Source: The Salt Lake Tribune

Dow Jones Newswires

A group of investors will tomorrow demand the global supermarket come up with a plan to improve relations with its workforce

Robert Lindsay
Times Online
May 31, 2007                             [back to top]

A group of Wal-Mart institutional investors are planning a revolt at the supermarket giant's annual meeting tomorrow to be held in a sports arena close to its home base in Arkansas.

They have filed a proposal calling on the board to detail the impact of a series of scandals and class action law suits by staff and come up with a plan to improve its reputation.

The revolt at the annual meeting in the 19,000-capacity Bud Walton stadium - named after a Wal-Mart co-founder - at the University of Arkansas is being led by the New York City Employees Retirement System which holds 2.95 million Wal-Mart shares. It is also backed by Britain's F&C Asset Management and the state pension funds of Illinois and Connecticut as well as a Swedish state pension fund.

Karina Litvack, Head of Governance at F&C, said the fund had become increasingly concerned over the past few years by signs of failure in the giant grocer's internal controls that have led to a class action lawsuits by employees and government investigations.

Employees have filed suits alleging they are forced to "work off the clock" during breaks and after shifts, systematic discrimination against women and questionable tactics to prevent workers from voting for union representation.

Last year vice chairman Thomas Coughlin, a protege of former chief executive Sam Walton, was fired for fraud and tax evasion stemming from embezzling company funds. More recently, a fired marketing executive Julie Rhoem alleged the chief executive had violated Wal-Mart's policies governing conflicts of interest with suppliers by accepting travel, concert tickets and preferential prices on yachts and jewelry.

She said: "We got off to a promising start in 2005 with expectations of a dialogue with the independent directors on the Audit Committee. But when this simply withered on the vine, we had little choice but to bring our concerns about internal controls, labour violations and the erosion of the company's reputation to our fellow shareholders."

"We found that the company was not interested in engaging in a productive discussion about how it builds and supports a compliance culture and as a result, we have joined an international group to file a shareholder proposal."

"Weaknesses in internal controls have eroded the company's reputation as an attractive employer and are adding fuel to the fires of Wal-Mart's critics," she said. "We fear that its failure to deliver on these policy commitments is inhibiting Wal-Mart's ability to expand into new domestic markets."

The motion calls on the Board to issue a report to shareholders by September on the "negative reputational impact" of reported and known cases of management non-compliance with International Labor Organization (ILO) conventions and also on breaches of the company’s own legal and regulatory controls. It wants the report to include "recommendations and actions taken to improve compliance."

Wal-Mart's board has recommended shareholders vote against the motion. In a letter to shareholders it stressed: "The Company is fully committed to treating its Associates fairly and complying with all applicable labor and employment laws and regulations in all of the states and countries in which Wal-Mart operates."

It said the US had ratified only 14 ILO conventions since 1919, most of which had no pertinence to Wal-Mart's operations.

It said it had "consistently denied the allegations" that it did not comply with its own controls in all the law suits it faced, so making a report based on the assumption it had breached rules "would be contrary to the Company’s and the shareholders’ best interests. "

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© Copyright 2007 Times Newspapers Ltd

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5 ways to fix Wal-Mart

Investors say the world's biggest retailer needs a catalyst, or more than one, to revive sluggish sales, and its stock.

By Parija B. Kavilanz,
CNNMoney.com 
May 31 2007                                [back to top]

NEW YORK (CNNMoney.com) -- As Wal-Mart prepares for its annual meeting, the world's biggest retailer - in typical fashion - has lined up big-name performers to entertain the crowd, including a concert by The Eagles.

More than likely, the pomp and circumstance is also meant to distract shareholders from the thorny issues that have nagged the retail giant in recent years.

As thousands of investors pack the Bud Walton arena for the meeting on Friday in Fayetteville, Ark., here's what they'll be thinking about.

