early days, informality and a carnival atmosphere characterized Wal-Mart store
openings and promotions. David Glass, who succeeded Walton as CEO in 1988, described his
first encounter with Wal-Mart (in Harrison, Arkansas) during its 1962 grand opening:
It was the worst retail store I had ever seen. Sam had brought a couple of trucks of
watermelons in and stacked them on the sidewalk. He had a donkey ride out in the
parking lot. It was about 115 degrees, and the watermelons began to pop, and the
donkeys began to do what donkeys do, and it all mixed together and ran all over
the parking lot….inside the store, the mess just continued, having been tracked in
all over the floor. He was a nice fellow, but I wrote him off. It was just terrible.15
As a young businessman, Walton learned and developed practices that would also
become part of the Wal-Mart business model. He focused on small-town locations; looked for
expansion opportunities; investigated and experimented with new methods of doing business;
and allowed his employees to share in the store’s profits, thus building a strong loyalty among
his workers.16 The Walton and Wal-Mart modus operandi was to observe and copy successes and
grow accordingly. From JCPenney came the idea of employee stock ownership; from Ben
Franklin, self-service; from the Price Club, big purchase discounts; and from French Carrefour
Markets, the Supercenter concept.17 The retailer took its time expanding, avoiding huge leaps
into different states and urban areas but instead moving ahead region by region and, as one
person observed, “expanding like molasses.”18 Wal-Mart would saturate those areas to get
economies of scale, becoming very efficient, and along the way learning from its competitors’
tricks of the trade and from their mistakes. One example: unlike competitors such as Kmart and
Sears, which did not think paying minimum wage was efficient (since turnover rate general was
50% to 75%), Wal-Mart was able to pay only minimum wage without deleterious effects.
Walton never got out of the habit, in his search for good ideas, of snooping around other
businesses no matter where he traveled. His wife and children often joked that family vacations
were spent primarily in stores and shops, where Walton would be on the hunt for a good idea, a
terrific display, or a more efficient method of selling to the public. Some of his early managers
even dove into trash dumpsters at night to find their competitors’ prices on items, which
14
Walton and Huey, 50.
15
16
Sandra S. Vance and Roy V. Scott, Wal-Mart: A History of Sam Walton’s Retail Phenomenon (New York:
Twayne Publishers, 1994).
17
Interview with Nelson Lichtenstein, “Is Wal-Mart Good for America?” Frontline, PBS, 16 November 2004.
http://www.pbs.org/wgbh/pages/frontline/shows/walmart/interviews/ (accessed 28 August 2005)
18
Interview with Nelson Lichtenstein, Frontline, PBS, 16 November 2004.
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prompted Walton later to remark, “I guess we had very little capacity for embarrassment back in
those days.”19
Walton’s philosophy and tactics worked; in the mid-1980s, Wal-Mart was no longer
referred to as “couturier to hillbillies,”20 and Walton landed on the top of the Forbes list of
richest Americans. He seemed unaffected by this recognition or wealth; Walton still drove a
pickup truck, shared hotel rooms with colleagues on business trips, and never flew first class.
(The red pickup truck was eventually enshrined and on display at the company museum in
Bentonville). Even as the profits rolled in over the years, Walton was sanguine about cost-
cutting, writing in his autobiography:
Sometimes I’m asked why today, when Wal-Mart has been so successful, when
we’re a $50 billion–plus company, should we stay so cheap? That’s simple:
because we believe in the value of the dollar. We exist to provide value to our
customers, which means that in addition to quality and service, we have to save
them money. Every time Wal-Mart spends one dollar foolishly, it comes right out
of our customers’ pockets. Every time we save them a dollar, that puts us one
more step ahead of the competition—which is where we always plan to be.21
Long after Walton’s death, that culture of thrift and cut-expenses-to-the-bone philosophy
remained. Even in the early 21st century, Wal-Mart executives, including CEO H. Lee Scott,
whose car of choice was a Volkswagen Beetle, continued to fly coach, often share hotel rooms
with colleagues, and empty their own office trash cans. Company employees bragged how they
reused paper clips, and there were cost incentives for reusing items, such as the boxes shipped
from distribution centers to stores that were emblazoned with the notice “This box cost Wal-Mart
75 cents to make” and guaranteed store credit if returned.
Culture and Philosophy
Sam Walton had three founding principles and beliefs, which he articulated in 1962 as
the Wal-Mart credo:
 Respect for the individual

 Service to our customers
 Strive for excellence
In addition, his marketing strategy and retail philosophy was quite simple: give people the lowest
prices, have friendly employees, and listen to your employees—called “associates” in the Wal-
19
20
Vance and Scott, 57.
21
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Mart culture. (The ubiquitous “greeter” at each store’s front door, for example, was the
suggestion of an associate at a Louisiana Wal-Mart).
At the end of his 1992 biography, Walton outlined his 10 Rules for Building a Business,
often quoted and used in business “how-to” manuals.22
1. Commit to your business. Believe in it more than anybody else.

2. Share your profits with all your associates, and treat them as partners.
3. Motivate your partners.
4. Communicate everything you possibly can to your partners.
5. Appreciate everything your associates do for the business.
6. Celebrate your successes. Find some humor in your failures.
7. Listen to everyone in your company. And figure out ways to get them talking.
8. Exceed your customers’ expectations. If you do, they’ll come back over and over.
9. Control your expenses better than your competition.
10. Swim upstream. Go the other way. Ignore the conventional wisdom.
From the start, Wal-Mart employees were made to feel like an integral part of the
company and “were treated as equals and kept well-informed of company developments, both
good and bad.”23 An example of the company’s approach to equality was the headquarters
parking lot, where no one, including Sam Walton, had a reserved spot. Wal-Mart management
regularly provided employees with specific store sales information and performance statistics;
aggressively promoted an esprit de corps; published a monthly employee magazine, Wal-Mart
World; and held annual picnics in Bentonville for all employees. There was a profit-sharing plan
as well as a stock-purchase plan which enabled some employees, even middle management, to
reach the millionaire level. The company, regarding employees as the “solution” rather than the
“problem” also enlisted them to minimize shrinkage, or items unaccounted for due to theft, poor
record-keeping, or damage—”shrink the shrink,” it was termed—by sharing savings on
shrinkage.
A staple of the Wal-Mart culture, and what kept nascent store operations together in the
1960s and 1970s, were off-the-cuff weekly manager meetings, held wherever Walton and his
managers happened to be. Those informal meetings evolved into the famous Saturday morning
meetings of modern-day Wal-Mart, where the Wal-Mart cheer—”Give me a W! Give me an
A!”—was born after Sam Walton had seen South Korean tennis ball factory workers reciting a
morning cheer in 1975; it fit in beautifully with Walton’s enthusiastic “whistle while you work”
philosophy. (There also was a Sam’s Club cheer, of course, starting with “Give me an S!”.) Early
22
For the expanded versions of these rules, see
http://walmartstores.com/GlobalWMStoresWeb/navigate.do?catg=255&contId=4412 (accessed 27 April 2006).
23
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on, the weekly meetings were decidedly informal and sometimes eccentric, with internal groups
like the “Singing Truck Drivers” or “Jimmy Walker and the Accountants” performing, and
events such as a persimmon seed-spitting contest with the Wal-Mart general counsel as the
designated target.24 That informality and wackiness, said Walton, broke down barriers between
management and staff and consequently encouraged better communication and employee
participation. “If you’re committed to the Wal-Mart partnership and its core values,” wrote
Walton, “the culture encourages you to think up all sorts of ideas that break the mold and fight
monotony.”25
In addition to the cheer, certain practices were endemic in all the stores. There was the
“10-Foot Attitude,” which required employees greet every customer who comes within 10 feet of
them and ask how they might be helped. “The Sundown Rule,” which required that any
employee or customer request, whether from that store or another miles or states away, must be
addressed before sundown. “Exceed Customers’ Expectations” was what Sam Walton had called
“aggressive hospitality,” which simply meant going above and beyond what was normally called
for as a salesperson. The Wal-Mart Web site described some notable feats, including employees’
carrying groceries to the car to saving a customer’s life by CPR, jumping in front of a car to save
a child’s life, and throwing a plate on the floor to assure a customer that it was unbreakable.26
There was the cheer; and, of course, “Every Day Low Prices,” reminding customers that they did
not have to wait for sales, given Wal-Mart’s claim that its prices were the lowest around.
Customer satisfaction was, to Sam Walton, a key goal. To that end, Wal-Mart in the early days
had a money-back guarantee with no questions asked, weekly customer surveys, and the oft-
repeated belief that the “customer was always right.”
Always Low Prices
Aside from his passion for retailing and his desire to reach the untapped rural consumer
market that many urban area-focused retailers had ignored, Walton was concerned about
customers who truly needed, not just wanted, the deep discounts. Over the years, that low-
income segment of the population became the base of the company’s business, even while Wal-
Mart attracted its share of upper-income shoppers. According to a 2003 study, only 6% of Wal-
Mart customers had annual incomes of more than $100,000 (that percentage increased
significantly during the 2001 recession); 23% of customers had annual incomes of $25,000 or
less; more than 20% had no bank account; and 20% were unemployed.27
To serve those individuals and to achieve success in the world of discount retailers,
Walton continually sought ways to minimize costs. Almost by accident and because of
Bentonville’s isolated location, Walton discovered the greater profitability of buying directly
from manufacturers and cutting out the middleman. David Glass said:
24
25
26
http://www.wal-martchina.com/english/walmart/rule/exceeding.htm (accessed 25/01/06).
27
Lisa Featherstone, Selling Women Short (New York: Basic Books, 2004): 218.
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Discount chains like Kmart and Korvette bought from wholesalers, and that was a
big benefit [to the merchant]. The wholesaler came in, wrote the order for you,
and when the merchandise arrived, he’d come in and put it on the shelves for
you….We never considered that here because there were no wholesalers available
for us. So from the beginning we had to be self-sufficient. I wish that had been a
conscious decision because it would have been brilliant.28
Other decisions—to saturate markets slowly and to avoid big cities—helped Wal-Mart keep
advertising costs down and to avoid steep real estate prices as well as the hassles of zoning and
regulations.
Walton quickly learned and used the various tactics that that made discount selling a
success. He bought and sold in bulk and adhered to the essence of discounting: “cutting your
price, you can boost your sales to a point where you earn far more at the cheaper retail price than
you would have by selling the item at the higher price. In retailer language, you can lower your
markup but earn more because of the increased volume.”29 The retailer’s prices were on average
20% lower than other stores. Wal-Mart used the promotional tactic of “loss leaders,” luring
customers to the store with exceptionally low (usually below-cost) prices on a few items. The
company spent little on advertising, relying instead on market saturation for customer awareness
and consistently low prices to keep customers returning. Wal-Mart issued sales circulars monthly
rather than weekly, as most retailers did, to keep advertising costs down.
In addition to stressing high volume over profit margins—”Stack ‘em high and watch
‘em fly,” exhorted Walton—many other strategies factored into keeping prices down. The
company pressured manufacturers to cut prices to the bone, kept salaries low and unions out,
scoured the globe for the cheapest prices, jumped into technology before most other companies,
showcased one super-low price in every category of merchandise, and created and maintained an
effective and highly efficient distribution system. Wal-Mart had a “Plus One” mandate, in which
its buyers were instructed to either lower the cost or raise the quality for each item they
handled.30 The company’s overall strategy was to cut back on brands, styles, and colors of
clothing in order to consolidate its purchases of clothing materials.
Wal-Mart also worked closely with suppliers, “integrating their data with its own to
monitor what items are selling.” Consequently, Wal-Mart kept its inventory costs down and gave
suppliers the chance to adjust manufacturing of various items according to what was selling. One
retail group estimated that 69% of Wal-Mart’s merchandise was already sold before it had to pay
suppliers.31 The company had not just automated; it had restructured and re-engineered its entire
operation to utilize new information technology most efficiently. It also did not use price
28
Hank Gilman, “The Most Underrated CEO Ever,” Fortune (5 April 2004): 242.
29
30
Nancy Cleeland, “Scouring the Globe to Give Shoppers an $8.93 Polo Shirt,” Los Angeles Times, 24
November, 2003, 1.
31
Knowledge@Wharton, 9 April 2003, http://knowledge.wharton.upenn.edu (accessed 24 June 2005).
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discrimination—upping the cost of high-demand items—because, although that was tantamount

