THE SUSTAINABILITY
OF WAL-MART
EXAMINING THE SUSTAINABILITY OF WAL-MART AND ITS
EFFECT ON SOUTHEAST RALEIGH
WHITE PAPER PREPARED BY MBA STUDENTS
AT THE UNIVERSITY OF NORTH CAROLINA’S
KENAN-FLAGLER BUSINESS SCHOOL
Authors
Tom Beamon (MBA 2007)
Ryan Epstein (MBA 2007)
Mathew Holladay (MBA 2007)
Kerry Millar (MBA 2007)
Abstract
The authors examine the merits of a 2006 decision by the Raleigh, North
Carolina City Council to approve the construction of a Wal-Mart in Southeast
Raleigh, an economically disadvantaged section of the city. Benefits to the
residents of Southeast Raleigh listed in the paper include: employment
opportunities for low-skilled and unskilled workers, economic benefits from
lower prices on groceries, household items and consumer goods, and access to
banking facilities, health care and other services currently limited or
unavailable in the neighborhood. Disadvantages noted by the author include
Wal-Mart’s poor record of providing adequate wages, health care and benefits
to its employees, as well as its inconsistent record in obeying health, safety and
environmental regulations. The authors recommend that local governments
facing the choice of whether to permit Wal-Mart to enter their communities
perform a strengths-weaknesses-opportunities-threats (SWOT) analysis of both
Wal-Mart and the community it is proposing to serve. This type of analytical
rigor, the authors contend, will help governments make informed,
unemotional decisions that will generate the most social, environmental and
economic benefit for their citizens.
Publication Date
2006
©2006 Kenan-Flagler Business School, University of North Carolina, Chapel Hill, NC,
USA. Reprinted by permission. Available online at www.cse.unc.edu. This white paper was
prepared by MBA students for class MBA815 Sustainable Enterprise, taught by professors
Albert H. Segars and James H. Johnson. It is reprinted for educational purposes. Citations
and source accuracy have been reviewed, but cannot be guaranteed; clarifications or
comments may be directed to cse@unc.edu.
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Keywords:
Wal-Mart, Raleigh, North Carolina,
urban development, retail, low-income
housing, urban poverty, grocery stores,
economic
development,
community
development
EXAMINING THE SUSTAINABILITY OF WAL-MART AND ITS
EFFECT ON SOUTHEAST RALEIGH
Table of Contents
1.
2.
3.
4.
5.
Executive Summary
The Arguments for Wal-Mart
The Arguments against Wal-Mart
Recommendations for Wal-Mart
Conclusion
1. Executive Summary
On October 16, 2006, the Raleigh City Council approved a Wal-Mart for the Southeast Raleigh
neighborhood. While debating whether or not this store was good for the city of Raleigh, and more
specifically Southeast Raleigh, the Council examined the company as a whole, its impact on
communities, and its impact on the environment. In the end, the Council determined that, in the
name of community development, the retail Supercenter should be approved. In this paper, we will
examine the positive and negative aspects of Wal-Mart as a whole, its impact on the Southeast
Raleigh community, and some sustainability issues facing Wal-Mart. We will focus on challenges
and opportunities for Wal-Mart, and how those challenges and opportunities may affect the
company’s triple-bottom-line as it relates to Southeast Raleigh.
2. The Arguments for Wal-Mart
Wal-Mart does business in a number of segments: food and beverage, consumer staples, and
pharmacy products. Wal-Mart’s largest opportunity comes from the food and beverage segment as
it is the largest food retailer in the U.S. Over the past several years, it has expanded its share of the
market while the three largest grocery retailers have lost market share. Wal-Mart’s success in the
grocery segment is the result of its incredibly low cost structure. This success allows Wal-Mart to sell
grocery products at prices significantly lower than those of other grocery stores. On average, WalMart is able to offer groceries at prices 20% lower than traditional grocery chains. By passing these
grocery savings onto its customers, Wal-Mart essentially boosts the purchasing power of its
customers. This is an especially important benefit to families with either fixed or limited incomes.
The population of Southeast Raleigh is predominantly low-income families in working-class lives.
Most family members hold hourly-wage jobs and therefore have a direct correlation between their
time spent working and their take-home income. What this means is that the number of nonworking hours they have available for quality time with their families is inversely related to the
amount of money they are able to take home to their families. In this way, Wal-Mart is able to
benefit working-class families over traditional grocery chains by offering a dependable everyday
low price. Traditional grocers may be able to offer lower prices at certain points in time through
double-coupon and special weekly offerings. However, in general, Wal-Mart’s everyday low prices
on groceries offer working-class families in Southeast Raleigh an easy alternative to spending time
researching weekly circulars for deals and coupons.