Wal-Mart (Charts, Fortune 500)'s stock is down 5.1 percent since last year's meeting while shares of rival discounters Target (Charts, Fortune 500) and Costco (Charts, Fortune 500) have risen 24 percent and 4 percent, respectively, over the same period.

Sales at stores open at least a year, a key measure of retail performance, have grown just 1 to 3 percent at Wal-Mart the past three years, versus about 5 percent previously. And while total sales including new stores grew 11 percent last year, profits grew an anemic 1 percent.

But not everything's gone wrong for Wal-Mart the past year. Its $4 generic drug program and its "green" initiatives have generally been well received.

Its other problems persist, however. It made a big misstep with higher-priced fashion clothing; it backtracked on its plans to open a bank, and its union-backed critics are still hammering Wal-Mart for what they claim is its unfair pay and health care. Wal-Mart defends its pay and benefit practices.

And it's hard to put a positive spin on Wal-Mart's "spygate" scandal - the salacious saga of how it fired former ad executive Julie Roehm.

Even though Wal-Mart won back the No. 1 spot on Fortune magazine's annual ranking of America's largest companies, that's not doing much to appease shareholders.

"When you have value built into the company but the market doesn't recognize it, that's very frustrating to investors," said Don Gher, chief investment officer for Coldstream Capital Management, which counts Wal-Mart in its $1.5 billion portfolio. "The company has stumbled when it should be doing well."

Peter Fader, professor of marketing atWharton Business School, called Wal-Mart a "marked" company. "In some ways that's enviable because it shows people are talking about you," Fader said. "Look at Microsoft and the old AT&T. They've kept their brand leadership position despite people passionately hating them. Management should never give up but be reasonably responsive to criticism."

Gher and other experts say Wal-Mart needs a catalyst - or a few - to boost sales and profits and get its stock moving again. Here are a few ideas.

Sam's Club: Sell it or spin it off. This tops the list for Gher. "Wal-Mart should use the hot M&A market to realize the value of the division," he said. "Plenty of private equity firms would be interested. It's got more allure to it than Wal-Mart and doesn't have a target on its back."

Same-store sales at Wal-Mart's 582 Sam's Club warehouse stores grew 4.1 percent last quarter versus a 0.1 percent decline at Wal-Mart Stores.

Some Wall Street analysts have said a spinoff could make sense.

"With over $41 billion of sales in 2006 and a solid management team, we believe the division is substantial enough to stand on its own," Citigroup analyst Deborah Weinswig wrote in a note to clients in January, noting that Sam's Club has about 42 percent of the warehouse club industry, second to Costco's 49 percent.

Spinning off Sam's Club, which could be worth $20.6 billion, would allow the company to "focus solely on improving its U.S. and international operations," she wrote.

But some analysts aren't convinced. Joseph Beaulieu at Morningstar said, "It'll be very difficult to disentangle Sam's from Wal-Mart. Sam's leverages Wal-Mart's distribution network, even Wal-Mart parking lots."

Others suggest Wal-Mart should rethink another unit, its 110 smaller urban neighborhood stores that primarily sell groceries. It hasn't set any aggressive expansion targets for this format partly because of the great resistance it faces from communities in cities like New York and Los Angeles.

Wal-Mart could sell the unit or relaunch the stores with a different range of products not sold at its discount stores, said Russell Jones, director with turnaround advisory firm AlixPartners. "This could succeed if Wal-Mart doesn't associate the new format with its Wal-Mart brand," he said.

Stick to basic clothes: Wal-Mart shot itself in the foot last year by straying from low-priced items like socks and underwear in favor of pricier, trendier clothing. And Wal-Mart's never really moved clothes the way Target has with its "cheap-chic" designer wear.

"Higher-income people do not shop at Wal-Mart for clothes because they don't need the savings," Ketty Maisonrouge, marketing professor at Columbia Business School. "It's a mistake for Wal-Mart to try to appeal to people who are trading up in their spending."