to “leaving money on the table,” Wal-Mart maintained its focus on cutting costs and upholding
its long-term price perception.32 In general, because of Walton’s “zeal for cost cutting, economy
of operation was almost a fetish.”33
The supplier relationship
By 2005, Wal-Mart had a network of 10,000 suppliers under constant pressure to lower
their prices. One consultant observed, “Wal-Mart uses its huge size to clobber its suppliers into
providing lower prices,”34 but not everyone agreed or resorted to such hyperbole. According to
one retail professional, the Wal-Mart buyers were “very creative, very innovative, and they want
to be on the cutting edge of every kind of merchandise….They are gentlemen. Their word is their
bond, but they do set the terms on their turf.”35 Even huge operations such as Walt Disney and
Procter & Gamble maintained a somewhat acquiescent attitude toward the retailer and, like many
smaller suppliers, often went hat-in-hand to Bentonville. Some gave in to Wal-Mart’s demand
for the lowest price; others went as low as possible and then, rather than simply making a small
profit, gave up on wooing the retailer. Living up to Wal-Mart’s expectations and meeting its
demands sometimes left companies no choice, if they wanted to do business with the retailer, but
to open factories overseas. One fan manufacturer, for example, prodded by Wal-Mart to lower its
prices even more, couldn’t resist the hourly wage in a Shenzhen, China, factory—25 cents—as
compared with $13 in Chicago.36 Carolina Mills, a 75-year-old textile producer whose customers
sold clothing to Wal-Mart, attributed its downsizing (17 factories to seven; 2,600 employees to
1,200, all between 2000 and 2003) to the cheaper imports from overseas that Wal-Mart now sold.
Those customers, said Carolina Mills CEO Steve Dobbins, “could not compete even if they paid
their workers nothing.”37
Many suppliers praised Wal-Mart’s honesty and integrity in its dealings and its fast
payment of bills, two elements often missing, they said, in the interaction with their competitors.
The company’s tough-as-nails approach often induced its suppliers to become more lean and
efficient, and consequently improve their own businesses and sometimes “turn themselves into
shadow versions of Wal-Mart itself.”38 The retailer freely shared sales information with its
vendors and, unlike other companies, did not charge “slotting fees,” or surcharges to ensure best
placement of a product. Nonetheless, there were many stories of vendors caught in difficult price
squeezes, often forced to earn a mere penny or two profit on its Wal-Mart sales. The retailer
insisted on close scrutiny of its suppliers’ books and did not hesitate to claim their margins were
too high and must be reduced. Wal-Mart issued annual “strategic business planning packets” as
32
“The Wal-Mart Empire: A Simple Formula…”
33
34
Economist Intelligence Unit Executive Briefing, “USA Retail: How Big Can Wal-Mart Grow?” no. 310, (16
April 2004): 16
35
Michael E. Kanell, “Welcome to Wal-Mart’s World,” Atlanta Journal-Constitution, 20 February 2005, 1-F.
36
Goldman and Cleeland, “An Empire Built on Bargains.”
37
Charles Fishman, “The Wal-Mart You Don’t Know,” Fastcompany 77 (December 2003): 68.
38
Fishman, 68.
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well as regular “report cards” to vendors.39 While many suppliers claimed that practice was
intrusive and had damaging consequences for their business, Wal-Mart put another spin on this
practice, claiming that it constantly sought “to establish collaborative and mutually beneficial
relationships” with its suppliers.40
As difficult as Wal-Mart might have been on its suppliers, the conventional wisdom in
the retail industry was that “the only thing worse than doing business with Wal-Mart is not doing
business with Wal-Mart.”41
Technology triumphs
Although Sam Walton considered “damn computer” one word,42 he gave the nod to
David Glass to develop and use computer technology early and comprehensively. That go-ahead
created one of the greatest strengths that propelled Wal-Mart to the top, both domestically and
internationally. From the company’s “Dark Ages, when they had the old banger registers where
you had to punch in the numbers,” Glass quickly moved Wal-Mart into a Retail Link system in
the 1980s, with scanning and bar codes, the latter a highly sophisticated method of tracking
merchandise from production to the shelves. Using the most sophisticated bar code technology,
Wal-Mart could “track sales on specific items, specific weeks, specific days, specific hours of
the day.”43 That technology not only provided a vast amount of information, such as what
product was selling best and when, but it was a long way from the “ship-and-bill” days, when
orders were received approximately two weeks after being placed. Now, orders automatically
went through the point-of-sale system, and a product could be on the shelves a day later. By
2005, Wal-Mart was experimenting with radio frequency identification (RFID), a silicon chip
that contained much more information than did a barcode, and provided instant and even more
extensive information on how products were selling.
Wal-Mart’s Retail Link system let suppliers access information about how their products
were selling, thus helping them determine sales patterns, seasonal trends, effectiveness of
promotions and advertising, and the success of new products. In general, the system helped Wal-
Mart’s vendors manage their inventories and supply chains much more effectively. Most
retailers, realizing the value of that information, would closely guard it, perhaps even view it as a
profit center and sell it to their vendors. Wal-Mart gave it away for free and expected its
suppliers to use the information to become more effective and to pass the savings on to the
retailer. “Wal-Mart officials frequently sit down with their suppliers and examine Retail Link
data, along with a breakdown known as a ‘vendor score card’ that examines everything from the
39
Interview with Sam Hornblower, “Is Wal-Mart Good for America?” Frontline, PBS, 16 November 2004.
http://www.pbs.org/wgbh/pages/frontline/shows/walmart/interviews/. (accessed 30 August 2005).
40
Fishman, 68.
41
Interview with Brink Lindsey, “Is Wal-Mart Good for America?” Frontline, PBS, 16 November 2004.
http://www.pbs.org/wgbh/pages/frontline/shows/walmart/interviews/. (accessed 12 June 2005).
42
Eryn Brown, “America’s Most Admired Companies,” Fortune 139 (1 March 1999).
43
Interview with Jon Lehman, “Is Wal-Mart Good for America?” Frontline, PBS, 16 November
2004.,http://www.pbs.org/wgbh/pages/frontline/shows/walmart/interviews/. (accessed 29 August 2005).
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company’s stocking levels to its on-time delivery performance.”44 Those meetings took place in
“Vendor Alley,” a section of the Bentonville headquarters that contained 50 or more glass-walled
meeting rooms.
Capabilities-Based Competition
Wal-Mart’s roaring success could be attributed to several different elements, but what
distinguished the retailer, according to some academic analysts, was “a set of strategic business
decisions that transformed the company into a capabilities-based competitor.”45 As the economy
changed from “static” to “dynamic” in the 1980s, particularly with globalization and ever-
changing market trends and customer needs, a company’s approach to competition had to change
to ensure success. Wal-Mart managed that change well, by continually redefining and refining its
business processes, transforming those processes into strategic capabilities, investing in crucial
support infrastructure, and having a CEO who championed these capabilities. Wal-Mart’s goals,
including customer satisfaction and the consistent and reliable availability of goods and products
throughout its stores, were possible only with the retailer’s approach to inventory replenishment
and distribution. Logistically, the key to successful and reliable distribution was Wal-Mart’s
many distribution centers and its practice of “cross-docking,” shunned by many retailers because
of its logistics complexity, in which products were constantly delivered to its warehouses and
immediately prepared for delivery. Wal-Mart could purchase full truckloads of goods, which
gave it high-volume discounts and saved on inventory and handling fees. The majority of
inventory—85%—passed through the warehouses, a much higher volume than most of its
competitors (Kmart’s, for example, was 50%). The result for Wal-Mart was a 2% to 3%
reduction in the cost of sales, making consistently low prices possible and eliminating the need
for promotions. Stable prices ensured predictable sales, thus ensuring consistent inventory and
giving Wal-Mart greater sales per square foot.
The successful “cross-docking” was only possible through Wal-Mart’s implementation of

