- The Washington Times - Wednesday, August 21, 2013

It’s high drama and riveting politics these days as Wal-Mart Stores Inc., the nation’s most thoroughly red-state retailer, charges deep into blue-state territory in its efforts to expand beyond its comfortably established realm in rural America and suburbia by moving into the often hostile territory of inner cities.

Wal-Mart is causing a suspenseful split and high tensions between Democratic leaders in its latest battleground of the District of Columbia, pursuing a polarizing battle plan that succeeded before. The company is forcing the city to “take it or leave it” by threatening to pull up stakes and not build as many as six stores in the most hard-strapped areas of the city if it is required to pay a special elevated minimum wage under a bill passed by the city council. D.C. Mayor Vincent C. Gray is considering defying a solid majority of the city council with a veto of the bill.

It’s a playbook that served the Arkansas-based behemoth well in Chicago, where the pioneering retailer — still the world’s largest and by far the biggest employer in the United States — won a standoff in 2006 with powerful labor unions and their allies and succeeded in building nine stores unencumbered by such wage legislation. Richard Daley, Chicago’s mayor at the time, vetoed a “living wage” bill passed by the council similar to the one in the District, enabling the retailer to start wages a little more than $8 an hour rather than the $12 mandated by the legislation.

“It’s true Wal-Mart offers some entry-level jobs, but we’re proud of that,” Wal-Mart spokesman Steve Restivo said in a typically feisty response to liberal criticism of the company’s jobs starting near minimum wage. He said the jobs are particularly valuable in inner-cities where unemployment is often at double-digit levels and many young people have never held jobs.

Wal-Mart jobs “are a foothold into the workforce and open doors of possibility” for such people, he said.

As the battleground moves from city to city, Wal-Mart’s urban push also has highlighted a rift between the Democratic Party’s labor union supporters and their allies on the city council, and the often more pragmatic chief executives who put a greater priority on bringing much-needed jobs and retail development to the cities’ hard-hit inner cores.

The District’s battle could be a bellwether for the country, as it coincides with a renewed push by President Obama and congressional Democrats to raise the federal minimum wage to $10 an hour from the current $7.25. Democrats at all levels are seeking to tap into widespread public discontent over the severely depressed state of American wages since the recession. With jobs still scarce, average hourly earnings have been growing at less than 2 percent since 2009, the worst performance during any economic recovery.

Pressure for higher wages

The outcome of the D.C. battle will provide insight into whether mega-retailers such as Wal-Mart can continue to stand up to the growing pressures for higher wages, especially as they seek to penetrate further into the nation’s overwhelmingly Democratic urban core. Wal-Mart has received backing from the U.S. Chamber of Commerce, the National Retail Federation and other major business groups, and even some rivals such as Target Corp.

The pragmatists in Mr. Gray’s administration and elsewhere, who argue that the need for jobs and development in the District’s depressed wards is more pressing than winning a symbolic victory over Wal-Mart, appear to have the upper hand. They also appear to have the backing of at least some businesses watching the battle of wills.

“In this area, Wal-Mart will bring a lot more traffic and public visibility that it has never had before” said Robert Cabeca, the owner of Chocolate Crust, a new bakery across the street from a Wal-Mart store under construction on Georgia Avenue Northwest. Low-priced “dollar stores” might feel the heat of competition, he said, but “for us it should increase customers. Having more people in the neighborhood cannot be a bad thing for us.”

Donald Blue, a manager at a nearby Rite Aid Pharmacy, said Wal-Mart would be “good for the District” and create a lot of jobs.

“I don’t like the fact that they don’t want to pay a lot of money to employees” and “it’s going to hurt a lot of mom-and-pop stores,” he said. But for larger chains such as Rite Aid, “we are going to be all right.”

The overall welcoming attitude hasn’t stopped the Democratic Party’s left wing from intensifying attacks on the big-box store. Liberals say it is because the retailer is so large and influential that the left has targeted it for numerous actions over the years, including strikes, protests, critical ad campaigns and legislation aimed at forcing Wal-Mart to pay higher wages and benefits.

“If we can change Wal-Mart, we can change the country,” said Andrea Dehlendorf from Making Change at Wal-Mart, a labor-backed group that pushed for a nationwide strike by the chain’s workers last year on Black Friday, traditionally the biggest shopping day of the year. The group claimed it was joined by about 30,000 of the company’s 1.3 million U.S. employees in the first-ever jobs action against the company.

The company’s workforce is not unionized, but labor unions are using political heat and other novel tactics to try to gain what they can’t bargain for at the negotiating table. That includes setting up outside groups that informally organize Wal-Mart workers and opponents on Facebook and other social media outlets.

