The Wal-Mart Effect: a Q & A with author Charles Fishman

class=img_thumbleft>Two years ago, while researching an article about Wal-Mart's presence in the Twin Cities, I read pretty much every substantive piece that had been written about the retailing behemoth in the previous year. By far the most revealing article was in Fast Company magazine by Charles Fishman. The piece peeked behind the curtains of Wal-Mart's operations, and scrutinized its seismic impact on the world economy, in a way that no previous journalist had managed. Fishman has now expanded his reporting into a book, The Wal-Mart Effect, published earlier this month by Penguin Press.

Fishman catalogues the impact and enormity of Wal-Mart in ways that are often astounding. For instance, he points out that more than half of all Americans now live within five miles of a Wal-Mart, with roughly one outlet for every 78,000 residents. Between 1997 and 2004, the country added 670,000 new retail jobs. More than two thirds of those jobs (some 480,000) were at Wal-Mart. The company is now the largest employer in Mexico, the largest retailer in Canada, and the second largest grocer in England.

Fishman's book is not a polemic. He's not on a crusade to convince readers that Wal-Mart is responsible for all of the evils of the world. In fact, Fishman acknowledges that he--like over 90 percent of Americans--is a Wal-Mart shopper. "I am both amazed by Wal-Mart, and appalled," he writes. "I am never bored."

But Fishman ultimately presents a damning portrait of the world's largest corporation. Owing to Wal-Mart's obsession with delivering low prices, the company has depressed wages and benefits across the country, accelerated the departure of manufacturing jobs overseas, and fostered deplorable working conditions in developing countries around the world.

Fishman will be in the Twin Cities for a reading at the University of Minnesota Bookstore on February 7th. I spoke with him by phone this morning.

City Pages: You talk a lot about how secretive and unhelpful to the media Wal-Mart is. What kind of cooperation, if any, did you get from the company in reporting this book?

Charles Fishman: I don't like the word unhelpful because I don't think it's their job to help us. But they don't have a constructive relationship with the media. And they don't think that newspapers and TV and news outlets of all kinds have any responsibility in terms of holding Wal-Mart accountable. And that's an area where Wal-Mart and I politely disagree. Wal-Mart is among the most powerful economic institutions in America today that's not in the hands of the federal government. It's not the Federal Reserve Bank. It's not the federal budget. But except for government action, it's easy to imagine that Wal-Mart is the single most powerful economic actor in the country. In my view that means it is in no sense a private organization. It operates across the economy, the economy is part of our society, and Wal-Mart has certain obligations given the level of its impact, and I think those obligations go well beyond what we require of Wal-Mart now.

They refused to participate at any level. I was so concerned to make sure that I was getting what I wrote right that I actually, on my own dime, hired a fact checker who went through the book after I wrote it and checked every fact of every sentence of every paragraph of every page. Because I feel an obligation, even though Wal-Mart wouldn't participate, to portray Wal-Mart in as truthful a light as I could muster given that they refused to cooperate at all.

CP: Since the book's release have you gotten any reaction from them about it?

CF: No. It's gotten a lot of press coverage in the last two weeks. I assume that they know about it. There are certainly people that I interviewed in Bentonville whom I have sent copies of the book.

CP: How did your perceptions of the company change during the reporting of this book?

CF: I'm surprised about the extent to which Wal-Mart does in fact touch our lives and shape the economy. I am surprised at how broad and deep and varied the Wal-Mart effect is. Wal-Mart changes the quality of merchandise. Wal-Mart changes the selection of what's on the shelves. Wal-Mart gets inside our brains and changes how we think about what things should cost and what their value is, and it changes our perception of quality. Wal-Mart selling a $39 microwave. If G.E. is selling a $199 microwave, we assume G.E. is ripping us off. What could the $199 microwave have that the $39 microwave doesn't? And even if the $199 microwave has a bunch of stuff, why isn't it just $99?