thorough and interlocking support systems. The company maintained its own fleet of trucks—
approximately 8,000 in 2005—unlike many other retailers, which were at the mercy of external
trucking companies. On average, distribution centers dispatched and received 200 to 250
deliveries daily, and the busiest Wal-Marts and Supercenters often had four or five truck
deliveries a day. The average distance of deliveries from distribution centers to stores was 130
miles, and in general, Wal-Mart shipped 2.5 billion boxes of goods annually.46 With a dedicated
delivery system, Wal-Mart could replenish stores quickly, sometimes the very same day,
whereas the industry average was weekly. From the start, communications between stores,
distribution centers, headquarters, and vendors was state-of-the-art, with a massive private
satellite communication center, the largest in the world, which provided constant contact
throughout the day. A video link connected headquarters with all the stores, and managers held
44
Kristi Arellano, “Stuck in a Shadow of Opportunity,” The Denver Post, 10 April 2005, K-01.
45
George Stalk, Philip Evans, and Lawrence E. Shulman, “Competing on Capabilities: The New Rules of
Corporate Strategy,” Harvard Business Review (March-April 1992): 58.
46
Dan Scheraga, “Wal-Mart’s Muscle,” Chain Store Age (1 June 2005).
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regular videoconferences to exchange information about sales and promotional successes. This
cooperation among stores, suppliers, and management slowed the retailer’s senior management
“not to tell individual store managers what to do but to create an environment where they can
learn from the market—and each other.”47
The genius of Wal-Mart’s high tech communication system, which communicated to its
distribution centers exactly when a customer would so much as pull a tube of toothpaste off the
shelf, was that it “has exactly the right products on the shelves from exactly the right suppliers at
exactly the right time to give consumers the best deal for what they want.”48
International Expansion
By 2005, Wal-Mart had opened 1,596 stores in foreign countries, with 200 alone opened
in 2004. The 1990s had been a decade of global expansion for the retail giant with its first foray
into international territory via Mexico. By 2001, its international business, $35.5 billion,
represented less than 20% of its $218 billion business. Still, Wal-Mart International as a stand-
alone business would have ranked 42nd on the Fortune 500, ahead of such stalwart retailers as
JCPenney and Costco.49 The going had not been easy; Wal-Mart International did not show a
profit until 1997, six years after starting global expansion. As of May 2005, the breakdown of
stores in the international community, including the dates of Wal-Mart entry in each country or
territory, was as follows:
Argentina (1995): 11 Brazil (1995): 151 *Canada (1994): 261

China (1996): 45 *Germany (1998): 89** *United Kingdom (1999): 286
Mexico (1991): 683 Puerto Rico (1992): 54 *South Korea (1998): 16
* Entered these countries through acquisitions
** Down from 95 in 2003 (Of all its international stores, Wal-Mart was least successful in Germany.)
Wal-Mart had also entered Japan in March 2002, but by acquiring a 37.8% interest in
Seiyu, Ltd., a Japanese retailer with 400-plus stores throughout the country. Three years later,
Wal-Mart and Seiyu had still been unable to overcome their top three competitors and the
partnership remained in the red. As Wal-Mart tried to infuse Seiyu with its lean and efficient
operations, rival retailers had taken a cue from the American arrival and increased efficiency in
their own stores, often deliberately building shiny new facilities close to Seiyu’s older buildings.
Hampering Wal-Mart’s efforts to simplify the supply system and lower prices was Japan’s
complicated and multilayered distribution system, necessary for the wide range of products that
the decidedly finicky Japanese consumer demanded. The most telling sign, perhaps, was that
while most businessmen in Japan were familiar with Wal-Mart, most “housewives” were not.
Nonetheless, some analysts believed that Seiyu would start showing a profit in 2007.50
47
Stalk, Evans, and Shulman, 59.
48
Interview with Brink Lindsey, Frontline, PBS, 16 November 2004.
49
“Global Reach Gets Broader Every Day,” Chain Store Age 78 (1 August 2002): 66.
50
Mariko Sanchanta, “Wal-Mart Still Suffering Growing Pains in Japan,” Financial Times, 19 September 2005,
26.
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Going Global
Wal-Mart’s global expansion involved moving ahead country by country, and learning
from its experiences in each market. It chose to start with the markets of Mexico, Latin America,
and Asia, rather than Europe, where well-entrenched retailers presented enormous competition.
To prepare and integrate foreign management and personnel for the Wal-Mart experience, the
retailer sent a transition team to each country to define the company’s practices and train the
staff. Many of the foreign employees were sent to the Walton Institute, where they learned about
Sam Walton’s best practices and Three Basic Beliefs, the 10-Foot Attitude, and the Sundown
Rule. Many came to the United States and Bentonville to experience the original Wal-Mart
culture and operations firsthand.
To establish a foreign presence, Wal-Mart relied on three basic approaches.51 The first
was to acquire an entrenched, dominant player, as it did in Germany by acquiring the Wertkauf
hypermarket chain. Second was acquiring a weaker player, as the company did in Canada when
it bought the suffering Woolco chain. The third method was to build its own stores and go head-
to-head with existing competition, as it did with the powerful Carrefour in Brazil.
As evident by its number of foreign stores in 2005, Wal-Mart had a successful expansion,
although not without stumbles. Aggressive competitors, contentious unions, inefficient
distribution systems, strict regulations, and cultural differences were the primary obstacles. In
Germany, for example, the public did not like the ubiquitous “greeters” and found the solicitous
employees intrusive and distasteful. Japanese consumers—with a reputation for fastidiousness in
product quality—initially rejected what they considered the inferior quality of Wal-Mart
products. Even in Canada, considered an easy expansion (and where the stores were actually
more profitable than U.S. operations),52 Wal-Mart made its share of gaffes and tactical errors
such as distributing English-only flyers in the province of Québec where, by law, both the
English and French languages must be used.
South American countries were in some ways the most vexing for Bentonville. Brazil’s
haphazard supply chain, where overwhelming traffic and congestion often prevented supply
trucks from reaching stores, was a constant headache for the meticulous Wal-Mart. Distributor
theft and the sheer volume of suppliers (for example, deliveries at Wal-Mart stores in the United
States averaged seven daily while in Brazil there could be 300 daily) were also troublesome for
the retailer.53 Wal-Mart’s stock-handling equipment didn’t work with the standardized local
pallet designs, and its computerized bookkeeping system did not fit the Brazilian system.
Cultural, technical, and financial problems assailed the company in Argentina.