On the employment side, a Wal-Mart Supercenter will bring 180 new jobs to Southeast Raleigh.
Southeast Raleigh is an area characterized by significantly lower levels of education, lower incomes,
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higher poverty rates, and higher unemployment rates than the surrounding Raleigh and Wake
county areas.1 Given the population demographics of the area, it is likely that the jobs Wal-Mart can
offer will be a good match to the skill sets available in the local workforce. The types of jobs that will
be offered will include: initial construction jobs, a mix of skilled and unskilled labor, and managerial
positions.
More than 75% of managers working at Wal-Mart stores began in hourly-wage positions. This
phenomenon provides an avenue for career advancement in an area where it otherwise may not
have been a possibility. Wal-Mart’s operations and supply chain have been heralded as the most
efficient in the world. In these jobs, employees can gain access to world-class business technology
and practices. Many Wal-Mart associates are seniors who need supplemental income or students
who want work experience. Wal-Mart can answer the needs of both of these groups.
Dr. James Johnson of the Kenan Institute of Private Enterprise noted that one significant
shortcoming of the Southeast Raleigh community is the neglect it has endured in the way of job
creation and economic development at the hands of the City of Raleigh. In April, 2006, Wal-Mart
announced the creation of a program called “Jobs and Opportunity Zones” to help nearby small
businesses, sponsor local training programs, and support local chambers of commerce. 2 The
Southeast Raleigh community may benefit directly from this corporate initiative.
From a retail and services point of view, the Southeast Raleigh area is characterized by limited bank
branches, limited large retail businesses, and very little retail draw for its surrounding suburban
zones. Entry by a Wal-Mart Supercenter will bring: a full-time grocery, a pet shop, a one-hour photo
processing lab, a portrait studio, a pharmacy, an automotive tire and express lube facility, and an
optical center. Additionally, there will be numerous alcove shops including: a cellular phone store, a
hair and nail salon, a video rental store, a family fun center, a branch of a local bank, and a fast food
outlet.
Studies have shown that new businesses tend to spring up near Wal-Mart stores and especially WalMart Supercenters. Existing stores and restaurants in many cases have flourished as they take
advantage of the increased customer flow.
While it may pose an undesirable business case for opening a new Nordstrom, there is real
purchasing power in the community. Left untapped, this revenue will simply leak out to
surrounding areas. In the process, this will destroy value by increasing travel time and expenses
required to reach localities where this purchasing power can be put to good use.
Wal-Mart currently insures more than one million associates and their family members. It is
currently expanding an $11-per-month health insurance premium plan. It has recently reduced the
waiting period for coverage for part-time employees.
Many consumers have health care coverage that requires a predetermined beneficiary co-payment
when filling a prescription. This predetermined price is the same no matter where the prescription is
filled. Wal-Mart has recently rolled out a plan for common prescription drugs that start as low as $3.
When people make decisions about where to fill prescriptions, price is less of a consideration for
most people than convenience.
Wal-Mart is currently experimenting with placing in-store clinics in its new Supercenters. In-store
clinics will improve access to healthcare for many people. Current trends in public health show that
people are choosing health service providers in places where prices are transparent and
consumption of the services is fast and convenient. In low-income families, understanding the cost
of care up-front is a significant feature to health care services. This is especially true in the case of
uninsured consumers who have to pay for the services out of pocket. Wal-Mart is moving into this
1 “Southeast
Raleigh Competitiveness Assessment,” James H. Johnson, Jr., Kenan Institute of Private Enterprise, June
2005.
2 “Wal-Mart Saves the Planet,” Mark Gunther, Fortune Magazine, August 2006.
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space to provide basic medical services through its retail-based clinics. A Wal-Mart pharmacy and
in-store clinic in Southeast Raleigh will make it both easier and cheaper for consumers to meet their
healthcare needs.
3. The Arguments against Wal-Mart
Everyone knows the chief complaint about Wal-Mart, which is that it puts small retailers out of
business, and vacates the main streets of small-town America. Yet, besides being known as the
assassin of “Mom & Pop” shops, a Wal-Mart moving into town carries with it several other lesserknown implications that can dramatically affect local communities. Though the company’s CEO,
Lee Scott, has recently taken an interest in promoting a more sustainable future for Wal-Mart, there
are areas that will need drastic change if the company wants to increase its sustainability from a
triple-bottom-line approach.
