Archive for the ‘Retail’ Category

A Not-So-Fond Farewell to Sears

Thursday, October 18th, 2018

The bankruptcy filing, store closings and general uncertainty surrounding the future of Sears have prompted a spate of nostalgic business-page articles about the history of the once dominant retailer. Whether or not the chain survives, it is important not to sugarcoat its past.

Sears, along with Montgomery Ward, brought the joys of mass-produced merchandise to rural America. Yet its mail-order operations undermined local merchants and initiated the long-term decline of traditional main street life. Sears’ hyper-efficient system for fulfilling mail orders, using conveyor belts and pneumatic tubes, was said to have helped inspire Henry Ford’s automobile assembly line with its mixed blessings.

Sears began opening retail stores in the 1920s, and in the postwar period it played a major role in automobile-focused suburbanization and its attendant social and environmental impacts. The company would later extract a $242 million subsidy package to relocate its headquarters from downtown Chicago to exurban Hoffman Estates after threatening to move out of state.

In the 1980s Sears was one of the prime examples of wrong-headed diversification as it acquired the Dean Witter brokerage house and the Coldwell Banker chain of real estate agencies, and then introduced the Discover credit card. During the 1990s Sears had to dispose of all those businesses, along with its Allstate insurance operation.

In 2005 Sears suffered the indignity of being combined with Kmart by private equity operator Edward Lampert, who believed he could solve the longstanding problems of the two chains but instead ended up simply stretching out their death spiral.

Sears had long resisted unionization of its stores, but it adopted paternalistic practices such as profit-sharing that partly substituted for collective bargaining. During the Lampert era there has been little paternalism. Instead, workers at Sears and Kmart have frequently found themselves the victims of abusive labor practices.

Since 2007 the two chains have been implicated in nine collective action wage theft lawsuits and have had to pay out more than $56 million in settlements and damages – more than any other broadline retailer except Walmart.

During the Lampert era the two chains have also been cited more than 50 times by OSHA for workplace safety and health abuses, paying some $600,000 in fines. They have also been involved in five cases with the Equal Employment Opportunity Commission, including one in which Sears had to pay $6.2 million in 2010 to settle allegations of widespread violations of the Americans with Disabilities Act.

Sears has also gotten into trouble in its dealings with the federal government. In 2017 Kmart had to pay $32.3 million to resolve allegations that its in-house pharmacies violated the False Claims Act by overbilling federal health programs when filling prescriptions for generic drugs.

Sears has played a significant role in the history of American retailing, but it has not always been a positive one. Now that its days appear to be numbered, we can focus our attention on the newer generation of bad actors, such as Amazon, that now dominate the system in which we obtain the necessities of everyday life.

Corporate America Doesn’t Qualify for Moral Leadership Either

Thursday, August 17th, 2017

It may turn out that Donald Trump’s greatest contribution to American business is allowing the chief executives of tainted corporations to take a morally superior posture toward a presidency that seems to be completely devoid of principle. Their brands are boosted as his becomes increasingly toxic.

It is a good thing that big business is taking steps to separate itself from Trump. The collapse of the two advisory councils is not only a rebuke to Trump’s offensive comments on the events in Charlottesville but also an overdue retreat from entities that were set up mainly to foster the illusion that this administration is taking serious steps to reform the economy.

Yet it is dismaying that the moral vacuum created by Trump is being filled by the likes of Walmart chief executive Douglas McMillon, who got himself featured on the front page of the New York Times for a statement criticizing Trump.

For years the giant retailer was a national symbol of discriminatory practices. In 2009 it had to pay $17.5 million to settle a lawsuit alleging that it discriminated against African-Americans in the recruitment and hiring of truck drivers. The company was also widely accusing of gender discrimination. In 2010 the company was required to pay $11.7 million to settle a case brought by the U.S. Equal Employment Opportunity Commission, and it was facing potential damages in the billions from a class action suit brought on behalf of more than 1 million female employees until the Supreme Court came to its rescue and threw out the case for what amounted to technical reasons.

In addition to discrimination, Walmart has been at the center of countless controversies involved wage theft, union-busting, tax avoidance, bribery and much more.

After Merck CEO Kenneth Frazier led the way among business critics of Trump’s embrace of white nationalism, the president struck back with a tweet referring to “ripoff drug prices.” While Trump was just being vindictive, it’s true that Merck’s reputation is far from untarnished.