Their goal is to try to improve the conditions of low-wage Americans and the impoverished workers in nations where the company’s suppliers provide little pay. In April, the Rana Plaza factory in Dhaka, Bangladesh, collapsed, killing or wounding more than 3,000 garment workers.

Because of Wal-Mart’s high visibility — it shook global markets this month when company officials gave a lowered outlook for earnings and sales — liberal Democrats have been using every tool they have to try to bludgeon, persuade or cajole it and other high-profile companies such as McDonald’s into raising wages and making health care benefits more widely available to workers.

Wal-Mart is “ground zero” for what’s ailing the global economy, Ms. Dehlendorf said. “It’s why workers are so passionately committed to changing things at Wal-Mart. It’s really the most important thing we can do to change the economy today.”

Labor activists have been touting a study by the liberal think tank Demos that found that if the average retail worker’s salary was raised to levels akin to those in the D.C. wage bill, it would be a boon for the economy, lifting 700,000 people out of poverty in the first year and, by increasing workers’ buying power, increasing retail sales and enabling businesses to add another 130,000 jobs. A University of California, Berkeley study showed similar results, finding dramatic potential benefits for workers from raising average wages from about $15,000 to $25,000 a year, while the cost for the typical Wal-Mart shopper would be only $12.50 more a year in higher prices on their purchases.

Wal-Mart’s pioneering role

But Wal-Mart and its allies strongly disagree with the studies, joined by many centrist Democrats who insist that the company has had a beneficial impact on the economy.

One of Wal-Mart’s strongest defenders is Jason Furman, chairman of President Obama’s White House Council of Economic Advisers. In a 2005 white paper responding to the liberal assaults on Wal-Mart, he urged critics to view Wal-Mart as “a progressive success story” because it is providing thousands of much-needed jobs to entry-level and unskilled workers, while offering huge savings for the lower and middle classes through significantly lower prices. He cited an IHS Global Insight study that estimated those savings at about $3,100 per household for the 60 percent of Americans who shop regularly at Wal-Mart stores.

Since its humble beginnings in Bentonville, Ark., five decades ago, Wal-Mart has transformed itself into a world retailing empire and endeared itself to free-market advocates through its much-copied discount merchandising model, providing goods from groceries to clothes and appliances with “everyday low prices.”

Wal-Mart’s pioneering concept was made possible by the large pools of unskilled workers that it was able to tap to man its stores in the U.S. and supplier factories in China and elsewhere in Asia. Taking advantage of that cheap labor, the retailer built an unprecedented chain of low-cost suppliers that made goods to order at a fraction of U.S. wage levels.

Reflecting its rural roots, Wal-Mart’s bargain prices and low-end merchandise aimed to attract a targeted clientele made up of millions of low-wage and working-class customers, a group that — ironically — has multiplied in size as Wal-Mart’s wage model was adopted by big-box retailers such as Best Buy and fast-food chains including McDonald’s.

The Furman paper points out that low-income Americans are the greatest beneficiaries of Wal-Mart’s low prices because they spend a greater share of their incomes on groceries and other necessities. He argues that such workers are better off even without higher wages because of the savings and because progressive policies put into place since the 1990s enable them to supplement their incomes with Medicaid, food stamps and other welfare benefits. Mr. Furman, in fact, argues that forcing Wal-Mart to pay higher wages would backfire by “wiping out” the company’s “razor-thin” margin of profits and killing the company along with its millions of jobs.

Template for the 21st century

Nelson Lichtenstein, a professor of history at the University of California, Santa Barbara who is working on a book about Wal-Mart, sees Wal-Mart as a “template” in establishing American workplace standards much like General Motors did in the 1950s. GM’s policy of paying high wages with health care benefits and pensions to workers who spent their entire careers with the company became the model for American business in the second half of the 20th century.

Mr. Lichtenstein said salary scales are at the root of Wal-Mart’s successful business model, which couples low-wage labor with state-of-the-art technology such as the bar-coding system it pioneered to keep inventories and labor costs low at its stores. With sophisticated but easy-to-use technology in place, the company can ignore demands for higher wages because it can easily replace disgruntled workers with a seemingly endless supply of others willing to work at low wages, he said in an interview with NPR.

“You can have a workforce which rapidly turns over if you have the technology there, which means you can just slot one person into the job with no training and no sort of background,” he said. “Wal-Mart has to hire something on the order of half a million workers every year just to maintain its current workforce.”

After Wal-Mart proved how profitable this approach could be, its model was followed widely by other retailers — “in the whole fast-food world, the whole world of contingent workers,” he said. “This is sort of a new American model for labor, for the workforce, and Wal-Mart has been right there at the forefront of that.”