One of the first changes that Wal-Mart needs to make is to increase its wages and compensation
system. The company was built on the principle of providing low prices to it customers, but after
examining the data, it is clear that low prices often come at the expense of the employees and the
communities where the stores operate. The average hourly wage at Wal-Mart in North Carolina is
approximately $9.85 per hour ($16,108 per year)3 which is $492 below the poverty level for a family
of three.4
Many argue that Wal-Mart engages in several practices that essentially force a large number of its
employees to live below poverty levels and rely on state and federal aid in order to survive. 5 For
starters, a full-time employee work week at Wal-Mart is only 32 hours with no possibility of
overtime. However, numerous interviews with employees over the years have shown that most
workers rarely ever leave at the end of their shift or take breaks during the day. Basically, Wal-Mart
is forcing its workers to put in standard 40 hour work weeks, but will only pay for 32 of those hours.
Additionally, the premiums and co-pays on Wal-Mart health insurance plans are so high it is
estimated that over 57% of the company’s workforce is currently not covered by insurance. 6
While this information reveals the plight of the unfortunate employees of Wal-Mart, the effect of low
wages also has ramifications for the communities where Wal-Mart operates. Many former Wal-Mart
employees have stated that when they complained about the high cost of the company health plan,
their supervisors directed them to apply to taxpayer funded programs such as Welfare and
Medicaid to help them pay the bills.7 This practice of using federal and state programs as a
supplement to the company’s health insurance comes at a great cost.
According to a 2004 study by the Democratic Staff of the House Committee on Education and the
Workforce, federal taxpayers spend an average of $420,750 for each Wal-Mart store, because of the
high level of public assistance needed by Wal-Mart workers.8 Furthermore, a 2006 study by the
nonprofit organization, Wake-Up Wal-Mart, revealed that “public health care for Wal-Mart
employees cost American taxpayers $1.37 billion in 2005.”9 Hence, though Wal-Mart might be
saving many of its customers money at the cash registers, the level of public assistance that often
follows its stores can drive up taxes and create an undue burden on the rest of society.
Though statistics clearly demonstrate that Wal-Mart’s current business doctrine does not conform to
either the social or financial aspects of the triple-bottom-line approach, its performance is well below
standard in the environmental category as well. There are many complaints about the company
Wal-Mart Facts. 13 December 2006 <http://www.walmartfacts.com/articles/2184.aspx>.
Carolina Justice. Raleigh ACORN, Black Workers for Justice, Southerners for Economic Justice, North Carolina
Justice Center. 15 December 2006 <http://www.ncjustice.org/media/library/655_wrongwithwalmartflyer.pdf>.
5 Wal-Mart: The High Cost of Low Price. Robert Greenwald. Brave New Films. 2005.
6 Co-op America. 12 December 2006 <http://www.coopamerica.org/takeaction/walmart/>.
7 Wal-Mart: The High Cost of Low Price. Robert Greenwald. Brave New Films. 2005.
8 Co-op America. 12 December 2006 <http://www.coopamerica.org/takeaction/walmart/>.
9 Ibid.
3
4North
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regarding its respect for the environment. From the amount of fuel the company’s massive trucking
fleet consumes each year, to the way it develops its store sites with little regard for wetlands or
erosion, the sheer size of Wal-Mart’s industrial machine would make any environmentalist cringe.
However, Wal-Mart could begin to improve its environmental
impacts by simply improving on some minor operational details.
For example, throughout the United States, most Wal-Mart stores
have adopted the practice of storing most of its lawn and garden
chemicals on pallets in the parking lots of the store sites (see
picture at right). It is company policy to store fertilizers,
herbicides, and pesticides out in the open which often leads to
broken bags that spill their contents on the pavement.
This presents a significant problem when it rains because the large amounts of water that are
displaced by the parking lot often run quickly back into the local water supply and carry these
harmful contaminants with it. In 2004, this is exactly what was happening in the town of Belmont,
North Carolina until the local riverkeeper launched a negative publicity campaign against WalMart. Though it took several months and threats of a lawsuit to get any response from Wal-Mart,
the town of Belmont eventually forced all the stores in that local area to change their policy of
storing chemicals outside.