In 2011 the drugmaker agreed to pay a $321 million criminal fine and a $628 million civil settlement to resolve allegations that it illegally promoted and marketed the painkiller Vioxx. This came after Merck had to remove the drug from the market in the wake of reports that the company for years covered up evidence of serious safety issues surrounding its blockbuster product. This is just one of a long list of its cases involving illegal marketing, overbilling, false claims and anti-competitive practices.

Another of the CEOs who spoke out in response to Trump’s comments was JPMorgan Chase’s Jamie Dimon. Earlier this year, the bank had to pay $53 million to settle a case brought by the U.S. Attorney in Manhattan accusing it of engaging in discrimination on the basis of race and national origin in its mortgage business.

JPMorgan Chase was one of the parties that helped bring about the financial collapse of a decade ago, and in 2013 it agreed to a $13 billion settlement of federal and state allegations relating to the packaging and sale of toxic mortgage-backed securities.

In 2015 JPMorgan had to pay a $550 million criminal fine to resolve federal charges that it and other large banks conspired to manipulate foreign exchange markets. There are many more entries in the corporate rap sheet of this company, which since the beginning of 2010 has had to pay out more than $28 billion in fines and settlements.

It would be difficult to find any members of the disbanded advisory councils whose companies have not engaged in serious misconduct of one sort or another.

Such is the peril of looking for paradigms of virtue in the business world. Corporate executives should, along with many others, speak out against Trump’s reprehensible comments, but they cannot lay claim to moral leadership.

A Windfall for the Forbes 400 and the Fortune 500

Thursday, April 27th, 2017

We now know who it was Donald Trump was really addressing in his convention speech last summer when he declared “I am your voice”: the Forbes 400 and others in the upper reaches of the 1 Percent.

The one-page tax outline just released by the Trump Administration — with its pass-through scheme, its radical reduction in statutory corporate tax rates, and its elimination of the alternative minimum tax, the estate tax and taxation of overseas business profits — provides an unrestrained windfall for Trump’s own billionaire class.

In defiance of all evidence, Treasury Secretary Mnuchin is insisting that this is not a giveaway to the rich but instead is “all about jobs, jobs, jobs.” This is the same official who, harking back to the snake oil of the Reagan Administration, insists that the tax cuts will “pay for themselves.”

The claim that the corporate tax cuts will boost the economy and job creation is based on the widely promoted but largely baseless claim that U.S. business is burdened with excessively high rates. As groups such as the Institute on Taxation and Economic Policy have repeatedly shown over the years and which ITEP documents once again in a recent report, many large corporations pay effective tax rates far below the 35 percent statutory rate. And through the aggressive use of tax avoidance techniques, quite a few of those manage to bring their effective rate down to zero or less.

Even if one accepts the questionable connection between taxes and job creation, Trump’s proposal would have no effect on employment in sectors such as utilities, industrial machinery, telecommunications and oil & gas, which ITEP shows are already paying effective rates below 15 percent.

There are sectors currently paying rates well above 15 percent, but it is not clear that lower taxes would do much to create jobs — and even less so, good jobs. One of the highest effective rates can be found in the retail sector, which despite this supposed burden, has over the year added millions of jobs. Unfortunately, most of those positions are substandard. The typical retail wage is about a third lower than the average for the private sector as a whole.

Recently, retail employment has been falling, but this has nothing to do with taxes; it’s the result of the increasing number of people buying stuff online rather than from brick-and-mortar stores. Giving big tax cuts to Wal-Mart and Dollar General will not reverse the job loss nor will it improve the wages of their remaining workers.

It’s also unclear what benefits will come from reducing taxes on health care companies, which also pay effective rates close to the statutory level. Taxes have not stood in the way of massive employment growth in this sector, which on the whole pays better than retail but has a substantial number of low-wage jobs. The future of this sector depends not on taxes but instead on whether Trump and Congressional Republicans succeed in dismantling the Affordable Care Act.

Another part of the Trump outline that will do little to create good jobs is the call for the repatriation and light taxation of foreign profits that corporations have been parking overseas. Business apologists have long made extravagant claims for this policy, but previous experiments with repatriation holidays did not boost jobs or even investment and instead simply fattened profits and dividends.

Those who put together the Trump tax outline are either oblivious to the discussion in recent years about growing income and wealth inequality or they deliberately set out to make the problem much worse. In either event, the plutocrats are rejoicing.

