Monday, January 28, 2008

Ethical Retailing Memo: What Wal-Mart CEO Lee Scott Left Out of His Social and Ethical Manifesto

On Saturday we wrote about what we termed Wal-Mart CEO Lee Scott's corporate social and ethical policy manifesto speech, which he delivered last Wednesday to over 7,000 store managers at corporate headquarters in Bentonville, Arkansas.

Today, we would like to offer some constructive criticism (and positive encouragement) to CEO Scott regarding three key issues in the areas of social ethics and economics, health, and the environment we feel he left out of his social and ethical policy speech, and encourage him to address the issues we describe below.

Store-level employee wages

First, CEO Scott addressed a wide-range of social and ethical policy issues for Wal-Mart in his Wednesday speech. However, he left out one glaring and important one: The wages Wal-Mart pays its store-level associates.

Although it's the largest food retailer in the U.S., Wal-Mart pays it associates, particularly entry-level ones, less per-hour than all the other big chain supermarket retailers in the country. In the case of unionized retailers like Kroger Co., Safeway Stores, Inc. and a number of others, that hourly-wage disparity is huge.

We strongly suggest to CEO Scott that at a minimum, Wal-Mart immediately increase it hourly wage for entry-level associates by at least two dollars hour. Additionally, the retailer needs to bump-up its hourly pay-scale so that retail associates who've been with the company for one year also are making at a minimum two dollars hour more than they currently are paid.

As a comparative example, retail supermarket clerks in California who work for Kroger Co.'s Ralph's chain, Safeway Stores', SuperValu's Albertsons, Save Mart, Stater Bros., Raley's Superstores and others, make about $20.00 hour after one year of full-time experience. By contrast, a Wal-Mart Supercenter clerk with the same amount of experience makes about $13.00 -to- $14.00 hour in California.

Employee health insurance

Second, CEO Scott also failed to address Wal-Mart's employee health insurance plan in his Wednesday speech. This is not only an ethical issue, its a health and economic one as well. In a conference call with members of the media a couple days before the social manifesto speech in Bentonville, Wal-Mart announced that for the first time in the company's 45-year history, more than half of its employees had enrolled in the company health insurance plan. (Read our January 22 piece on the topic here.)

However, among the many statistics shared by Wal-Mart as part of the announcement, was the fact that over 7% of Wal-Mart workers have no health insurance at all. Further, over 25% of the company's employees are insured by a spouse or parent's health plan. Additionally, many others are on government programs like Medicaid.

We urge CEO Scott to improve Wal-Mart's health insurance plan significantly. When compared to the plans made available to store clerks who work for the California chains mentioned above for example, Wal-Mart's health plan is an embarrassment. These unionized clerks, who work for Safeway Stores, Kroger Co. and the like, have one of the best health plans in the United States. Co-pays are low, employee contributions are reasonable, and coverage is excellent. Further, where in the case of Wal-Mart, which has only half of its U.S. employees enrolled in its corporate health plan, Safeway Stores has nearly 100% of its store associates enrolled in its plan.

Increasing hourly wages for store-level associates and dramatically improving its corporate health plan are two social, ethical and health issues Wal-Mart must address. As a wise woman once told us, get your own house in order before you go out and try to save the world. We applaud Scott's larger social and ethical vision for Wal-Mart, but encourage him to get his house in order at the same time.

Superstores and the environment

The third issue CEO Scott left out of his social and ethical policy manifesto speech on Wednesday has to do with Wal-Mart's Superstores and the environment. Wal-Mart has made some great strides in the area of sustainability in the last few years, in our opinion. Further, the commitments Scott made in his speech Wednesday to store managers goes even further towards helping to make the company a "greener" and more sustainable one.

The one glaring issue Scott didn't address at all however are Wal-Mart's Supercenters in general from an environmental and sustainable perspective. Although the company has a few "green" prototype stores built (4-5) and is building a handful more, the vast majority of their Superstores are conventional ones. These stores leave much to be desired in terms of energy conservation elements and green design principles. We are talking about 98% of its Supercenters here.

By their very nature, Supercenters (or big box stores in general) which average about 200,000 square feet, are energy hogs. They're filled with electric lights, have hundreds of feet of perishable products' display cases that suck electricity, and require lots of energy to heat the huge stores in the winter and cool them in the summer. Big box stores also are by their very design located almost always away from the central city. This means customers have to drive some distance to get to them, requiring more energy use in the form of gasoline. The huge stores also have massive paved parking lots, which aren't friendly either in terms of reducing energy use.

Wal-Mart needs to do two things in our analysis: First, the retailer needs to make the "green" prototype stores the norm, rather than a cut-and-paste format that they use in a limited way. All new Supercenters should be "green" and sustainable Wal-Marts. Additionally, the company needs to embark on a major effort to remodel--say over a 5-year period--all of its U.S. Superstores so they meet at least the sliver (we would like to see the gold) standard for energy conservation set by the U.S. Green Building Design Council.

In his speech, CEO Scott revealed he has talked to automobile industry companies about having Wal-Mart sell electric and hybrid cars. He further said he envisions the retailer having wind turbines in its store parking lots where customers could recharge the electric and hybrid cars they buy from Wal-Mart.

We like this type of visionary thinking from Scott. However, we want to see some practicality combined with it. Its a long way off before electric and even "plug-in" hybrid cars are going to be on the market for Wal-Mart to sell, and for it to build wind turbines in its parking lots to recharge those renewable energy-powered vehicles.

However, it's not too far off at all for Wal-Mart to install those same wind turbines in its store parking lots--but use them to provide renewable energy to help power the store. Other retailers throughout the world are beginning to do this. It's time for Wal-Mart to let those wind turbines bloom in the parking lots CEO Scott. Then, when you do sell the electric and hybrid cars, they can be used not only to help power the stores, but to recharge those cars you will sell as well.

Wal-Mart recently completed the installation of solar panels on about 20 stores in California and Hawaii, along with putting solar panels on a new distribution center in the western region. We congratulate the company on that development, and suggest to CEO Scott that he dramatically excellerate the company's store-level solar power initiative.

It's feasible that a Wal-Mart Supercenter, with a full solar panel roof array and two or three modern wind turbines in its parking lot, could be able to obtain about 40% of the store's energy from those renewable sources. What a huge achievement that would be for the world's largest retailer.


By increasing the hourly wages of entry-level and one-year-plus store-level associates, enhancing the employee health insurance plan, and "greening" its Superstores in a more-rapid fashion, CEO Scott and Wal-Mart would demonstrate that on the socio-economic, ethical, health and environmental fronts, Wal-Mart is a company that not only does walk-the-walk, but believes in putting its own house in ethical order, along with embarking on a larger corporate social and ethical policy.

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