Argentineans seemed to prefer the opposite of whatever Wal-Mart stocked (rib strips and tail
51
Vijay Govindarajan and Anil K. Gupta, “Taking Wal-Mart Global: Lessons from Retailing’s Giant,” Strategy
& Business 17 (1999): 22, 24, 25.
52
“Wal-Mart in 2002,” Harvard Business School Case (9-702-466), 3.
53
Jonathan Friedland and Louise Lee, “Foreign Aisles: The Wal-Mart Way Sometimes Gets Lost in Translation
Overseas,” Wall Street Journal, 8 October 1997, A-1.
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rumps instead of T-bone steaks; softer, more pastel cosmetics instead of bright-colored rouge and
lipstick; showy emeralds, sapphires, and diamonds instead of the more subdued gold and
silver).54 The first Wal-Mart stores in Argentina carried 110-volt tools and appliances when the
Argentine standard was 220 volts. But the most staggering problem was the Argentinean
economic crash of 2001.
By the time it reached China, Wal-Mart had learned a lesson about stocking what the
locals wanted. The retailer, replicating the xiaomaibu55 neighborhood markets and shops of
China, catered to customers’ tastes with traditional items such as dim sum, barbecued pigeons,
turtle blood, live frogs, fried rice-flour buns, pickled lettuce, chicken feet, and pork sausages in
the food sections. Wal-Mart also adapted to the Chinese concept that “fresh” meant “live,” with
tanks containing live fish, snakes, and frogs. The Chinese customer was smitten with “tian tian
ping jia”—or “everyday low prices”—and Chinese associates in general seemed happy with the
Wal-Mart culture. Managers often staged ping-pong tournaments for the employees, and the
Shenzhen store introduced its own song: “My heart is filled with pride…I long to tell you how
deep my love for Wal-Mart is…,”56 the Chinese equivalent of the “Give me a W! Give me a…!”
In Korea, Wal-Mart recognized the tight family structure in the culture and built Supercenters
with indoor playgrounds, nursery facilities, and family bathrooms for customers with infants.
Wal-Mart planned to open 10 to 15 Supercenters in China in 2005, including its first in Beijing.
The easiest markets to penetrate were Mexico, where customers were familiar with the
Wal-Mart style from years of crossing the border to shop, and the United Kingdom, where the
culture was similar to America. In addition, British management, like its Bentonville counterpart,
understood and emphasized low prices, customer service, and motivation of its “colleagues.”
Nonetheless, despite the logistics and cultural glitches that Wal-Mart encountered in its global
expansion, the retailer persevered and by December 2004, its international expansion had
become a marked success and was “positioned to become the next big driver of growth,” with
some analysts predicting it would one day overshadow the U.S. operations.57
Stakeholder Issues
Although Wal-Mart achieved phenomenal growth in its early years and hit the $1 billion
sales mark in 1979, the company was—like its press-shy founder—low-key and averse to the
limelight. That was not a problem when Wal-Mart was small, or even during its initial growth
period, but everything changed in 1985 when Fortune named Sam Walton the richest man in
America. At that point, both Wall Street and the American media did an about-face, shifting their
attention to the man from Arkansas. Walton complained about his distorted new public image in
54
Clifford Krauss, “French Give Wal-Mart a Sales Lesson: U.S. Retailer Finds Argentina Adventure to Be a Bit
Unsettling,” San Diego Union-Tribune, 16 January 2000, I-2.
55
In Chinese, xiaomaibu (小卖部) means convenience store.
56
Bill Saporito, “Can Wal-Mart Get Any Bigger?” Time 161, no. 2, (13 January 2003): 38–43.
57
Mike Troy, “International Expansion Equals Opportunity for Suppliers,” DSN Retailing Today 43 no. 23 (13
December 2004): S-20
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his autobiography, Sam Walton: Made in America: “The media usually portrayed me as a really
cheap, eccentric recluse, sort of a hillbilly who more or less slept with his dogs in spite of having
billions of dollars stashed away in a cave.”58 Nonetheless, Walton remained a favorite with the
media, particularly when—after losing a bet to one of his executives—he danced the hula on
Wall Street. Other publicity stunts followed—when David Glass lost a bet to Walton, he had to
ride a donkey around a Wal-Mart parking lot, in a perverse homage to his first glimpse of Walton
and his reaction to the store opening’s donkey rides and watermelons—as did many accolades
for Walton. He received Financial World’s CEO of the Decade Award in 1989 and the
Presidential Medal of Freedom in 1992, only months before his death.
Wal-Mart’s struggles with bad public relations began in earnest in 1992, after Sam
Walton’s death, when CEO David Glass was interviewed by NBC’s Dateline, which accused
Wal-Mart of selling foreign goods under the “Made in the U.S.” label. Dateline focused on the
Bangladesh factories, which employed children and produced many items sold at Wal-Mart.
Caught off-guard but professing ignorance, Glass stumbled badly through the interview, as he
did in a second Dateline interview, two weeks later, which Wal-Mart had specifically requested
to clear its name. Wal-Mart’s investigation of the Bangladesh factory after the first Dateline
debacle had been cursory and superficial, and the Dateline interviewer was able, once again, to
portray both Glass and Wal-Mart as callous. Wal-Mart apparently had ambushed itself by not
paying attention; one year earlier, activists had protested the use of Bangladesh factories,
particularly after a brutal fire that killed 25 children. Perhaps accustomed only to good—or even
minimal—press, Wal-Mart took no action back then to prevent future bad publicity. At that point
“the public’s perception of the company” changed, and “Wal-Mart went from being the plucky
underdog to becoming the neighborhood bully.”59
Interviewed by Fortune years later in 2004, Glass ruefully remembered both the
interview and Wal-Mart’s subsequent legal and publicity problems, although he said that the
Dateline interview had been edited to appear worse than it actually was. Though it was inevitable
that a Wal-Mart store somewhere would make a mistake (not allowing an employee to take a
lunch hour or passing over a woman for promotion), Glass said that those were not deliberate
trends or as widespread as claimed. “I think we’ve begun to realize now that it comes with the
territory,” he said. “There’s no way you’re ever going to get it right all the time. If your
intentions are to do it all right, all the time, then you can live with it. But then you get to the
point where you start having to defend yourself and push back on some of the stuff—the things
that are absolutely not true.”60
Indeed, as many noted, Wal-Mart was so big, with 1.6 million employees, that remaining
publicly problem-free was not an option; there were bound to be many “bad apples” in that huge
barrel. But it was primarily Wal-Mart’s reaction to its negative press that disturbed many
observers. While there were outside forces such as unions wreaking havoc with the retailer’s
58
Walton and Huey, 3.
59
Gilman.
60
Gilman.
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every move, Wal-Mart did not help itself by maintaining what one business writer called “simple
tone-deafness” and a sense of “corporate isolationism.”61
Sending jobs overseas
In the mid-1980s, Sam Walton had launched a “Bring It Home to the USA” and “Made in
the U.S.” campaign for which he paid a 5% premium to American manufacturers in an effort to
support and sustain their viability. That campaign, he proudly claimed, had created 100,000
American jobs. In one instance, Walton financially shored up a struggling American shirt
manufacturer that could not compete with China’s labor costs. Walton worked out a deal with the
factory owner and, although Wal-Mart paid more for the shirts, the company kept the factory
solvent for three years. But globalization, the Internet, and technology growth was changing the
worldwide marketplace and before long, Wal-Mart quietly abandoned the campaign and began to
look overseas. The company was a latecomer in overseas global sourcing; Kmart, Sears, and
other retailers had gotten to Asia years earlier. That move was deliberate, claimed one Wal-Mart
executive, designed to let other companies “go through the initial tortures” and lay the
groundwork before Wal-Mart arrived on the scene.62 Indeed, by the time Wal-Mart opened its
first buying office in Hong Kong in 1981, manufacturers there had become very competent, and
Wal-Mart was able to expand its overseas presence rapidly and easily.
During the 1990s and early 21st century, however, many critics of global outsourcing
focused their ire on Wal-Mart, accusing the company of draining jobs from America. CEO Lee
Scott defended the practice. “Do I think Wal-Mart is responsible? Clearly the answer is
no…Moving offshore started a long time before we got to be the biggest sales company in the
world.”63 But others insisted that the ferocity of Wal-Mart’s quest for cheap suppliers and the
mere fact that it was the largest company in the world encouraged the manufacturing and
production flight to distant shores. “By squeezing suppliers to cut wholesale costs, the company
has hastened the flight of U.S. manufacturing jobs overseas. By scouring the globe for the
cheapest goods, it has driven factory jobs from one poor nation to another.”64
Wal-Mart openly admitted that the cost of doing business in the United States was high,
not just because of the cost of manufactured goods, but due to a number of factors: health care
costs, environmental regulations, litigation risks, and tax subsidies and tax rates.65 The company
claimed it made every effort to use American manufacturers and suppliers, yet critics complained
that Wal-Mart representatives openly declared that going offshore was necessary for businesses
that wanted to “be in the opening-price-point business in the area” that they were in.66
61
Andy Serwer, “Bruised in Bentonville,” Fortune (18 April 2005): 86.
62
Interview with Sam Hornblower, Frontline, PBS, 16 November 2004.
63
Interview with Sam Hornblower, Frontline, PBS, 16 November 2004.
64
Goldman and Cleeland.
65
Interview with Ray Bracey, “Is Wal-Mart Good for America?” Frontline, PBS, 16 November 2004,
http://www.pbs.org/wgbh/pages/frontline/shows/walmart/interviews/. (accessed 28 September 2005).
66
Interview with Ray Bracey, Frontline, PBS, 16 November 2004.
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Some analysts and economists derided the notion that Wal-Mart—indeed, all large
American companies that utilized overseas labor—were responsible for the change in the balance
of employment. Brink Lindsey, director of the Cato Institute’s Center for Trade Policy Studies,
said that the American economy had, for a quarter of a century, undergone a substantial and
often wrenching structural change that, despite its downside, “creates more opportunities than it
eliminates.” Regarding jobs lost to foreign competition, he continued, “they pale by comparison
to the jobs that have been eliminated by automation and computerization.”67 A U.S. Department
of Labor study had shown that only about 2% of mass layoffs were caused by downsizing. When
asked in general about jobs lost to China, Lindsey responded:
I think it’s impossible to say that we’ve lost a million jobs to China. Over the last
decade, American employment has gone up by almost 20 million. It went up 18
million from 1993 to 2002. We had a recession, and we have had a slow time
coming out of that recession, as far as the job market is concerned. That has to do
with a host of factors, of which international trade is one rather small
component.68
Sweatshops
In the mid-1990s, it was revealed that worker conditions in some American factories that
made products for Wal-Mart were abysmal. But the focus of attention on sweatshop labor was in
other countries. During that same era, Wal-Mart’s operations in Bangladesh were instrumental in
raising public consciousness about overseas sweatshop labor. When activists publicized the fact
that approximately 50,000 Bangladeshi children worked in factories, often without ventilation or
fire escapes, to produce apparel for Wal-Mart and other large U.S. companies such as Kmart,
public outcry grew and the company was forced to crack down on child labor and safety
standards in those overseas factories.
In 1992, Wal-Mart had instituted a code of conduct for its suppliers to improve
conditions in overseas factories. Originally called “Factory Certification,” this program was
renamed “Ethical Standards” in 2005. The company also issued an annual “Report on Standards
for Suppliers,” detailing its ethical standards program objectives and accomplishment, as well as
its specific efforts to maintain good conditions and perform audits of overseas factories. In the
2004 report, Wal-Mart outlined how it had conducted 12,500 audits worldwide (an average of 30
a day), as well as its new initiative to create stronger relationships with suppliers. Lee Scott
admitted in the report that despite the company’s efforts, there would inevitably be some
violations of standards, but addressing those violations ranged from working with the factory to
cutting off the relationship. In addition, Scott outlined other 2004 accomplishments:69
 Trained more than 7,900 suppliers and factory managers
67
68
69
See “2004 Report on Standards for Suppliers,” Wal-Mart Stores, Inc., http://www.walmartfacts.com
(accessed 14 November 2005).
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 Increased from 1% to 8% the number of unannounced audits