Nevertheless, Wal-Mart has a track record of violating the
Storm
Clean Water Act. In 2001, “the Justice Department and the
Water
EPA brought enforcement action against Wal-Mart for Clean
Drain
Water Act violations at 17 locations in Texas, New Mexico,
Oklahoma and Massachusetts.”10 And while CEO Lee Scott
was recently quoted in Business Week stating “there can't be
anything good about putting chemicals in rivers in Third
World countries so that somebody can buy an item for less
money in a developed country,” it is clear that he needs to
spend some time examining his company’s policies in middle
America as well. Moreover, even though Mr. Scott has
claimed to be re-focusing his company to be more 1 Chemicals stored outside Wal-Mart store. Note the close proximity of the storm
environmentally friendly, in 2005 Wal-Mart gave only 0.021% water drain.
of its total profits of $6.3 billion to help the environment. 11
4. Recommendations for Wal-Mart
If Wal-Mart truly aspires to become a sustainable company in the future and take a triple-bottomline approach to its operations, it needs to start initiating changes now. The paradox of Wal-Mart as
a sustainable firm hinges on one key aspect of its business: its sheer size. As the world’s largest
employer, Wal-Mart not only has the responsibility to lead sustainability efforts, but it also has the
leverage to shift sustainability paradigms if it chooses to do so. The paradox comes into play when
Wal-Mart makes a decision to change its business model and create unintentional subsequent
reactions in the marketplace that sometimes rival the original problem’s impact and complexity.
Due to this global ripple effect, sustainability at Wal-Mart must be well planned and multiple
outcomes for each decision must be evaluated.
In October 2005, CEO Lee Scott announced Wal-Mart’s environmental goals:
100% renewable energy, zero waste, sustainable products;
25% increased fuel efficiency for fleet trucks; and,
Catawba Riverkeeper. The Catawba Riverkeeper Foundation. 15 December 2006
<http://www.catawbariverkeeper.org/wal-mart>.
11 The Urbana-Champaign Independent Media Center. 15 December 2006
<http://publici.ucimc.org/aug2001/082001_5.htm>.
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reducing green-house gases (GHG) by 20% over the next seven years. 12
Mr. Scott also addressed social issues, proposing that Congress should increase minimum wages,
increase global factory monitoring, and separate factory certification from purchasing functions. 13
While these statements show awareness and indicate Wal-Mart’s knowledge that it must resolve its
current issues, Mr. Scott’s message falls far short of establishing a sustainability benchmark for
others to follow.
As discussed above, many of Wal-Mart’s current unsustainable practices have their biggest impacts
on societal systems and ecosystems. These two areas should be Wal-Mart’s primary focus for
launching a sustainability initiative, and it should continue to build on Mr. Scott’s original message.
Stating that Wal-Mart will ensure sustainable use of the ecosystems surrounding its stores and
production facilities, as well as creating partnerships in the local communities is a good start, but
Wal-Mart’s checkered history in regards to corporate and social compliance creates a gap that needs
to be addressed.
Wal-Mart needs to make its sustainability commitments on a location-by-location basis. Lofty
corporate goals sound impressive, but, as mentioned before, Wal-Mart needs to establish credibility
in the local markets and take responsibility for its involvement in the communities it enters. Each
new Wal-Mart site launch announcement should include the social, community, and ecological
impacts and benefits, not just the economic impact of lower prices and increased purchasing power.
Simply stating the economic benefits does not address the triple-bottom-line, and Wal-Mart needs to
address all three at each location.
In order to establish credibility, Wal-Mart needs to be honest when its impact on a new area will
have negative consequences, and it needs to be prepared to make concessions or at least mitigate the
impact in one way or another. There is no doubt that new Super Wal-Mart stores increase traffic
flows, pave over acres of undeveloped land and increase water run-off into the water table, so WalMart needs to adopt policies that counteract these negative impacts. Whether it’s developing park
areas for the community, contributing to local public transportation, or investing in water clean up
efforts, Wal-Mart needs to be honest about the impacts and extend an olive branch to the
community if it hopes to overcome its most ardent doubters.
Within Southeast Raleigh, for instance, the new Wal-Mart presents both challenges and
opportunities for the community. While, on one hand, the proposed store could create up to 350
new jobs, “Wal-Mart has been accused of racist practices in many of its operations and does not
have a reputation for showing sensitivity to the real needs of African American communities or its
African American employees.”14 It is clear that there are diametrically opposed views regarding the
value of a Wal-Mart store within the Raleigh community.