Should it pull out of clothes altogether? Gher doesn't think so. "Wal-Mart's struggling with apparel but it still sells a lot of it. It needs to stick to selling the basics," said Gher. What's more, with the recent addition of former J.C. Penney's (Charts, Fortune 500) CEO Alan Questrom to Wal-Mart's board, Gher said Questrom could help reinvigorate the category for Wal-Mart like he did for Penney.

New leadership:"This could be welcomed by investors," said Steven Baumgarten, an analyst with PNC Advisors, a Philadelphia-based investment firm with $54 billion in assets under management, including Wal-Mart stock. "It's a huge company. It take a lot to right the ship and it won't happen overnight."

Baumgarten thinks Eduardo Castro-Wright, CEO of Wal-Mart USA, is a good candidate. "He's done a good job when he headed the Mexico operations and he's worked closely with Scott," he said.

Under Scott, a 25-year veteran at Wal-Mart and only its third CEO after founder Sam Walton and then David Glass, sales have doubled to more than $345 billion. But its stock price has been stagnant during Scott's seven-year reign.

"Scott spend more time apologizing for Wal-Mart's mistakes instead of being a champion for Wal-Mart," said Morningstar's Beaulieu. "He's never been a celebrity CEO.

"Wal-Mart has recently done a considerable amount of executive reshuffling. Give that a chance to work," Gher said, but warned that investors' patience with the stock was wearing thin. "[Scott] should be very aware of that."

International focus: Wal-Mart's overseas business is now a bigger piece of the pie, accounting for 23 percent of total sales last year, up from about 19.6 percent two years ago. The retailer currently operates in 15 countries, including China, Mexico and Japan. It's also set a joint-venture with Bharti Enterprises to enter India.

"International expansion is the best opportunity for growth for this company," said PNC's Baumgarten. "I'd rather see it grow organically instead of through acquisitions because the last thing Wal-Mart needs is to buy someone else's headaches."

Know your customer: If Wal-Mart needs just one catalyst, it's understanding its own customers better, said Wharton's Fader.

A combination of arrogance and naivete has landed Wal-Mart in trouble, he said. "Its problems could be avoided if Wal-Mart exploited the huge amounts of data it collects to really understand its customers and do a better job in serving them. It's irresponsible for it not to. It doesn't even have a good loyalty program for its shoppers."

He cited Netflix as as example. "Netflix does a fantastic job serving its customers. It has an enormous data and it uses it to pull very specific data on individual customers," he said.

If Wal-Mart did that, it wouldn't make all of its merchandising blunders, he added. "This embodies Wal-Mart's problem. When you think inside the box for too long, you'll keep making the stereotypical mistakes." Fader said.

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Anti-Wal-Mart group aims ads at core customers

By Brad Dorfman,
Reuters
May 31st, 2007                        [back to top] 

BENTONVILLE, Arkansas (Reuters) - A group that opposes Wal-Mart Stores Inc.'s business practices plans to target what it calls the retailer's core conservative Republican customers with a new television advertising campaign, saying the company is "not American anymore."

WakeUpWalMart.com is launching the $1 million television campaign in the the South, Southeast and Midwest United States to try to take advantage of what it says its research shows is a "values conflict" among consumers who like low prices but do not like to see more manufacturing jobs moving overseas.

"People like low prices, but they don't like the values" they are seeing at Wal-Mart, said Chris Kofinis, a spokesman for the union-backed group that has been highly critical of the world's largest retailer.

The first television ad, which will begin running in June, paints Wal-Mart as having moved away from founder Sam Walton's vision of buying American, saying the retailer instead "drives American companies to shut down plants and move manufacturing jobs to China."

The U.S. trade deficit with China hit a record $233 billion last year, a source of frustration among many U.S. lawmakers. A three-day Washington visit by a top-level Chinese delegation last week ended with little progress evident on the thorniest points in a troubled trans-Pacific trade relationship.

