The Wal-Mart Way Becomes Topic A in Business Schools

By CONSTANCE L. HAYS
The New York Times

7/27/03

WAL-MART isn't just a place for bargain hunters. It's also one-stop shopping for professors. At universities across the country, interest in Wal-Mart Stores has soared in the last five years, and all sorts of courses address specific questions raised by the company's dominance. It is, increasingly, an example of what to do — and as some professors see it, what not to do.

Just as Wal-Mart, the $244-billion-a-year retailer, has put countless rivals out of business, Wal-Mart, the case study, has shoved aside General Motors, Sears and other companies as the paragon of business prowess.

"It's the awe that General Motors used to have, when people would say, `Not everybody is General Motors,' " said Eugene Fram, a professor of marketing at the Rochester Institute of Techonology. "Now you have to say, `Not everybody is Wal-Mart.' "

Some professors hold up Wal-Mart as an example of how to do things right or to explain important concepts. Professor Fram, for one, uses Wal-Mart to illustrate ideas like "channel commander," a term for the distributor with the most power. And to Uday M. Apte, an associate professor of operations management at Southern Methodist University in Dallas, "no company better illustrates the principle of `cross docking,' " a technique to minimize trucking expenses.

Others turn to Wal-Mart to highlight social problems that may be overlooked in the shopping scramble — issues like the impact of goods that are made abroad and sold cheaply in the United States. "Most of the issues we discuss with Wal-Mart as an example really have broader applications," said David A. Anderson, associate professor of economics at Centre College in Danville, Ky. He leads students on trips to the local Wal-Mart as part of the course.

Some of the scholarly interest is to be expected: no large company escapes scrutiny, and Wal-Mart has often been in the news over everything from its labor practices to its recent decision to extend its antidiscrimination policy to gay employees.

Wal-Mart's rapid growth the last decade has also placed more of its stores closer to academic centers like Boston, so professors who once might have had only a theoretical knowledge of its operations can now see them in action.

This interest in Wal-Mart has even created growth in a subindustry in materials that are useful to students. The retailer has become a best-selling topic for the Harvard Business School, which sells Wal-Mart case studies to business schools around the world. The newest such study, published in March, discusses the company's strategy for so-called neighborhood markets: building smaller stores in some areas to help Wal-Mart capture more grocery business from local chains.

IN crucial aspects of retailing, judging by the words from the lectern, Wal-Mart becomes the company to watch, to study, to emulate. Edward Fox, director of the J. C. Penney Center for Retail Excellence at S.M.U., describes it as the "800-pound gorilla" to the seniors who sign up for the marketing elective he teaches. When it comes to strategy, pricing, the behavior of competitors, the decision making of suppliers, cost structure and promotion, the Wal-Mart name always comes up.

"They make the market," he said.

Perhaps the most specific lesson to emerge from Wal-Mart is obvious, but its impact has been enormous: costs of all kinds must be kept low so products can be sold for less. "If I've learned anything about Wal-Mart, it's that cost is king," said Professor Fox, who began studying it a few years ago. "They have an almost single-minded focus on reducing costs. It's imbued throughout the organization. They are very stingy when they buy for America and distribute products for America."

For Robert Letovsky, associate professor of business at St. Michael's College in Colchester, Vt., Wal-Mart's inventory management, through a network of scanners, computers and at-the-ready suppliers, makes it a textbook example of successful turnover — the retail world's term for goods moving off shelves and into consumers' hands. The faster that process, the more profitable a store.

"When it comes to turnover, you want to hold up somebody who is a paragon of efficiency," he said. "And Wal-Mart is the paragon."

Many students now in college have grown up with Wal-Mart. To them, it is not a distant rural phenomenon, the way it might have been only 10 years ago. It is a place where they shop — for school supplies, household products, groceries, gasoline and incidentals.

TO some, it is more personal than that. Some students have been forced to return to school to gain new skills because their previous businesses were destroyed by Wal-Mart's strength. "We've had several students who had small hardware or apparel stores, and as soon as Wal-Mart would come into a nearby town, it would hurt their business," said Jeffrey E. McGee, chairman of the management department at the University of Texas at Arlington. "That is one of the reasons they are going to the university, to change their career."

Other students have experienced the impact of Wal-Mart in slightly less direct ways. The 40- and 50-year-olds who are returning to school for master's degrees have worked in environments that have been deeply affected by Wal-Mart's practices.

"Their experience at work is higher value, lower cost, every single day," said Gordon Walker, chairman of the department of strategy and entrepreneurship at S.M.U.'s Cox School of Business, who does not include Wal-Mart in his own courses. By his account, he doesn't have to. "They all manage to a spreadsheet," he said. "The amount of control they are forced to respond to is huge. Wal-Mart has contributed to that."

Wal-Mart has tried to become a force within education in its own way. Using some of the money from its vast sales, it has financed retail centers at several large universities, where the company's executives lecture and its recruiters descend to hire new talent. Among the recipients, a spokeswoman said, are Western Michigan University, Texas A&M, the University of Washington and the University of Florida.