 Extended audit program to factories involved in production for Wal-Mart, whether or not
the company purchased directly or through a supplier
 To increase audit capabilities and reduce audit duplication, initiated an evaluation and
validation audit program
 Initiated a partnership with Business for Social Responsibility (BSR) to develop a
rigorous stakeholder engagement program
The metrics and elements that Wal-Mart audits assessed included compensation, labor
hours, factory workplace environment (health and safety), child labor, forced labor, and
dormitory health and safety. In 2004, Wal-Mart also began laying the groundwork for a “formal
stakeholder engagement program,” and awarded its first “Environmental Excellence Award” to
Mattel® Diecast in China for “leadership efforts that benefit the workers and the community.”
Often, however, working under the aegis of Wal-Mart helped effect change in factories
with poor conditions, such as the Bangladeshi factory where, after employees complained to
Wal-Mart about the atrocious working conditions, the factory was cleaned up and refitted with
additional toilets and clean water, and the workers began receiving financial bonuses.
Nonetheless, even with better working conditions, the factories’ grueling pace, because of Wal-
Mart pressure to produce quickly, left many workers exhausted or searching for other jobs.
Putting “mom and pop”—and other large retailers!—out of business
A common complaint about Wal-Mart was that its presence often drove small local
stores, the “mom and pop” stores of the quintessential Main Street, out of town or out of
business. The complaints grew louder as Wal-Mart expanded its services, including groceries,
florists, pharmacies, and optical. Even chain stores sometimes were forced to shutter when Wal-
Mart made an appearance, although usually many other factors were involved. By late 2003,
Wal-Mart’s participation in grocery selling had led 25 regional grocery chains in the United
States to close their doors. Along with that was the loss of 12,000 mostly union jobs. When Wal-
Mart moved into the supermarket business in Las Vegas, for example, 18 of the California-based
Raley’s Supermarkets closed, laying off 14,000 workers who on average earned $14.68 an hour
with pension and family health insurance.70 The 920 Southeast grocery chain Winn-Dixie’s
bankruptcy in 2004 was in part attributed to Wal-Mart.
When questioned about the issue on a news talk show in the spring of 2004, Lee Scott
denied that small retailers were always chased off by Wal-Mart’s arrival. Instead, he said, many
stores and small chains often took advantage of Wal-Mart’s business by situating themselves
next to or near the big retailers. Ultimately, he added, “the consumer determines what it is that
should exist to serve them….” How can we, he added, “want…people to pay a premium…to not
allow them to participate in merchandise they could otherwise afford because we have this view
70
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of what a neighborhood should look like.” It’s wrong to “make that decision for someone who’s
living paycheck to paycheck…that says you should pay more for product because I want this
area to look like what I remember it looking like in the fifties or sixties.”71
Anti–big-box sentiment and legislation
The 1990s had seen a rise of anti–big box sentiment in the United States. Primary
objections to the arrival of a big box such as Wal-Mart, Target, or the Home Depot were that it
contributed to sprawl, ate up prime agricultural land and space, increased air pollution and traffic
congestion, provided only low-wage jobs, and in general destroyed the unique character of a
community. By 2005, several hundred communities in the United States had passed legislation
barring Wal-Mart from setting up shop. One of the most challenging states for Wal-Mart to crack
had been California, where a combination of lawsuits from local businesses, union resistance,
and community ire made it difficult. Wal-Mart had only three Supercenters in the state, in
marked contrast to Texas (200) and Florida (100). One of the most contentious fights was in
2004 in Inglewood, a suburb of Los Angeles with middle-class, predominantly black residents,
where Wal-Mart planned a Supercenter/Sam’s Club. Anti–Wal-Mart activists came out in
droves, arguing that the store would have a detrimental effect on the area by lowering wages
across the board. Responding to the residents’ concerns, Los Angeles adopted an emergency
ordinance prohibiting big-box retailers. Wal-Mart then gathered almost 10,000 signatures in
support of a new store and requesting a referendum. By a vote of 60.6% to 39.3%, voters
rejected Wal-Mart’s proposal. Many critics assailed what they considered Wal-Mart’s incredible
arrogance in trying to bypass city regulations. If the proposal had passed, “it would have meant
that Wal-Mart could build a store without any local government oversight whatsoever; no
hearings, no environmental impact, nothing.”72 Wal-Mart later admitted blundering in its tactics
there, and vowed to learn from its mistakes. In addition to the Inglewood store, residents in San
Marco voted to block Wal-Mart in their community.
There were also complaints from many quarters about the aesthetic appeal—or lack
thereof—of Wal-Mart stores and other large retailers. In the spring of 2004, Vermont, which
already had four Wal-Marts, enlisted the help of the National Trust for Historic Preservation,
which put Vermont on its “endangered” list in the face of further Wal-Mart expansion. After
Wal-Mart established itself in Williston, Vermont, in 1997, residents complained and other big
boxes—the Home Depot, Toys “R” Us, and Bed Bath & Beyond—moved into the area. A Wal-
Mart spokesperson denied that the company bulldozed its way into any community; rather, she
said, Wal-Mart worked closely with communities where stores were planned. And while many
Vermont residents protested a potential Wal-Mart in St. Albans, one resident was overjoyed at
the prospect: “You can’t buy a set of sheets in this town. We’ve needed this for a while now.”73
71
Interview with H. Lee Scott, The Tavis Smiley Show, 30 March 2004,
http://www.pbs.org/kcet/tavissmiley/archine/200403/20040330_transcript.html (accessed 30 August 2005).
72
Neal Conan, “Analysis: Power of Wal-Mart,” NPR: Talk of the Nation, 14 April 2004 (transcript accessed on
Factiva on 14 November 2005).
73
“Is Wal-Mart Good for America?” Frontline, PBS, 16 November 2004,
http://www.pbs.org/wgbh/pages/frontline/shows/walmart/transform/protest.html, (accessed 27 April 2006).
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Wal-Mart critics had their own critics. One senior vice president of a major consulting
group remarked that “there are a handful of communities where people said, ‘We don’t want to
pay lower prices, we want to pay higher prices; we don’t want to support efficiency, we want to
support inefficiency.’”74 Others said that far from forcing other companies, both big and small,
out of business, Wal-Mart’s presence infused those companies with greater efficiency and
responsiveness to the consumers’ needs, as well as new strategies in seeking out and penetrating
new markets and investing in new technology. In addition, those critics-of-the-critics contended
that Wal-Mart’s presence often energized rundown areas, boosted local sales tax revenue, and
staunched the flow of consumer dollars to other cities and communities.
Employee pay/health care concerns
While low prices seemed like a good thing at the checkout counter—and a New England
Consulting study estimated a $20 billion savings to U.S. customers in 200275—some critics
claimed that the backend effect on the consumer was pushing the country even further toward a
shrinking middle class and growing pool of low-wage workers. Wal-Mart eventually admitted
that a full-time worker might not be able to support a family on a Wal-Mart paycheck.76 Many of
its employees had to take second jobs to support themselves. In general, Wal-Mart workers
earned less than $19,000 annually, although store managers averaged $95,000 a year and
Supercenter managers $130,000. (The U.S. poverty line in 2004 for a family of four was
$19,157, $15,219 for a family of three). The higher wages came with a price, however—
managers had to be prepared and willing to relocate quickly and often.
Health care coverage remained a constant bone of contention. In 2004, Wal-Mart spent
an average of $3,500 per employee on health costs; the national average was $4,400.77 Wal-Mart
kept those costs down by sheer tightfistedness: retirees received no coverage, and workers had to
wait six months before receiving benefits. In addition, there were high deductibles and no
coverage for eye exams, flu shots, child vaccinations, chiropractic exams, contraceptive pills,
and other medical services. As one Wal-Mart worker complained, “They’re on the top of the
Fortune 500, and I can’t get health insurance for my kid.”78
Wal-Mart’s health care premiums were high relative to those of many other company
plans. Workers had to pay 33% of their healthcare costs, which averaged $30.50 monthly for an
individual and $230.50 a month for a family. Wal-Mart argued that the demographics of its
workers—many senior citizens, students, and individuals with a working spouse or partner—
were different than those of most other companies. Many already had a primary source of
insurance elsewhere (Medicare, a parent, or a spouse), thus minimizing the importance of the
74
Voice of America Press Release and Documents, “Wal-Mart’s Controversial Growth Revolutionizes
American Retail (part 2), Federal Information and News Dispatch, Inc. 15 April 2005 (accessed on Factiva 13
September 2005).
75
Anthony Bianco and Wendy Zellner, “Is Wal-Mart Too Powerful?” Business Week (6 October 2003).
76
77
David Faber, “Rare Glimpse Into Wal-Mart Empire,” MSN Money Central, 10 November 2004.
http://msnbc.msn.com/id/6454/ (accessed 27 April 2006).
78
Karen Olsson, “Up Against Wal-Mart,” Mother Jones 28, no. 2 (1 March 2003): 54.
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benefits that Wal-Mart did offer those workers. The Wal-Mart plan did offer some appealing
tradeoffs, however, such as catastrophic coverage designed to protect employees against the high
costs of treating cancer and other serious illnesses and undergoing organ transplants. Employees
paid 20% of medical expenses up to a total of $1,750, after which the company covered all
expenses. Fewer than 50% of retailers included that benefit, and few union health plans offered
it. As of late 2003, Wal-Mart was covering medical bills of more than $100,000 for
approximately 800 employees annually, and bills of more than $10,000 for 20,000–plus workers.
In the previous five years, the company had paid for more than 300 organ transplants, costing $1
million or more.79
Some critics disputed Wal-Mart’s claim that 90% of its workers had health insurance.
The reality was that many of those had insurance through their spouse’s employer. A more
accurate estimate, the critics claimed, was that 38% took the company benefits. Many did not
because it was unaffordable of just plain “crappy.”80 Wal-Mart countered that in 2004, it had
spent nearly $2 billion on health benefits for employees, and (in one of the several PBS Frontline
interviews, which aired in late 2004) claimed that approximately 500,000 of its 1.2 million U.S.
employees had Wal-Mart health insurance; the company said it insured more than 900,000
employees and their dependents.
Effect on economy and community
A common criticism of Wal-Mart was that, because it did not pay high wages or offer
affordable health insurance, the retailer placed a drain on social services and cost the taxpayers
billions of dollars through employees who enrolled in Medicaid and Medicare programs and
sought public assistance. Adding insult to injury, claimed critics—who took out newspaper ads
to publicize their claims—Wal-Mart often directed its employees who could not make ends meet
to social service agencies, thus creating a financial burden for local taxpayers. The retailer
vehemently denied that claim, but various Wal-Mart store managers admitted that they had
engaged in the practice. One former manager described his Rolodex as being filled with social
service agency contacts and how he spent a great deal of time taking care of employees who
could not afford their rent, their children’s doctors, or even groceries. “I thought I was doing a
good thing at the time. Now when I look back, I think, ‘Wow, that’s incredibly poor that the
company doesn’t care enough about its workers to pay them a living wage and to help them with
their medical costs.’”81 Wal-Mart took exception to the accusations of overloading the social
service agencies, claiming instead that it often took people off the Medicaid roles.
According to a November 2004 New York Times article, 10,000 children of Wal-Mart
employees were enrolled in Georgia’s state health care program at a cost of $10 million annually
to state residents. In addition, 31% of North Carolina’s 1,900 hospital patients were Wal-Mart
employees on Medicaid—16% of those residents worked for the company and had no insurance.
79
Bernard Wysocki, Jr., and Ann Zimmerman, “Bargain Hunter: Wal-Mart Cost-Cutting Finds a Big Target in
Health Benefits,” Wall Street Journal, 30 September 2003, A-1.
80
Interview with Jon Lehman, Frontline, PBS, 16 November 2004.
81
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But while Wal-Mart topped the charts in many states for having the largest number of employees
on some sort of public assistance, other retailers and companies—McDonalds, Burger King, and
even Target among them—were also on many of the lists.
Proponents, however, argued that Wal-Mart’s presence had a positive effect on the
economy, allowing low-income people to stretch their dollar. One study in Los Angeles said that
any economic harm to workers who could lose their jobs when a Wal-Mart moved into a
community was offset by the company’s low-cost merchandise.82 Opponents disagreed. A series
of late 2003 Pulitzer Prize-winning Los Angeles Times articles set out examples of Wal-Mart’s
negative effect on communities. When Wal-Mart moved into the area, local supermarket Raley’s
closed all its stores (18) in the area; one former Raley’s clerk went from earning $14.68 an hour
(with pension and health insurance) to what a Wal-Mart clerk made—an average of $9 an hour.83
Statistics also showed that a cart full of groceries was, in general, 17% to 39% cheaper at a Wal-
Mart Supercenter than at a unionized supermarket; and that for every Wal-Mart Supercenter that
opened, two traditional grocery stores closed.84
Although some communities fought Wal-Mart’s arrival for a variety of reasons, there was
undoubtedly an across-the-board desire to have a store with such low prices. “The ugly truth,”
said author John Dicker, writing in 2005, “is that we’ve become a nation that values little above
a bargain.” In his book, The United States of Wal-Mart, he theorized that Americans now
considered deep discounts “entitlements” rather than “novelties.” “Cheap is our new crack
cocaine.”85
Accusations of sexual and racial discrimination
As 2005 began, Wal-Mart found itself the target of a class-action suit—the largest
workplace-bias lawsuit in U.S. history—with 1.6 million employees claiming discrimination
based on sex. Although 65% of Wal-Mart workers were female, they claimed, only 34% of
managers were female. (The standard for Wal-Mart’s competitors was 56.5%). A statistician
researching Wal-Mart statistics for the plaintiffs in the case discovered that it took women an
average of 4.38 years from their hiring date to be promoted to assistant manager, and men only
2.86 years. It took 10.12 years, on average, for women to become managers, compared with 8.64
years for men. There was also disparity in wages. Hourly female employees earned an average of
$1,150 (or 6.7%) less than their male counterparts; female managers earned on average $20,000
to $25,000 less than male managers.86 Women involved in the lawsuit recounted statements by
store managers, which included, “Men are here to make a career, and women aren’t. Retail is for
housewives who just need to earn extra money,” and—in response to one female employee’s
82
“Wal-Mart’s Mega-Growth Continues, But is its Image Getting a Bit Tarnished?” Strategic Management
Knowledge@Wharton. 21 April 2004, http://knowledge.wharton.upenn.edu/article/965.cfm (accessed 27 June
2005).
83
84
Mark Albright, “Wal-Mart Stops Smiling at Critics,” St. Petersburg Times, 6 April 2005, 1D.
85
Kerry Hannon, “Wal-Mart Author Says Discounts Now Entitlements,” USA Today, 15 August 2005, B-6.
86
Steven Greenhouse and Constance L. Hays, “Wal-Mart Sex-Bias Suit Given Class Action Status,” New York
Times, 24 June 2004, 1.
-24- UV1346
request to work in the hardware department—”We need you in toys. You’re a girl, why do you
want to be in hardware?”87 Wal-Mart disputed the statistics gathered by the plaintiffs, and
claimed that women made up a lower percentage of managers because they were less interested
in management positions.
The origins of the lawsuit were in 1994, when Betty Dukes began as a part-time cashier
at Wal-Mart. She was eager to make her way up to management and was enthralled by the
legendary Sam Walton and his “visionary spirit.” Two years into her tenure with Wal-Mart,
despite several pay increases and a full-time position, Dukes was incensed when she learned that
new male hires were getting the management training that she had asked for but never received.
After she complained to store management, Dukes was, she believed, the victim of
discrimination; management wrote her up for minor offenses, demoted her, and reduced her pay.
Dukes did not realize that that was discrimination and that it was illegal until she learned about
other women employees filing lawsuits against the company. In the spring of 2000, Dukes filed a
complaint against Wal-Mart and, two years later, was the lead plaintiff in Dukes v. Wal-Mart
Stores, Inc.
In her 2004 book Selling Women Short, Lisa Featherstone outlined many of the
grievances the female employees in the Dukes lawsuit had aired. At the same time that
Featherstone critically examined Wal-Mart’s employee policies, she admitted that Wal-Mart had
a strong lure for women who delighted in “spending as little as possible, all in one place.”88 Yale
scholar Bethany Moreton attributed leftover attitudes toward women from Wal-Mart’s early
days. “In the early years, many of the women who worked at Wal-Mart were the wives of local
Ozark farmers, and the women’s earnings were a meager supplement to their husbands’.”
Moreton discovered, from testimony in the Dukes case, that many female employees felt that
store managers “still often think of them as resembling those farmers’ wives.”89 Historically, lack
of advancement for women was an old problem at Wal-Mart. Even Sam Walton, in his
autobiography, acknowledged that women were at a disadvantage in the company because Wal-
Mart required extreme flexibility of its managers, who often had to move with short notice.
Walton even seemed regretful when he wrote, “Now I’ve seen the light on the opportunities we
missed out on with women.”90
Off-the-clock work/locked-in stores
Lawsuits against Wal-Mart were not confined to sex discrimination. In several cases,
employees claimed they were not paid for their work. Either they were forced to clock out and
continue working or, in several cases, employees found that their time cards had been “edited.”
At one store, a manager explained away missing hours by telling an employee that the time clock
was broken. There even was a nickname for those forced to work beyond regular hours without
87
Greenhouse and Hays.
88
Lisa Featherstone, Selling Women Short (New York: Basic Books, 2004).
89
Simon Head, “Inside the Leviathan,” The New York Review of Books 51 no. 20 (16 December 2004).
90
Walton and Huey, 217–18.
-25- UV1346
pay: “the Over-40 Club.”91 A jury in Oregon found that company managers in 2003 had forced
290 employees at 18 stores in the state to work overtime without pay, and there were similar
lawsuits in Colorado and New Mexico. Although the company claimed to prohibit off-the-clock
work, the managers at those specific stores cited intense pressure from Bentonville to reduce
labor costs. They even said that the company, in its weekly in-house satellite broadcasts, would
single out managers who did not keep down that store’s payroll.
In early 2004, reports surfaced that some store managers were locking the doors during
the night shift, keeping employees from leaving even if their shifts were over or they were
injured in some way. No one with a key was generally on-site, and getting injured employees out
could often take hours as managers were tracked down. Wal-Mart claimed it was concerned with
its workers’ safety and wanted to prevent outsiders from entering. Former store managers,
however, said that the ulterior motive was to prevent “shrinkage” (internal theft) and to increase
efficiency by keeping employees from taking frequent cigarette breaks or making quick trips
home (called “time theft”). Although Wal-Mart agreed to discontinue that practice (despite
insisting that there was always a manager with a key present) after specific reports surfaced in
the New York Times, general reaction, even from retail industry experts, was dismayed
amazement. Those practices were more like 19th-century workplace abuses, several said, than
anything they had heard of in the 20th century.
The fight against unionization
The tone for Wal-Mart’s resistance to unions was set early on by Sam Walton, who
explained in his biography:
I have always felt strongly that we don’t need unions at Wal-Mart….The