Wal-Mart directly sources about $9 billion in goods from China, a spokeswoman for the retailer said. In the past, the company has said another $9 billion reach Wal-Mart stores through suppliers who also buy goods manufactured in China, but the spokeswoman declined comment on that second figure on Thursday.

A spokesman said Wal-Mart's commitment to buying from American suppliers -- cited in a 1985 memo from Walton distributed by WakeUpwalMart.com to reporters attending the company's annual meeting and media day -- has not changed.

"However, today we're a global company and it is necessary to source globally to ensure that we meet the needs and wants of our customers," said Wal-Mart spokesman David Tovar.

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Wal-Mart realistic toy guns trigger raid

Sify.com
Thursday, 31 May , 2007                    [back to top]

Shanghai: Chinese quality watchdogs have seized 46 toy guns from a Wal-Mart store in Shanghai because they looked ‘too realistic,’ state media reported on Thursday. Five types of toy guns, including pistols and a machinegun, seized from the US retailing giant's outlet in Pudong district, violated colour standards, The Shanghai Daily said, citing the local bureau of quality and technical supervision.

"All of the guns are black or metallic, which is against a law that states at least half of toy guns should be bright colours such as red or green to differentiate them from real weapons," the paper quoted an unnamed quality official as saying.

"The toy guns sold in Wal-Mart are too real, and such toys can be harmful to children by easily inducing them to violence," the official said.

The bureau would inspect samples of the seized guns again, the paper said, adding that if they were confirmed to have broken regulations, Wal-Mart could face a fine equal to three times their sale value.

"© 2004 sify.com India Limited. All Rights Reserved.

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Wal-Mart Cashier Says Joke Cost Him Job

Associated Press
May 31st, 2007                           [back to top]

ALMONT TOWNSHIP, Mich. (AP) -- A former Wal-Mart cashier says he was fired for joking on his MySpace page that the average IQ would increase if a bomb were dropped on the company's stores. David Noordewier said he was fired Feb. 27 for posting the message, which he said was a joke and not a threat.

"I told them that this was crazy," Noordewier told The Flint Journal. "It's not like I have a fighter jet in my backyard to drop a bomb with. Then they escorted me out to the parking lot."

Noordewier said store officials had him sign an acknowledgment that he was fired for "gross misconduct -- integrity issue."

Wal-Mart spokeswoman Kory Lundberg confirmed that Noordewier no longer worked for the company but would not discuss why.

Unemployment officials said Noordewier did not qualify for benefits because he had made a threat.

Noordewier had a near-perfect work attendance record and once received a personal thank-you letter from the company president over compliments from a customer he once helped.

He said he thinks a co-worker disliked him and pointed the MySpace page out to his boss.

"If you have a MySpace site, you better act like you're a politician," he said. "Be politically correct and don't try to be funny."

MySpace is owned by media conglomerate News Corp.

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Union Attacks Wal-Mart on China Goods

By MARCUS KABEL
Associated Press
05.31.07                                        [back to top]

Union-backed critics of Wal-Mart Stores Inc. are using a made-in-America campaign started by late founder Sam Walton in the 1980s to attack the global retailer for buying heavily from China.

WakeUpWalMart.com unveiled Thursday what it called an effort to turn conservatives against the retailer with ads alleging Wal-Mart (nyse: WMT - news - people ) had turned its back on Walton's values since he passed away in 1992 by increasing its buying overseas.

In materials provided to reporters on the sidelines of a Wal-Mart media conference, the group included a 1985 press release from Sam Walton in which he criticizes the loss of U.S. jobs to imports and pledges to buy American-made products whenever possible to protect domestic manufacturing jobs.

"We can restore our manufacturing capacity, improve our national economy and renew our pride in American craftsmanship," Walton wrote in a March 1985 open letter that urged manufacturers to work with retailers to bring as many competitive American products to the shelves as possible.