Wal-Mart has sponsored retail centers for about nine years, according to Betsy Reithemeyer, director of the Wal-Mart Foundation, which is backed by sales from the stores. Her budget, which covers a variety of grants besides those to retail centers, is $150 million — double the amount three years ago.

The company's profit also flows to education through other avenues. The Walton Family Foundation, controlled by the relatives of Sam Walton, who opened the first Wal-Mart in Rogers, Ark., in 1962, pledged $300 million to the University of Arkansas last year to build up its undergraduate and graduate programs. In 1998, the foundation gave $50 million to rename the business school on the university's main campus in Fayetteville after Mr. Walton, who was commonly known as Mr. Sam.

Retail centers first appeared at colleges in the 1930's and were financed by department-store chains like Gimbel Brothers and Horne's, Professor Fram said. "They all declined in the 1960's, as the department stores started to have less impact," he said. Those retail centers still exist, but Wal-Mart has been more active in financing its centers than many department stores have been with theirs.

Sam Walton might not be happy with all the lessons that professors are taking from his business. Joseph M. Pastore Jr., a professor at the Lubin School of Business of Pace University in White Plains, will use a Wal-Mart case study in a strategy course this fall — and he both praises and questions the Wal-Mart way. He notes that its huge success has come about in part because Mr. Walton ignored traditional thinking and built his stores in rural areas first.

He suggests, though, that the company's spectacular growth may not be sustainable. "Wal-Mart is getting closer to the sun," he said. "They scrapped 20-plus stores for Germany because the courts there forced them to raise prices to avoid preying on small businesses." He also doubts that some of Wal-Mart's cultural hallmarks — like the Saturday-morning chant in which workers shout "Give me a W!" — will translate well everywhere the company wants to go.

"Can you hear people in the Bronx: `I'll give you a W!' " he said.

Other issues for Wal-Mart include unions, which the company has mostly avoided but which are more dominant in urban areas, as well as higher real estate costs, taxes and increased congestion that could cut into its famed efficiency.

Academics are also looking at the negative consequences of Wal-Mart when it comes to considering ethical, environmental and social issues. Professor Anderson of Centre College, a small liberal-arts college founded in 1819, began teaching his environmental economics course three years ago, with Wal-Mart front and center as a symbol of what he calls "the repercussions of buying cheap things."

Shoppers may be drawn to Wal-Mart because of inexpensive products that have been imported from countries like China, Professor Anderson says, where labor and environmental standards are lower than in the United States. But there are larger costs, he tells his students, that are not factored into the price on the tag.

"If we paid the full cost of the gasoline and the plastic and the health costs of pollution, all of these things would be far more expensive," he said.

Professor Anderson also teaches a freshman seminar called "Economics in an Ethical World," in which he discusses the benefits Wal-Mart brings as well as the downside. "It allows poor people to buy food and other necessities," he said. "That's the good thing. The bad thing is that it erodes downtowns and eliminates nicer stores that have better service and pay their workers better." Among the reading assignments is "Nickel and Dimed: On (Not) Getting By in America," part of which details the author Barbara Ehrenreich's stint at Wal-Mart.

About a year ago, James E. Hoopes, a professor of history and business ethics at Babson College in Massachusetts, began looking at what he called the symbolic aspects of Wal-Mart.

The company's approach to commerce contravenes the American dream for some people, he said. "It's a new kind of twist because it does affect the lifestyles of so many of us," he said. "It is an enormous employer, and it is identified with what's happened with America in the last 25 years." Gone are many of the high-paying skilled jobs that the automotive plants once provided; instead, people are punching a cash register at Wal-Mart for half the money, he added.

That perception of reduced opportunity carries over into spending, he says. "People have a sense of being trapped in this marketplace," he said. "You work for these low-wage jobs, and you can have your American dream as long as you buy it at Wal-Mart. So the dream is getting standardized, and downscaled, in a way that hasn't happened before."

FOR Marshall Blonsky, a professor of semiotics at the New School and Parsons School of Design, both in Manhattan, a recent trip to the nation's largest Wal-Mart, in Kansas City, Mo., shed new light on principles that he believes have long existed in retailing and the rest of society. Mr. Blonsky prowled the store's displays of Pop-Tarts, leather armchairs, DVD's and bright blue polyester fabric by the yard, which he said struck him as "America's least common denominators gathered together."

He said he did not think that all of the prices were especially low, given what the consumer received in return; the leather armchairs, made of downmarket pigskin, got his particular notice. He found the store's overall design, from its fluorescent lighting to its warning signs about shoplifting to its plain linoleum floors, conscientiously nonthreatening in its lack of style.

With closed-circuit television streaming product-moving information at shoppers and little help in making purchasing decisions except at the checkout aisles, "it is a heartless experience," he said.

He added: "It proves something I have been trying to teach for years: the indifferent equivalence of everything with everything else, for an audience that has no concern for that difference, and no discernment of quality."