partnership we have at Wal-Mart—which includes profit-sharing, incentive
bonuses, discount stock purchase plans, and a genuine effort to involve the
associates in the business so we can pull together—works better for both sides
than any situation I know of involving unions.92
Throughout its history, Wal-Mart had successfully kept unions out of its stores
domestically—though not in some foreign countries, notably Germany and Brazil. The first
attempt to unionize—the company’s distribution center in 1980—fell flat. In 2000, Wal-Mart
eliminated the meat-cutting department in one of its Texas stores after the meat cutters voted to
unionize. Scuffles with unions had grown as the company expanded, moving from the
predominantly “right-to-work” states in the South into more traditionally unionized areas in both
the Northeast and western regions of the country. In general, employees were advised to avoid
unions and report union organizing efforts.
91
“Analysis: Multiple Lawsuits Accuse Wal-Mart of Violating Workplace Regulations,” National Public Radio,
NPR: Morning Edition, 14 January 2004.
92
Walton and Huey, 129–130.
-26- UV1346
Post-Walton, the retailer had strengthened its drive to prevent unionization. There was
allegedly a “Manager’s Toolbox to Remaining Union-Free,” which included “warning signs”
(employees who had not previously been seen socializing now congregating, meetings of
associates off the premises) as well as a hotline number to Bentonville if managers saw or
suspected union activity. Wal-Mart’s response was that only an unhappy associate thought about
joining a union, and that the company would try to address that employee’s specific grievances.
Years later, vaguely echoing Sam Walton’s words, Wal-Mart’s vice president for federal and
international public affairs, Ray Bracey, reiterated why unions were not necessary at Wal-Mart:
There’s a much talked-about human resources policy—we call it “People’s

