Operation Rollback: Wal-Mart's World of Business

In October 2003 employees at more than 800 chain supermarkets in California walked out of their jobs after management demanded pay cuts and a reduction in health insurance benefits. The ensuing strike and lockout were notable for the number of workers involved (59,000), the duration of the conflict (more than four months) and the defeat eventually suffered by the United Food and Commercial Workers Union, which represented the workers. Just as notable was what had ostensibly provoked the showdown. In 2002, the discount chain Wal-Mart announced that it would place at least forty new Supercenters, the largest of its big-box stores, in California. A nonunion company famous for expanding its market share by undercutting its competitors' prices, Wal-Mart had proven hard to beat in the past. And in addition to offering a massive selection of housewares, toys and clothes, its Supercenters were outfitted with a full-service grocery. The mere prospect of losing customers to these new stores convinced Safeway, Albertsons and other large grocery chains that they could seek concessions from their workers on the pretext that wage cuts were a necessary measure for remaining competitive. Wal-Mart, it appeared, had changed the way the grocery business operated in California before it even entered the market.

In The Retail Revolution, Nelson Lichtenstein explains how Wal-Mart could shape, if not dictate, the agendas of so many third parties. And he suggests that the California grocery strike was just one particularly visible example of the profound impact of the Bentonville, Arkansas, chain on the broader economy. A labor historian best known for his biography of autoworkers leader Walter Reuther, Lichtenstein has become something of an authority on the discount Goliath. In 2006 he edited a collection of essays, published by the New Press, on the economics and historical circumstances of the Wal-Mart phenomenon. With The Retail Revolution, he provides a comprehensive story of the corporation's awesome growth and expansion. Drawing on sociological scholarship and reporting about the experiences of Wal-Mart workers in the United States and around the world, as well as information made public by lawsuits involving the company, Lichtenstein describes Wal-Mart's origins, expansion and current business practices, from its relationship with subcontracting manufacturers to its protocol for scheduling night shifts. He respects the company's argument for its own social utility--that it brings an abundance of goods to consumers at the lowest possible price--and admires its ability to solve complex logistical problems that have long bedeviled discount retailers. But he is horrified by the dispiriting low-wage, part-time economy that Wal-Mart has helped create.

Forty years ago Wal-Mart was a small chain of stores concentrated in a sparsely populated patch of the American South. Today it employs 2.1 million people, more than twenty times as many as ExxonMobil, the largest oil company in the United States. Its total revenue exceeds that of Target, Home Depot, Sears, Safeway and Kroger combined. It has prospered, Lichtenstein argues, by mastering the art of moving household products from manufacturer to consumer in the most efficient way possible, and by using economies of scale and low labor costs to undersell other stores. Its size and its just-in-time business model are now imitated by numerous companies looking to hold down costs while manufacturing and selling consumer goods in a global economy. And its success has put immense economic pressure on its competition, not to mention labor unions, governments and many of its own suppliers. Indeed, Lichtenstein argues that by squeezing the resources of the small-town, lower-middle-class Americans who flock to its stores, Wal-Mart's economic model also threatens its own bottom line. Global commerce in the twenty-first century is an uncertain, hyper-competitive affair--even for those companies that grow wealthy from perfecting it.

Wal-Mart was the brainchild of Sam Walton, the chain's co-founder and co-namesake. Born in 1918, Walton grew up in Missouri, where his father, a former cotton farmer from Oklahoma, worked during the Depression as a debt collector for the Metropolitan Life Insurance Company of New York. After graduating from the University of Missouri, Walton moved to Oklahoma, where he was employed in a defense plant and married the daughter of a prominent rancher and politician. After serving in the military, Walton spent five years managing a Ben Franklin chain store in Newport, Arkansas, a cotton-processing town eighty miles from Memphis. After turning around the struggling franchise, he was pushed out of the job by his landlord, who wanted to give the flourishing business to his son. Walton started over in the northwestern part of the state, in a town called Bentonville, population 2,964. He was running several Ben Franklin franchises in the Arkansas countryside and was expanding into other states when he opened his first Wal-Mart, in nearby Rogers, in 1962.

Walton's exile to the Ozarks, Lichtenstein argues, was a great stroke of luck. Walton arrived there with a basic business model--keep prices low by ordering in bulk and minimizing his markup; count on rapid turnover of goods to make a profit--and northern Arkansas proved to be a perfect location to try it out. As late as the 1960s, the region's predominantly rural economy was still undergoing modernization, and the small farmers who lived there appreciated the low prices offered by Walton. At the same time, car ownership and paved roads allowed a rural clientele to travel much farther than they had previously been willing to venture in order to shop. Walton located his stores in the mill towns and county seats of Arkansas, southern Missouri and Oklahoma--rarely choosing a community with a population of more than 10,000. But he made sure to build each store near an interstate so folks could drive to it from a nearby town or county. Other national chains, worried that rural America was not dense enough to support big stores, stayed away. (Kmart rarely built a store in a city with fewer than 50,000 residents.) Walton's only competition came from the small, dusty mom-and-pop stores that dotted the old country roads but were unable to match Wal-Mart's prices or selection.

Walton's move to northern Arkansas was fortunate for several other reasons, Lichtenstein argues. Because of agricultural modernization, there were numerous farmers' daughters and seasonal agricultural workers happy to earn a regular paycheck by working in retail. Organized labor had been notably unsuccessful in organizing the South, so Walton did not have to worry about unions. And both his workforce and clientele came from the same relatively homogeneous population. Most of the local black population had fled after a wave of brutal race riots in the 1910s and '20s, so the Southern Plains were almost exclusively white when Walton began his business. Ironically, this troubled past meant that Wal-Mart was the rare major chain store to survive the 1960s without having been embroiled in protests over integration. The region was also overwhelmingly Protestant, and the store came to reflect the socially conservative, Christian culture of its home base. To this day, the company still recruits future executives from a network of small evangelical colleges in the South and nurtures them through the company hierarchy. It has banned from its magazine racks not only Playboy but also Rolling Stone because it was deemed inappropriate for children. And the store's prominent displays were credited by the publishers of Left Behind, a series of apocalyptic Christian thrillers set in the immediate aftermath of the Rapture, with making the books bestsellers.

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