Wal-Mart said it is still committed to buying from suppliers that manufacture in the United States whenever possible.

"However, today we're a global company and it is necessary to source globally to ensure that we meet the needs and wants of our customers," Wal-Mart spokesman David Tovar said.

In recent years, Wal-Mart has bought roughly $9 billion in goods from China directly and another $9 billion indirectly, or goods produced in China for another company and then sold to Wal-Mart, Wal-Mart International spokeswoman Beth Keck said.

Keck said exports of U.S. goods were also increasing to fill Wal-Mart shelves in the 13 countries where it has stores. That includes beef from Kansas sold in Japan and American dairy products sold in Mexico, she said.

When Japan eased restrictions on U.S. beef last year, Wal-Mart's subsidiary Seiyu was the first retailer to resume offering American beef. "That's going very well," she said.

Wal-Mart is not alone in using the lower cost of China production to push down shelf prices for consumer goods in the United States, said China trade expert Peter Morici, a business professor at the University of Maryland and the former chief economist for the U.S. International Trade Commission.

But Morici, a critic of the burgeoning U.S. trade deficit with China, said Wal-Mart's size and supply-chain expertise make it a leader among domestic retailers in what he called pressuring suppliers to lower costs by moving production to China.

"Wal-Mart is the poster child of outsourcing," Morici told The Associated Press.

Morici said Wal-Mart is acting against its own interests by sourcing from China. He said the loss of U.S. manufacturing jobs is eroding the buying power of the same working people who make up Wal-Mart's core customers.

Wal-Mart's Tovar said WakeUpWalMart.com's two top officers, who were in Bentonville on the eve of Wal-Mart's annual shareholder meeting, were spending "hard-earned union member dues" on a publicity stunt.

"They know that Wal-Mart creates thousands of jobs, offers competitive wages to our 1.3 million associates, reduces health care costs through $4 generic medicines and in-store health clinics, and provides leadership on environmental sustainability," Tovar said.

WakeUpWalMart.com said it would be airing a 30-second television ad in 30 markets in the South and Midwest this summer, mainly during local news programs, for a total cost of $1 million.

The campaign targets conservatives in the South and among Republicans, who WakeUpWalMart.com believe are receptive to criticism of American companies buying heavily from China rather than from U.S. manufacturers.

Copyright 2007 Associated Press. All rights reserved.

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Wal-Mart CEO's expensive tastes

By Devin Leonard,
FORTUNE Magazine
May 31st, 2007                             [back to top]

Lee Scott's jewelry purchases have become a hot issue in a former marketing executive's lawsuit against the retailer

NEW YORK (Fortune) -- Has former Wal-Mart CEO Lee Scott been bloodied by former marketing executive Julie Roehm's charges that he cut sweetheart deals for himself with one of the retailer's suppliers? It certainly seems that way.

Roehm's charges are the latest twist in corporate America's most salacious legal battle. It all started in December when Wal-Mart fired its former senior vice president for marketing communications for allegedly accepting gifts - including a case of vodka - from Draftfcb, an ad agency that won the retailer's $580 million account last year. Roehm didn't just publicly deny the charges. She sued Wal-Mart for $325,000 in severance pay.

Wal-Mart clearly wanted to make an example out of its unrepentant former executive. It unleashed top-notch lawyers and an in-house investigative team led by Kenneth Sensor, a former CIA official, to unearth incriminating evidence.

In March, the retailer filed a scathing 28-page counterclaim. The document opened with a lofty statement about how Wal-Mart's ethical policies forbid employees from accepting "personal gratuities" from vendors because that might increase its business costs and lead to higher prices for customers: "The policies are intended to avoid even the appearance of improper influence upon the company's decision making in the selection and supervisor of vendors."

Then Wal-Mart proceeded to detail Roehm's alleged misdeeds in prose that was sometimes more akin to a bestselling novel than a court filing. The most sensational allegation was that Roehm had stepped over yet another ethical line by conducting an "inappropriate romantic relationship" with Sean Womack, a former marketing VP at Wal-Mart.

