Down and Out in Discount America

On the day after Thanksgiving, the biggest shopping day of the year, Wal-Mart's many progressive critics--not to mention its business competitors--finally enjoyed a bit of schadenfreude when the retailer had to admit to "disappointing" sales. The problem was quickly revealed: Wal-Mart hadn't been discounting aggressively enough. Without low prices, Wal-Mart just isn't Wal-Mart.

That's not a mistake the big-box behemoth is likely to make again. Wal-Mart knows its customers, and it knows how badly they need the discounts. Like Wal-Mart's workers, its customers are overwhelmingly female, and struggling to make ends meet. Betty Dukes, the lead plaintiff in Dukes v. Wal-Mart, the landmark sex-discrimination case against the company, points out that Wal-Mart takes out ads in her local paper the same day the community's poorest citizens collect their welfare checks. "They are promoting themselves to low-income people," she says. "That's who they lure. They don't lure the rich.... They understand the economy of America. They know the haves and have-nots. They don't put Wal-Mart in Piedmonts. They don't put Wal-Mart in those high-end parts of the community. They plant themselves right in the middle of Poorville."

Betty Dukes is right. A 2000 study by Andrew Franklin, then an economist at the University of Connecticut, showed that Wal-Mart operated primarily in poor and working-class communities, finding, in the bone-dry language of his discipline, "a significant negative relationship between median household income and Wal-Mart's presence in the market." Although fancy retailers noted with chagrin during the 2001 recession that absolutely everybody shops at Wal-Mart--"Even people with $100,000 incomes now shop at Wal-Mart," a PR flack for one upscale mall fumed--the Bloomingdale's set is not the discounter's primary market, and probably never will be. Only 6 percent of Wal-Mart shoppers have annual family incomes of more than $100,000. A 2003 study found that 23 percent of Wal-Mart Supercenter customers live on incomes of less than $25,000 a year. More than 20 percent of Wal-Mart shoppers have no bank account, long considered a sign of dire poverty. And while almost half of Wal-Mart Supercenter customers are blue-collar workers and their families, 20 percent are unemployed or elderly.

Al Zack, who until his retirement in 2004 was the United Food and Commercial Workers' vice president for strategic programs, observes that appealing to the poor was "Sam Walton's real genius. He figured out how to make money off of poverty. He located his first stores in poor rural areas and discovered a real market. The only problem with the business model is that it really needs to create more poverty to grow." That problem is cleverly solved by creating more bad jobs worldwide. In a chilling reversal of Henry Ford's strategy, which was to pay his workers amply so they could buy Ford cars, Wal-Mart's stingy compensation policies--workers make, on average, just over $8 an hour, and if they want health insurance, they must pay more than a third of the premium--contribute to an economy in which, increasingly, workers can only afford to shop at Wal-Mart.

To make this model work, Wal-Mart must keep labor costs down. It does this by making corporate crime an integral part of its business strategy. Wal-Mart routinely violates laws protecting workers' organizing rights (workers have even been fired for union activity). It is a repeat offender on overtime laws; in more than thirty states, workers have brought wage-and-hour class-action suits against the retailer. In some cases, workers say, managers encouraged them to clock out and keep working; in others, managers locked the doors and would not let employees go home at the end of their shifts. And it's often women who suffer most from Wal-Mart's labor practices. Dukes v. Wal-Mart, which is the largest civil rights class-action suit in history, charges the company with systematically discriminating against women in pay and promotions [see Featherstone, "Wal-Mart Values: Selling Women Short," December 16, 2002].

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