I feel like we've sort of lost track of quality as part of price. Wal-Mart didn't invent the idea that Americans really care about the lowest possible price. Let me introduce you to Ben Franklin: a penny saved is a penny earned. That's Sam Walton's central insight. We will do a lot of things to pay a little bit less for something we buy every day. I was amazed that Wal-Mart re-sets the bar about how we think about what products should cost, and Wal-Mart has managed to get us to care a lot less about quality. That is an amazing impact on the psychology of American consumers. But Wal-Mart reaches all the way into China and Bangladesh. Wal-Mart's operations shape the lives of people who live halfway around the world and will never see a Wal-Mart store. That's amazing.

Here's one way of thinking about it. Wal-Mart sells more guns than anybody in America. Wal-Mart sells more underarm deodorant than anybody in America. Wal-Mart sells more bikes than anybody in America. And Wal-Mart sells more movies than anybody in America. So if you work for Columbia or Huffy or Smith & Wesson or Ban deodorant, every one of the senior sales people at those companies wakes up every morning thinking about the same company--Wal-Mart--their number one customer. That kind of impact is astonishing.

One of the things I wanted to do in the book is connect the dots for Americans on something that we allow ourselves to ignore. When a factory that makes kitchen appliances or bicycles or textiles moves from Minnesota or Michigan or Ohio to China or to India, the products that come back to the store shelves look exactly the same. They've got the same brand name and the same packaging and it's the same product. It may be cheaper. The price certainly doesn't go up. But the factories that those products are made in operate in a way that would be illegal in this country. Part of the reason the stuff is cheap is that it's manufactured in a way that leaves behind 100 years of social progress--on pollution, on how people should be treated in the workplace, on safety and hours and all those kinds of things. The factories are illegal but the products remain legal.

That's sort of what I did with salmon [imported from Chile]. How does Wal-Mart deliver salmon for this astonishing price of $4.84 a pound? The costs of raising and delivering that salmon aren't in the price. The pollution is left for the Chileans to worry about. The people who raise it and filet it and prepare it for shipping, they are not treated in the way that we have agreed in this country that people should be treated. That's one of the most important reasons that it's so cheap.

CP: Do you see any evidence that Wal-Mart is willing to take any steps to deal with environmental issues related to over-farming of the salmon population in Chile?

CF: What I was told by the people who were involved is that salmon happens to be an area where they are trying to come up with a way of imposing environmental rules that will change the way that salmon is raised in Chile. There are private talks between Wal-Mart and the U.S. and international environmental groups. Wal-Mart, this fall, announced a huge environmental initiative in the United States. They're going to make their stores more environmentally friendly in the way they're constructed. They talked about a drive to double the gas mileage of their truck fleet.

CP: They operate the largest trucking fleet in the country, right?

CF: Yes. They run the largest trucking fleet in the country. If they can double the gas mileage of their trucks--and then by the way every other trucking company in American can follow suit, because Wal-Mart has used its buying power to say to diesel engine makers let's do this--that would be huge. But, you know what, there was a huge environmental push on their stores in the late 80s, and it came to nothing. And then we had the "Made in the USA" campaign. There are all kinds of reasons that didn't play out. I'm not accusing them specifically of being cynical. But it's easy to talk about this stuff. Results matter a lot more than talk. It's nice to have the goal of doubling your truck fleet gas mileage, but tell us how you're doing a year from now.

The reason I'm skeptical is they have imposed a factory inspections program, and they talk about how proud they are of their factory inspections program. But the factory inspections program, when you go over their numbers, is essentially a flimsy public relations effort. It's a fraud. They do 12,500 factory inspections a year. 11,500 of those inspections last year were announced. They were by appointment. At the factory inspections that were announced, more than 60 percent of the factories that they inspected by appointment had violations that Wal-Mart considered serious. So let's see how seriously their suppliers are taking the factory inspection program. The factory managers and owners are required to sign the code of conduct. The code of conduct is posted on the wall, in the local language, no matter what country you're talking about. It's translated into 32 languages. Even the workers have read the factory inspection program. The factory manager knows that Wal-Mart inspectors are coming and more than 60 percent of their factories have violations. I wonder what those factories are like on the days when the factory inspectors aren't coming.

CP: You discuss in the book a lawsuit brought against Wal-Mart in the United States by factory workers overseas. Has anything become of that suit?