Policy” here at Wal-Mart—called the open-door policy. What this means is that if
you’re an unhappy cashier in Albuquerque, [New Mexico], you can pick up the
phone or send an e-mail to Lee Scott, our CEO, and there’s no fear of
retribution.93
Union organizers were often publicly identified by the company and many claimed
intimidation, which Wal-Mart vehemently denied. Where Wal-Mart got into legal trouble with
the National Labor Relations Board, which ruled against it in 10 different cases, was allegedly
infringing on unions’ rights to organize. Store managers would confiscate union material, make
false claims about the effects of unionization (lost benefits and profit-sharing), and influence
employees by offering promotions, raises, and improved working conditions. Detrimental to
Wal-Mart’s contention that its critics were overstating their case was a book, Confessions of a
Union Buster, written by a management consultant who had initially helped the retailer beef up
its antiunion tactics. “In my 35 years in labor relations,” said the consultant, “I’ve never seen a
company that will go to the lengths that Wal-Mart goes to, to avoid a union.”94
Despite the conflict between Wal-Mart and organized labor, many union workers
throughout the country shopped at Wal-Mart despite its antiunion stance. Former U.S. Secretary
of Labor Robert Reich explained it: “We have split brains. Most of the time, the half of our brain
that wants the best deal prevails.”95
A 2004 report, “Everyday Low Wages: The Hidden Price We All Pay for Wal-Mart,” by
California Representative George Miller (a Democrat whose campaign contributions came
primarily from unions) and the Democratic staff of the Committee on Education and the
Workforce, criticized Wal-Mart for “downward pressures on wages and benefits, rampant
violations of basic workers’ rights, and threats to the standard of living in communities across the
country.”96 In that 25-page report, Wal-Mart was taken to task for the by now standard litany of
issues, from low wages, health insurance, sweatshops, and workers’ organizing rights. Wal-Mart
93
Interview with Ray Bracey, Frontline, PBS, 16 November 2004.
94
Olsson, 54.
95
96
George Miller and the Democratic staff of the Committee on Education and the Workforce, U.S. House of
Representatives, “Everyday Low Wages: The Hidden Price We All Pay for Wal-Mart,” 16 February 2004, 12.
-27- UV1346
had responded to many of the criticisms, the report said, but the retailer had provided a “cosmetic
response”97 and treated the charges as “a public-relations matter.”98
Maybe not always low prices
According to some employees, particularly former store manager Jon Lehman,

interviewed on Frontline, Wal-Mart’s claim to have the lowest prices was not always true. While
advertised items—”opening price points”—were invariably low-priced, other items in the store
were not always the best price. Those “price points”—the brainchild of Sam Walton himself—
were a gambit to get customers in the door; a comparison survey of prices revealed, however,
that often Wal-Mart’s price was comparable to or higher than that at a nearby Home Depot or
Kmart. Lehman likened it to fishing. “You want to entice that fish to the lure….Once you walk
past that opening price point, they’ve got you, because you’ve already formed the perception that
everything in that department is the lowest price in town.”99 Once Wal-Mart’s competitors
learned that the lowest price advertisements were not true, they sued.
What to Do in 2005?
The year 2005 had started with a whimper rather than the usual Wal-Mart bang. Two
events—an extremely lackluster post-Thanksgiving sales record and the departure of the well-
regarded vice chairman Thomas Coughlin—prompted analysts to downgrade Wal-Mart stock.
Some critics claimed the retailer had reached its saturation point; others expressed surprise at
Wal-Mart’s decision not to have deep discounts on the Friday after Thanksgiving (dubbed
“Black Friday,” indicating the day when retailers traditionally turn profitable). Instead, the
retailer plugged its “always low prices,” but lost out to other companies that advertised price-
slashing on various items. Wal-Mart then played catch-up as 2004 played out, buying costly ads
to promote its belated discounts. In the meantime, some business analysts complained that the
stores felt “old” and “stale” compared with their competitors. “The stores are dowdy, the aisles
are ugly,” wrote one business analyst on http://www.thestreet.com. “There’s nothing exciting or
different or even colorful at Wal-Mart. It feels almost Soviet in its selection and presentation.”100
In short, a smorgasbord of bad publicity and hot-topic issues meant that 2005 was not
getting off to an auspicious start. All was not complete doom and gloom, however, as 2004 drew
to a close: Wal-Mart had netted $10.3 billion on $285 billion in sales, earnings per share rose
almost 19%, and the stock went for 17.5 times the year’s profit (as compared with 15.5 for the
broad market). Many analysts still saw a bright, expansive future for the Bentonville retailer. A
December 2004 report put out by Retail Forward, a strategy consulting group for retailers,
predicted that Wal-Mart’s services would, over the next five to 10 years, include such things as
97
Miller et al., “Everyday Low Wages…,” 3.
98
Miller et al., “Everyday Low Wages…,” 15.
99
100
Barrie McKenna, “Rivals Sense Blood as Wal-Mart Stumbles,” The Globe and Mail, 13 December 2004, B1.
-28- UV1346
car rental, travel services, dentists, health care, banking, publishing, and fuel refining.101 Some
analysts even predicted revenues in the trillions in the decades to come. But stanching the flow
of negative publicity was, more than ever, of paramount importance. For Wal-Mart, “corporate
isolationism” had to be an attitude of the past.
One visitor to the Bentonville home office had remarked, echoing the sentiments of many
others who visited Wal-Mart headquarters, “It’s as if Sam Walton is still alive and roaming the
halls. It seems like everybody has a cell phone and Sam Walton is instant-messaging to remind
them to offer low prices and the best value.”102 One might wonder then what Sam Walton would
think of Wal-Mart’s current stakeholder issues and how the company might address them. But
there was no Sam Walton to solve the dilemma, and Wal-Mart had to find a way to mitigate the
effects of the negative publicity.
101
http://money.cnn.com/2005/01/26/news/fortune500/walmart_future/?cnn=yes (accessed 14 September
2005).
102
Knowledge@Wharton, 9 April 2003, http://knowledge.wharton.upenn.edu/index.cfm?fa=viewfeature&id=744
(accessed 27 April 2006).
-29- UV1346
Exhibit 1
Wal-Mart 2004 Statistics (in U.S. dollars)
Annual sales in 2004: $258.6 billion