Wal-Mart included this now-famous excerpt from a email that Roehm sent to her purported paramour: "I think about us together all of the time. Little moments like watching your face when you kiss me." (Roehm's lawyers say Roehm and Womack were never romantically involved.)

But Roehm struck back in June with her own lengthy response, in which she argued that ethical violations were rampant at the retailer's executive office.

Among other things, she accused Scott himself of purchasing more than one yacht and a large pink diamond ring for his wife at "preferential" prices from Irwin Jacobs, whose business, Jacobs Trading Company, has the "exclusive rights to purchase unsold Wal-Mart merchandise." Roehm also names two Wal-Mart executives who, she claims, had an affair, but weren't fired by the company.

Wal-Mart dismissed Roehm's charges as an attempt by its former employee to divert attention from her own misdeeds. Jacobs also fumed that Roehm should retract them. But the Wall Street Journal reported on May 30 that Scott bought a diamond ring for his wife from the Aaron Group, another Wal-Mart supplier. The Aaron Group said it wasn't a sweetheart deal, but it didn't reveal the price paid by Wal-Mart's CEO.

It's not clear if Roehm's allegations will stand up in court. But that may not matter. This is a public-relations battle. And right now, it looks like Roehm has the upper hand. Scott has plenty of things to worry about.

Wal-Mart's stock is an underperformer. It's not clear if the retailer has a viable long-term strategy. Meanwhile, Wal-Mart's hardball tactics are drawing fire. It recently had to apologize to the New York Times after it revealed that one of the former members of its Threat Research and Analysis Group had eavesdropped on a reporter's cell phone calls.

The last thing Scott needs is more questions about his jewelry purchases.

If nothing else, Wal-Mart's CEO should have paid more attention to the part in the company's ethics policy about avoiding appearances of impropriety.

Wal-Mart's lawyers may still find a way to avoid paying Roehm her severance.

But she's already had her revenge.

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New anti-Wal-Mart ads target 'Southerners,' 'Republicans'

By CNNMoney.com,
May 31st, 2007                                 [back to top]

WakeUpWalMart.com launches $1M ad campaign pitching the message that Wal-Mart fosters anti-American values by doing business with China.

NEW YORK (CNNMoney.com) -- On the eve of Wal-Mart's annual shareholders meeting, union-backed watchdog group WakeUpWalMart.com announced Thursday a new million-dollar campaign targeting what it claims are the retailer's core customers of "Southerners and conservative Republicans." 5 ways to fix Wal-Mart

The group said the three-month "Summer Southern Blitz" campaign will consist of a series of television ads and grassroots actions intended to highlight the message that Wal-Mart's "values are not [truly] Southern or Republican."

What's more, WakeUpWalMart's latest initiative against the world's largest retailer aims to make the case that Wal-Mart values its business with China more than American jobs and national security, Paul Blank, campaign director for WakeUpWalMart.com, said in a statement.

The first ad, entitled "It's Just Not American," uses an image of Sam Walton and an American flag waving in the background and announces that once "Sam Walton's Wal-Mart was an American company."

"The ad goes on to state that "as [the U.S.] trade deficit grows and middle class American jobs are shipped overseas, Wal-Mart and China get stronger ... America gets weaker." The ad ends with the message,"Wal-Mart, it's just not American anymore."

In March, the same group, which is funded by the United Food and Commercial Workers (UFCW) union, launched a TV ad that featured images of a nuclear explosion and Osama bin Laden to suggest that the retailer is putting America's security at risk by opposing scanning of cargo containers at the nation's ports.

Wal-Mart responded by calling the ad's claims "factually incorrect."

To be sure, Wal-Mart remains a lightning rod for groups like WakeUpWalMart.com and Wal-Mart Watch that have attacked the company