But the model is running into intense opposition as Wal-Mart makes the transition from countryside to city, prompting the company to downplay its leading role in the industry.

Mr. Restivo, the Wal-Mart spokesman, insists Wal-Mart’s wages and benefits are in the same ballpark as those of other major retailers, and it should not be singled out and forced to pay wages that are 50 percent higher than unionized competitors such as Safeway and Giant. Moreover, the average wage at Wal-Mart stores, at $12.67 an hour, already is in the range targeted by the D.C. City Council, he said.

The share of Wal-Mart workers who are paid so little that they qualify for Medicaid benefits is about the same as other retailers — 5 percent, Mr. Restivo said. After six months on the job, full-time workers with low wages are offered insurance options with premiums of $17 a pay period. With health care benefits available to even part-time workers, Mr. Furman said, Wal-Mart’s health care plans are better than average for the retail industry.

The company also has attempted to mollify its left-wing critics by adopting aggressive environmental goals such as using only renewable energy to power its stores, pledging to buy $50 billion in goods from U.S. manufacturers this year, and joining first lady Michelle Obama’s campaign to make healthy options available in “food deserts” found in inner cities.

In the District, the retailer signed a “Community Partnership Initiative” with city officials that included pledges to contribute some $21 million to local charities, create a workforce development program for low-income and at-risk residents, use local small and minority-owned businesses to build its planned six-story stores, and pay some $2 million to help finance any needed transportation improvements.

Searching for growth

As it struggles to gain footholds in some cities, Wal-Mart is having to fight criticism from another surprising quarter these days — investors who are increasingly worried that Wal-Mart has hit a wall in its efforts to sustain growth in the U.S. The company’s sales at established U.S. stores declined during the first two quarters of 2013 — something that has not happened since the recession. Wal-Mart officials attributed the softness largely to higher gas prices and the reinstatement of the federal payroll tax at the beginning of the year, both of which hit low-income shoppers particularly hard.

The news of a second quarterly downturn in U.S. sales had a devastating impact on Wall Street this month, triggering a 226 point drop in the Dow Jones stock index on Aug. 9. One Fortune magazine columnist suggested that Wal-Mart should reconsider its low-wage policies in the District because the company needs to keep establishing stores in U.S. cities if it hopes to satisfy investors’ demands for growth.

“Given the small impact” a “living wage” increase to $12 an hour would have on prices, the company’s intransigence in the face of political opposition “is a bit illogical,” said Adam Hartung, a business strategist and contributor to Forbes magazine. He said the living wage movement reflects the public’s deep dissatisfaction with poverty-level wages and Wal-Mart is foolish to fight the trend.

“Fighting trends is expensive,” and will eventually alienate even the investors Wal-Mart hopes to please, he said.

But Mr. Restivo, the Wal-Mart spokesman, dismissed such talk, saying Wal-Mart already has been welcomed and operates stores in some of the nation’s largest cities, including Baltimore, Chicago, Houston, Philadelphia, Sacramento, Calf., Atlanta, Phoenix, Dallas, Denver, Oakland, Calif., Honolulu, Cleveland, Portland, Ore., Las Vegas and Minneapolis. Noticeably absent from the list, however, is New York, where union resistance to Wal-Mart wage levels is intense like it is in Washington.

Wal-Mart announced its campaign to enter urban markets several years ago as it was experiencing a slump during the recession. More recently, it has been expanding online sales and replacing existing stores with “supercenters” as much as seeking new locations to maintain growth in the U.S. Like many U.S. corporations, Wal-Mart now sees the biggest opportunities for growth in developing markets like China, and has been trumpeting its growth overseas in recent earnings announcements.

As its opportunities for growth in the U.S. have dwindled, Wal-Mart has been forced to cut costs more ruthlessly than ever to maintain profits, including keeping a tighter lid than ever on wages and fiercely resisting political efforts requiring it to pay more.

“At some point, Wal-Mart will have nowhere else to grow but into large urban markets,” said Matt Bruenig, an analyst at Demos. “Unless it intends to leave those markets alone altogether, which seems unlikely, it will eventually have to give in to whatever D.C. or the other major cities require of them.”

But Wal-Mart’s defenders say the District and its most needy citizens are the ones who will miss out the most on the opportunity for growth and jobs if the council prevails and Wal-Mart pulls out of the city.

Chicago is a great example of the positive impact economic development can have in a community when local lawmakers let free-market forces work,” said Tom Donahue, president of the U.S. Chamber of Commerce, noting that Wal-Mart has created 1,500 jobs in its Chicago stores after overcoming opposition there, and it had hoped to create even more in the District. “Let’s hope Washington doesn’t become a cautionary tale,” he said.

Casey Mutchler contributed to this report.