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Wal-Mart CEO Takes His Case to California

He says the retailer erred in its aggressive pursuit of the crucial market but won't back down.

February 24, 2005|Nancy Cleeland and Debora Vrana | Times Staff Writers

With its California expansion plans stalled, Wal-Mart Stores Inc. dispatched its top executive to Los Angeles on Wednesday to plead the case for the world's largest company.

Among his messages: We're not backing down.

Chief Executive H. Lee Scott Jr. acknowledged to 500 business leaders at a Town Hall Los Angeles luncheon that Wal-Mart had made mistakes in trying to expand quickly in California, its most important market for growth. The company's efforts to build Supercenters -- combination grocery and discount stores -- have faced hostile city ordinances, strong community opposition and complaints that they pay too little and run competitors out of business.

But Scott said Wal-Mart was undeterred. If critics want to take the company on, "they need to bring their lunch, because we're not going to lay down," he said in an interview. "We've got nothing to apologize for."

Wal-Mart said three years ago that it would build 40 Supercenters in California by 2008. Only three have opened so far. Scott said Wal-Mart would open 25 stores in California this year, including one in Los Angeles, but declined to say how many, if any, would be Supercenters. The retailer has 180 of its traditional discount stores in the state.

Analysts said Wal-Mart couldn't afford to quit its expansion in California. The company's once-meteoric growth has slowed in recent years as it moved from the rural South into urban areas and the West, and some international markets, including China, have been less welcoming than expected.

Given that, seriously tapping into California's huge pool of consumers is essential for Wal-Mart's health, said retail consultant Burt P. Flickinger, who follows the company closely.

"Southern California is their most important market in the world right now," he said. "Lee Scott really should have been out there a long time ago."

Scott's image-building appearance in Los Angeles was part of a nationwide public relations campaign launched last month with full-page ads in prominent newspapers, television spots and sponsorships of National Public Radio programs. The campaign portrays the company as a benevolent employer and good citizen that contributes enormously to local and state tax bases.

In his speech, Scott said Wal-Mart had saved consumers billions of dollars a year by cutting prices, while still paying wages comparable to those of most other retailers. He also said a high percentage of its workers worked full time and enjoyed health benefits.

The timing of his remarks was in some ways unfortunate. As he spoke in Los Angeles, Alabama announced that Wal-Mart employees used state medical benefits at a higher rate than those from other companies, joining a handful of states that have identified the retailer as the biggest drain on public health costs.

That was the latest bit of unflattering publicity. Last month, the Labor Department said it found underage workers operating heavy equipment in some stores. It was later disclosed that the federal agency had agreed to give the Bentonville, Ark.-based company 15-day advance notice of pending citations and a chance to fix them. That deal is being investigated by the department's inspector general.

Wal-Mart's low prices were blamed for this week's bankruptcy filing by Southern grocery chain Winn-Dixie Stores Inc. In addition, the retail giant faces a class-action lawsuit claiming that it systematically discriminated against women and federal charges that it employed illegal immigrants as contracted janitors and paid them less than minimum wage.

And in a stinging symbolic letdown, Wal-Mart this week fell from the top ranking in Fortune magazine's survey of the nation's most admired corporations, replaced by Dell Inc.

Scott said Wal-Mart -- which had $256 billion in sales last year and is the nation's largest employer -- had made some missteps. In particular, he said last year's company-sponsored ballot initiative to allow a Supercenter in Inglewood, which failed, "came across as arrogance" because it would have bypassed the city's planning process.

And Wal-Mart has been unfairly maligned simply because it's so big, Scott said. Comparisons with past leading national employers, such as General Motors Corp., are unfair, he said, because retailing in general pays less than manufacturing.

He blamed much of the company's image problems on union activists trying to protect high-paying jobs in the grocery industry, and said if they had their way, prices would rise.

"I'm afraid that their gain would come at the expense of average Americans who need to improve their standard of living," Scott said.

The barrage of criticism, he said, had hurt employee morale.

"I decided to speak up because of our associates," he said. "They want to know Lee Scott has the courage to speak up for them."

On that note, Scott left for a tour of a Wal-Mart store in Panorama City, where dozens of employees waited for handshakes and photos. "He's here, he's here," they exclaimed as Scott entered.

Customers, however, were more interested in bargains.

Leslie Sanchez of Glendale, shopping with her 5-year-old daughter, Denise, carefully checked out a girl's swimsuit and barely looked up as Scott walked by. She had driven to the Panorama City store for the first time Wednesday because she heard the bargains were good and found it to be true.

"I'll come again," she said.

That's just what Scott wants to hear.

"If we continue to be a better company," he said, "I think the citizens of California are going to find it easier to like us."

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Audio of Wal-Mart CEO Scott's speech at Town Hall Los Angeles is available at latimes.com/walmartspeech.

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