CF: It's a fascinating lawsuit. It's a lawsuit that involves 15 workers from five countries who are suing Wal-Mart in California court for failing to enforce its own code of conduct, for violating the laws of the local countries, and for violating Wal-Mart's own rules about how it should operate. It's hard to know what's going to happen with that lawsuit. It's hard to understand why citizens of China and Bangladesh and Nicaragua would have standing to sue in California court. But there is some possibility that the suit will go forward. Even if it only goes forward a little ways, then they can begin asking under oath all kinds of very hard questions about how Wal-Mart operates overseas and that is clearly something that would make Wal-Mart uncomfortable.

CP: You mention that Wal-Mart's same store sales growth has dropped fairly dramatically in the last six or seven years, from nine percent average annual growth to roughly three percent last year. Is that simply an indication of market saturation, or perhaps some kind of backlash against Wal-Mart because of the questionable business practices that they engage in?

CF: It's impossible to know. I think there's no question that America is full up of Wal-Marts. I had this market research company do a mapping exercise in which they mapped every Wal-Mart store and then drew a circle around it to see how close we live to Wal-Mart. And 54 percent of Americans live within five miles of a Wal-Mart, less than a ten-minute ride away. Ninety percent of the population lives within 15 miles. And that 90 percent includes no Wal-Marts in New York City. If you put a Wal-Mart in Harlem and a Wal-Mart in Greenwich Village, the 90 percent would be 94 percent.

Wal-Mart specializes in selling consumables. Wal-Mart sells groceries and paper towels and diapers and cleaning fluids. The kinds of things you use up and go back the next month and need again. You don't buy more dog food because it's cheaper. You don't buy more toilet paper because it's cheaper. You switch where you're buying it, but you don't consume more of it. Once you've filled the country with Wal-Mart's, the only way to grow is to take market share from other people. Wal-Mart already sells 20 percent of the toys, 30 percent of the housewares, 30 percent of the dog food, so it's hard to take more market share.

It's much harder to grow when you're a $300-billion company then when you're a $300-million company, right? Wal-Mart still grew in the last three years by the size of Target. People say Target's coming on strong. Target's doing very well. Target has a great competitive strategy. Target has done a very good job of differentiating itself from Wal-Mart, even though they're basically in exactly the same business. But Wal-Mart grew by Target, including all of Target's growth. So it's not as if Target's about to take down Wal-Mart.

Wal-Mart is looking at a couple of very interesting arenas. Wal-Mart would like to get into the banking business. That's a pretty big business in America, financial services. Wal-Mart would like to get into the healthcare business. They have opened doctor's clinics in 12 stores. Imagine what Wal-Mart could do to healthcare. Do you want to buy your healthcare from the low-price leader? I don't know. Buying it from the high price leader hasn't always worked out (laughs).

There's only 45 Wal-Marts in China. China's the largest nation in the world and has four times the population of the United States. There are zero Wal-Marts in India. India is the second largest country in the world. I don't think Wal-Mart's going to see a return to those dramatic growth numbers in the U.S. They'd have to find a whole new business to go into. There's no way of changing the game in bicycles or hair care products or toothpaste anymore. They've conquered those markets.

CP: In markets where Wal-Mart has such an overwhelming share of the marketplace--I'm thinking primarily in the south--is there any evidence that their commitment to low prices wanes?

CF: I haven't found any. My understanding is that Wal-Mart sets a national price for every product that it carries. Local managers are permitted to reduce the price to compete with nearby stores. So they'll take the price of a box of cereal or a pair of blue jeans down to match a special that a local store is running. But at least according to Wal-Mart's internal rules, they're only allowed to do that temporarily. I think that if Wal-Mart practiced any kind of systematic predatory pricing--go in with low prices, put the local competition out of business, and raise the prices back--that the very well organized groups that oppose Wal-Mart would be pouring forth data on that, as would their competitors, as would the people they put out of business.