Profit: $15 billion
Market capitalization: $225 billion
Percentage of U.S. retail sales controlled by Wal-Mart: 8%
Wal-Mart imports from China: $15 billion
Employees: 1.3 million
Employees hired annually: 600,000
Wal-Mart stores: 4,600
Stores opened in 2004: 365
Countries with Wal-Mart stores: 9
Unionized stores: 0
Average hourly wage: $9.98
U.S. states where Wal-Mart is largest employer: 25
Source: Wal-Mart 2005 Annual Report
-30- UVA-E-0282
Exhibit 2
Wal-Mart 11-Year Financial Summary
Wal-Mart 11-year Financial Summary

(Dollar amounts in millions except per share data)
Fiscal Years Ending January 31, 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995
Net Sales $285,222 $256,329 $229,616 $204,011 $180,787 $156,249 $130,522 $112,005 $99,627 $89,051 $78,338
Net sales increase 11.3% 11.6% 12.6% 12.8% 15.7% 19.7% 16.5% 12.4% 11.9% 13.7% 23.6%
Comparative store sales increase in the United States (1) 3.0% 4.0% 5.0% 6.0% 5.0% 8.0% 9.0% 6.0% 5.0% 4.0% 7.0%
Cost of Sales $219,793 $198,747 $178,299 $159,097 $1,407,220 $121,825 $102,490 $88,163 $78,897 $70,485 $61,929
Operating, selling, general and administrative expenses 51105 44909 39983 35147 30822 26025 21778 18831 16437 14547 12434
Interest expense, net 986 832 927 1183 1196 840 598 716 807 863 669
Effective tax rate 34.7% 36.1% 35.2% 36.2% 36.5% 36.8% 37.4% 37.0% 36.8% 36.8% 37.2%
Income from continuing operations $10,267 $8,861 $7,818 $6,448 $6,087 $5,394 $4,240 $3,424 $2,978 $2,689 $2,643
Net Income 10,267 9,054 7,955 6,592 6,235 5,324 4,397 3,504 3,042 2,737 2,681
Per share of common stock:
Income from continuing operations, diluted $2 $2 $2 $1 $1 $1 $1 $1 $1 $1 $1
Net income diluted 2.41 2.07 1.79 1.47 1.39 1.19 0.98 0.77 0.66 0.29 0.59
Dividends 0.52 0.36 0.3 0.28 0.24 0.2 0.16 0.14 0.11 0.1 0.09
Financial Position
Current assets of continuing operations $38,491 $34,421 $29,543 $26,615 $25,344 $23,478 $20,064 $18,589 $17,385 $16,779 $14,827
Inventories 29,447 26,612 24,401 22,053 20,987 19,296 16,361 16,005 15,556 15,667 13,726
Property, equipment and capital lease assets, net 68,567 59,023 51,374 45,248 40,461 35,553 25,600 23,237 19,935 18,554 15,561
Total assets of continuing operations 120,223 105,405 92,900 81,549 76,231 68,983 48,513 44,221 38,571 36,621 31,959
Current liabilities of continuing operations 42,888 37,840 32,225 26,795 28,366 25,525 16,155 13,930 10,432 10,944 9,449
Long-term debt 20,087 17,102 16,597 15,676 12,489 13,653 6,887 7,169 7,685 8,483 7,844
Long-term obligations under capital leases 3,582 2,997 3,000 3,044 3,152 3,000 2,697 24,480 2,304 2,089 1,834
Shareholders’ equity 49,396 43,623 39,461 35,192 31,407 25,878 21,141 18,519 17,151 14,757 12,726
-31- UVA-E-0282
Exhibit 2 (continued)
Financial Ratios
Current Ratio 0.9 0.9 0.9 1 0.9 0.9 1.2 1.3 1.7 1.5 1.6
Return on assets (2) 9.3% 9.2% 9.2% 8.4% 8.6% 9.8% 9.5% 8.5% 8.0% 1.9% 9.2%
Return on Shareholders’ equity (3) 22.1% 21.3% 20.9% 19.4% 21.3% 22.9% 21.4% 19.2% 18.7% 19.6% 22.5%
Other Year-End Data
Discount Stores in the United States 1,353 1,478 1,568 1,647 1,736 1,801 1,869 1,921 1,960 1,995 1,985
Supercenters in the United States 1,713 1,471 1,258 1,066 888 721 564 441 344 239 147
SAM’S CLUBs in the United States 551 538 525 500 475 463 451 443 436 433 426
Neighborhood Markets in the United States 85 64 49 31 19 7 4 0 0 0 0
Units outside the United States 1,587 1,355 1,272 1,154 1,054 991 703 589 314 276 226
Shareholders of record 331,000 335,000 330,000 324,000 317,000 307,000 261,000 246,000 257,000 244,000 259,000
(1)
Comparative store sales are considered to be sales at stores that were open as of February 1 of the prior fiscal year and have not been expanded or relocated since that date.
(2)
Income from continuing operations before minority interest divided by average assets.
(3)
Income from continuing operations divided by average shareholders’ equity.
-32- UVA-E-0282
Exhibit 3
Wal-Mart Historical Financials, Employees, and Stock Price
2005 Year-End Financials

Debt Ratio 47.90%
Return on Equity 20.80%
Cash ($ mil) 5,488.00
Current Ratio 0.9
Long-Term Debt ($ mil) 23,669
Shares Outstanding (mil) 4,234
Dividend Yield 1.00%
Dividend Payout 21.60%
Market Cap ($ mil) 221,861.60
Wal-Mart Revenue ($ mil)
300000
250000
200000
Millions
150000
100000
50000
0
1996 1998 2000 2002 2004
-33- UVA-E-0282
Wal-Mart Net Income ($ mil)
12000
10000
8000
Millions
6000
4000
2000
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Wal-Mart Net Profit Margin
3.5
2.5
2
1.5
1
0.5
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
-34- UVA-E-0282
Wal-Mart Stock Price
80
70
60
50
40
30
20
10
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Stock Price (High) Stock Price (Low)
Wal-Mart P/E Ratio
60
50
40
30
20
10
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
P/E (High) P/E (Low)
-35- UVA-E-0282
Wal-Mart Per Share Earnings and Dividends
2.5
2
Dollars
1.5
0.5
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Per Share Earnings Per Share Dividends
Wal-Mart Per Share Book Value
14
12
10
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

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WAL-MART IN 2005 (A)

Our company does have a soul.

Give me a W! Give me an A! Give me an L! Give me a Squiggly! Give me an M!

In general, the Wal-Mart brand comprised an array of astonishing facts, statistics,

Wal-Mart: The Early Years

Culture and Philosophy

 Respect for the individual

1. Commit to your business. Believe in it more than anybody else.

Always Low Prices

discrimination—upping the cost of high-demand items—because, although that was tantamount

The supplier relationship

The successful “cross-docking” was only possible through Wal-Mart’s implementation of

Argentina (1995): 11 Brazil (1995): 151 *Canada (1994): 261

Cultural, technical, and financial problems assailed the company in Argentina.

Sending jobs overseas

 Trained more than 7,900 suppliers and factory managers

 Increased from 1% to 8% the number of unannounced audits

Putting “mom and pop”—and other large retailers!—out of business

Anti–big-box sentiment and legislation

Employee pay/health care concerns

Effect on economy and community

Accusations of sexual and racial discrimination

Off-the-clock work/locked-in stores

The fight against unionization

I have always felt strongly that we don’t need unions at Wal-Mart….The

There’s a much talked-about human resources policy—we call it “People’s

Maybe not always low prices

According to some employees, particularly former store manager Jon Lehman,

Annual sales in 2004: $258.6 billion

Source: Wal-Mart 2005 Annual Report

Wal-Mart 11-year Financial Summary

Source: Wal-Mart 2005 Annual Report

2005 Year-End Financials

Wal-Mart Revenue ($ mil)

Source: Wal-Mart 2005 Annual Report

Wal-Mart Net Income ($ mil)

Wal-Mart Net Profit Margin

Source: Wal-Mart 2005 Annual Report

Wal-Mart Stock Price

Stock Price (High) Stock Price (Low)

Wal-Mart P/E Ratio

P/E (High) P/E (Low)

Source: Wal-Mart 2005 Annual Report

Wal-Mart Per Share Earnings and Dividends

Per Share Earnings Per Share Dividends

Wal-Mart Per Share Book Value

Source: Wal-Mart 2005 Annual Report

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