Nowhere were these viewpoints more evident than in the Raleigh City Council vote regarding the
store. Although the eventual vote was 6-2 in favor of allowing Wal-Mart to open, Councilman
James West, who represents the Southeast Raleigh District and was originally undecided on the
Wal-Mart issue, eventually determined that allowing it to open was best for community
development.15 Other members of the City Council disagreed with Mr. West, citing several of the
same reasons for this opposition discussed previously in this paper: traffic, community relations,
and the environment.16
Baue, Matthew, Wal-Mart Embraces Sustainability: Does the SRI Community Buy It?, Oct 25th 2005,
<http://www.socialfunds.com/news/article.cgi/1844.html>
13 Ibid.
14 North Carolina Justice. Raleigh ACORN, Black Workers for Justice, Southerners for Economic Justice, North Carolina
Justice Center. 15 December 2006 <http://www.ncjustice.org/media/library/655_wrongwithwalmartflyer.pdf>.
15 Council Approves SE Raleigh Wal-Mart. 17 October 2006
<http://rdu.news14.com/content/headlines/?ArID=92648&SecID=2>.
16 Ibid.
12
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In addition to establishing honest and open communication with the local communities up front,
Wal-Mart also needs to incorporate environmental management systems and auditing at each site.
Setting environmental objectives, processes, and structures will establish a level of compliance and
help Wal-Mart outline how each store will contribute towards their overall corporate sustainability
goals. Auditing each location for compliance and risks will not only improve its corporate
transparency, but it will also lessen its exposure to environmental liabilities. All of the auditing data
should be communicated to the community in a clear and simple manner, not in complicated
scientific jargon. Wal-Mart ultimately needs to communicate all of its auditing results to
stakeholders, but the local communities deserve timely, honest answers as well. This auditing and
reporting should be done by an objective third party rather than in-house Wal-Mart staff to increase
the believability and credibility.
As each Wal-Mart location is assessed for its economic and environmental feasibility and impacts,
an overall SWOT analysis of the surrounding community needs to be performed as well. This
analysis will outline the strengths, weaknesses, opportunities, and threats of the local culture, social
capital, and human capital. By researching and outlining these community aspects, Wal-Mart will be
able to effectively address each of them when the new store is announced and launched.
Strengths that are uncovered should be leveraged to the extent possible. This might include a large
labor force with a good work ethic, or large community events that bring in visitors and potential
customers each year.
Conversely, the weaknesses of the surrounding area must be identified and a mitigation plan must
be created. If a cultural or arts center is non-existent, Wal-Mart should partner with the local
community to develop one. If the education system is below national averages, they should assist by
donating school supplies. Each weakness is an opportunity for Wal-Mart to build a bridge to the
local community and establish deep ties that go beyond “everyday low prices.”
Similarly, the opportunities within the local area highlight chances for Wal-Mart to leverage existing
programs or social diversity to improve its corporate goals by hiring minorities and working with
community groups.
The threats are more difficult to manage, as they might include political or racial divisions within
the community. Wal-Mart’s best option for this sector of the analysis is to take an objective stance
and adopt policies that try to forge ties to the community at large and help resolve these issues.
Wal-Mart’s success in achieving its corporate sustainability goals will be dictated by how well it can
leverage its global network to change the way it does business, but the key to this success begins at
the local store level. As we’ve seen with the new Raleigh location, communities fiercely protect their
assets and have the ability to extract higher levels of corporate commitment to the community. It is
in Wal-Mart’s best interests to proactively analyze, communicate, and interact with each town to
establish its credibility as a community partner and diffuse any negative feelings about the
company. The more transparent and proactive Wal-Mart is, the higher the probability of success will
be for its global sustainability goals.
5. Conclusion
While the Raleigh City Council voted to approve the new Wal-Mart store based on community
development, jobs, and increased industry in the community, it will be years before the true effects
of the Supercenter are felt. If the building and establishing of the store coincides with Wal-Mart’s
new corporate conscience, Southeast Raleigh may benefit from a retail center that is both costfriendly to consumers and positive for the surrounding area. If, on the other hand, Wal-Mart’s
recent commitment to improve environmental, societal, and financial bottom-lines is little more than
public relations and lip service, the City Council will likely regret the day it decided to allow this
store to infiltrate the Southeast Raleigh neighborhood.
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