My anecdotal look at it is that they are true to their philosophy. They don't raise prices. They just don't. That's the problem to be honest. It's one of the reasons that I think they're out of control. Normal economic behavior would be to raise prices back, giving room for people to come back into the market, giving your competitors some edge. When Wal-Mart runs 30 percent of the grocery market in a town, or when Wal-Mart owns 30 percent of a product category, that is not market capitalism. That is running the market. You can't be a serious player in deodorant or bicycles or guns or DVDs unless you're selling them at Wal-Mart. And then you're selling them on Wal-Mart's terms. Wal-Mart tells you what your barbeque sauce is going to cost. Wal-Mart tells you what your pickles are going to cost. Those prices often don't bare any relationship to the price that the market would set. Prices are supposed to be set by the market. Supply of natural resources, supply of the product, demand from customers. Wal-Mart's imposing prices in those markets--and they're often very low prices, that's how it wins market share--but that's also how it distorts the idea of market capitalism.

CP: You conclude that one necessary reform that can be implemented is to require much greater financial disclosure by large corporations such as Wal-Mart. Can you give an example of what kind of financial data you're talking about?

CF: I think you can start with the healthcare debate. The SEC has a set of rules about what data publicly traded companies are required to reveal and I think those rules are 50 or 100 years out of date. I think we should know what they spend on healthcare, how many of their own employees are on their health insurance plan, what the waiting periods are on those health insurance plans to be eligible, where the people who aren't insured by the employer get their insurance--if they get it. Do they get it from a spouse? Or do they get it from the government? What percentage of employees and their relatives are uninsured? That's data that exists in all the databases of these large companies anyway.

They just had a year-long debate about Wal-Mart and healthcare in Maryland during which one piece of data Wal-Mart refused to supply is how much it spends on healthcare for its Maryland employees. That debate operated in a complete information fog.

Here in the last month the SEC has announced new disclosure requirements for pay for senior officials in publicly traded corporations. The publicly traded corporations are squawking. But guess what? The Wall Street Journal just discovered that the pay that many companies announce for their senior executives is wrong because the companies pay them those salaries and then they pay the taxes on those salaries as well. If you're making $10 million a year, your tax bill is $5 million. So those people aren't making $10 million, they're making $15 million. Just for shareholders that information is important, but it's also important for the rest of us. Many states in the union won't tell you what companies have employees on public health insurance or public support programs. They won't even tell you who the largest employers in the state are and how many people they employ. I cannot imagine information that is more public than a simple point of data: Who are the fifty largest employers in this state and how many employees do they have?

We have a responsibility as a country, as citizens, to hold companies the scale of Wal-Mart accountable for their operations. Companies didn't want child labor laws, companies didn't want minimum wage laws, car companies didn't want fuel mileage requirements or catalytic converters. Nobody's arguing for a return to an economy where there is no minimum wage, or for a return to an economy where we take the catalytic converters off of cars. Not all government rules are bad. Many of them, in fact, benefit the very businesses that squawk the loudest to begin with. A fresh wave of information would really open up our understanding of how this new kind of economic power affects our lives. Wal-Mart couldn't do what it does without the United States of America and every one of the government entities in the United States. In return for that, for what we as citizens provide, we are entitled to a sense of what the impact is.

CP: There was a bill introduced last year in the Minnesota legislature that would have required disclosure of how many of a company's employees are on the public health care rolls. Wal-Mart lobbied vigorously against the proposal and it ultimately did not pass. CF: That's what I'm talking about. Look how hard Wal-Mart fought in Minnesota just about a little piece of information that wouldn't have even cost Wal-Mart any money to release? Do you think Wal-Mart's fighting the release of that information because the news is going to be good.

CP: The statistics in Georgia, as cited in your book, are astounding: one person on the public health care rolls for every four Wal-Mart employees.

CF: That is in fact a cost of low prices. Sometimes the prices are low because of Wal-Mart's brilliant efficiencies. Sometimes the prices are so low because Wal-Mart is so good at outsourcing their costs to other actors. Here's the easiest example for people to understand. You can buy a dining room set--a dining room table and four chairs--from Wal-Mart for less than $200. Unfortunately it comes in a box of pieces. So they've outsourced the cost of the actual manufacturing of it, the assembly of it, to your living room (laughs). That's as vivid as you can get. No wonder it's so cheap. You make it. Let's not fool ourselves into thinking that there's no cost to a good deal.