Founded by Sam Walton, Modernized by Lee Scott

by Gwen Moritz  on Monday, Jul. 2, 2012 12:00 am  

Charles Fishman, author "The Wal-Mart Effect"

In 2003, Charles Fishman’s editor at Fast Company magazine sent him to Bentonville to write about sophisticated executives of vendor companies forced to leave New York and San Francisco and move to godforsaken Arkansas to take care of the all-important Wal-Mart account.

He came back with an article called “The Wal-Mart You Don’t Know,” which served as the basis for his 2005 bestseller, “The Wal-Mart Effect.” Through anecdotes and empirical data, the article and then the book illustrated the effect of Wal-Mart’s relentless pursuit of savings: “price rollback” demands that forced vendors to outsource manufacturing to overseas plants, notoriously tightfisted wages and benefits, pioneering work in energy-efficient store designs and building materials.

“So I’ve been writing about Wal-Mart for nine years, and I think just in that time there’s been as much of a dramatic change in Wal-Mart’s approach to the world as there has been in the life of Wal-Mart,” Fishman said in a recent interview.

Quality may have been Job 1 at Ford; at Wal-Mart, the only job — the essence of the company, its DNA — was getting as much merchandise as possible to as many customers as possible at the lowest possible price. And by focusing on that one goal, Wal-Mart was already doing “more business than Target, Sears, Kmart, J.C. Penney, Safeway, and Kroger combined,” Fishman wrote in 2003.

Wal-Mart, through its own pricing and the inevitable response by competitors, was credited with helping control inflation in the United States. A study by McKinsey & Co. found that some 12 percent of productivity gains in the U.S. economy in the 1990s could be traced to Wal-Mart.

But Fishman compares that Wal-Mart to Baby Huey, the oversize duckling of classic cartoons who was blissfully unaware of his effect on his standard-size playmates. Wal-Mart’s executives, he said, “were willfully ignorant and simply too focused on their own issues to be willing to take account of the impact they were having.”

When his original article came out, Wal-Mart had virtually no public relations mechanism, no media relations, no govern-mental lobbying. “The word sustainability did not exist in the company. They considered any opposition to Wal-Mart as wrong if not downright evil,” he said.

And there was plenty of opposition, particularly from labor unions itching to get a foothold at the world’s single largest employer. Campaigns with names like Wal-Mart Watch and Wake Up Wal-Mart turned public attention to Wal-Mart’s business plan, including its reliance on cheaper imports and part-time workers who didn’t qualify for health insurance benefits.

After Sam Walton died in 1992, Time magazine called him “America’s favorite shopkeeper.” But by the mid-2000s, Wal-Mart was simultaneously one of the country’s most-admired and least-admired companies. Rank-and-file consumers would express misgivings about the company even as they flocked through the doors with the assurance that they would never pay too much for anything.

As long as sales continued to climb, and they did, the criticism was easy to ignore, particularly by middle management.

“The impact wasn’t relevant to individual [merchandise] buyers initially,” Fishman said. “So that’s why it took someone at the top to say, ‘We can’t ignore the impact we’re having on the world or the impact that our impact has on people’s attitudes.’”

That person was H. Lee Scott Jr., who succeeded David Glass as Wal-Mart’s CEO in January 2000.

A product of the Wal-Mart culture, Scott was initially as inured to outside opinion as anyone else. But according to Fishman, who has interviewed Scott extensively, Hurricane Katrina in 2005 was a turning point in Scott’s thought process. The relentless efficiency that had been badmouthed was now praised.

“Wal-Mart was the organization that was ready to deliver what the people of coastal Louisiana and Mississippi needed immediately,” Fishman said. “Wal-Mart got all this good press. They were ready. As soon as the National Guard lifted the barriers, they came flooding in. And Lee Scott said, ‘That’s what we do: deliver things that people need when they need them.’”

Scott ended up consulting with another Arkansas institution, according to Fishman. “And it was Bill Clinton who helped him understand that they were hurting themselves by acting like their critics had nothing valuable to say.”

When Scott retired as CEO in 2009, he left behind a company that is “no longer living in a bunker,” Fishman said. Scott, he said, should get as much credit for modernizing Wal-Mart as Sam Walton did for creating it.

“Wal-Mart is still Wal-Mart,” he said. “The core mission is the same, but Wal-Mart is a different company than it was 10 years ago — and different in ways that are very valuable.”

In particular, Wal-Mart has embraced sustainability as both smart for business and good for image. Wal-Mart invited executives from Target and Publix and Kmart to tour its first energy-efficient stores and has made a point of sharing best practices and techniques on sustainability.

Environmental Defense Fund employees are given Wal-Mart employee badges and can wander the stores freely. Wal-Mart has told its vendors that the amount of energy used to produce merchandise must decline by at least 10 percent between 2010 and 2020. “That’s Wal-Mart reaching into the operations of their suppliers and doing with sustainability exactly what it did for price,” Fishman said.

The company even publishes a sustainability report online for the world to see. “Sam would have been furious about how much data they share with the world,” Fishman observed.

(Charles Fishman’s original 2003 article for Fast Company magazine, “The Wal-Mart You Don’t Know,” can be read online here.)

 

 

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