Amazon’s New Assault on Independent Booksellers

Thursday, February 4th, 2016

My first reaction to reports that Amazon intends to open brick-and-mortar bookstores around the country was to assume it was a joke — an Onion satirical piece that somehow ended up in the business section.

While the claim by the CEO of General Growth Properties that Amazon was planning hundreds of such outlets has now been withdrawn, the online commerce giant is not denying its interest in physical bookstores at some level. In fact, it turns out Amazon already opened such a store in Seattle in November.

Whatever the scope of Amazon’s plans, such an initiative is infuriating. Amazon is responsible for decimating the bookstore business in the United States over the past two decades. It effectively put Borders out of business, crippled Barnes & Noble and brought about a steep decline in the number of independent booksellers.

Now it seems that Amazon cannot abide the fact that bookstores such as Powell’s in Portland, Oregon and Politics and Prose in Washington, DC survived its onslaught and found ways to survive in an age of online commerce.

On one level, the Amazon move simply makes no sense. This is a company whose success is based on replacing traditional retail outlets with a vast website and giant distribution centers that can process orders at lightning speed and in some cases can now deliver products within hours. Why would Amazon want to return to the inefficient approach it has worked so hard to eradicate?

Yet the company undoubtedly noticed that independent bookstores are enjoying a bit of a revival. Despite the ease of online ordering from Amazon (and the fact that in many cases no sales taxes were collected), it turns out that people like to browse shelves of physical books, value the assistance of knowledgeable booksellers and are drawn to the warm atmosphere of many small stores.

Although this mode of retailing is out of keeping with Amazon’s general approach, the company’s obsession with increasing its revenue is stronger than its commitment to a particular business model. After all, Amazon has been experimenting with other low-tech initiatives such as delivering food from local restaurants.

While it is far from clear that Amazon could succeed in the physical bookstore business, it is troubling to think what impact its effort might have on independent booksellers. How many locally owned stores might fail before Amazon ends its experiment and returns to an exclusive focus on web sales?

Amazon has already done considerable damage to the independent retail sector in America. A recent report produced by the research group Civic Economics for the American Booksellers Association estimates that Amazon’s operations have effectively displaced more than 30,000 retail outlets in the United States and eliminated more than 135,000 retail jobs. In the process, many downtown business districts have languished, and local governments are losing an estimated $420 million a year in property taxes.

It is true that Amazon has created many jobs of its own and is building many new distribution centers. Yet, as I noted in a previous post, the working conditions for those positions are often brutal. And in many cases Amazon has negotiated deals that minimize the property taxes it is paying on those facilities.

We may not be able to do anything about Amazon’s increasing domination of online commerce, but the company should not be allowed to destroy what remains of independent bookselling and other locally owned, human-scale retailing.

Amazon Delivers Exploitation

Thursday, January 28th, 2016

workhardThe 2015 financial results just announced by Amazon.com leave no doubt: the “everything store” is well on its way to dethroning Wal-Mart as the king of retail. Unfortunately, it also seems intent on taking over the role of the worst employer.

Amazon’s revenues leaped 20 percent last year to $107 billion as it dominated online commerce, especially during the holiday season. Profitability remained weak, but that’s a result of heavy spending to build a network of distribution centers enabling superfast delivery. It’s not because Amazon is generous to its 150,000 employees.

On the contrary, lousy working conditions have been a fact of life at Amazon since its earliest years. In 1999 the Washington Post published a story about the pressure put on customer service representatives to work at breakneck speed. “If it’s hard for you to go fast,” one Amazon manager told the newspaper, “it can be hard for you here.”

Amazon — which adopted the employee motto “Work hard, have fun and make history” — successfully opposed union organizing drives at its distribution centers using traditional retrograde employer tactics such as captive meetings and the closing of facilities where pro-union sentiment ran too high.

In the absence of unions, Amazon was able to go on using temp agencies to hire workers, who could thus be easily terminated if they did not meet the company’s unreasonable productivity demands. Amazon even skimped on things such as providing a tolerable temperature level in its vast warehouses. In 2011 the Allentown (Pennsylvania) Morning Call published a lengthy exposé on working conditions at Amazon’s sprawling Lehigh Valley distribution center, where temperatures rose so high during the summer that the overtaxed workers suffered from dehydration and other forms of heat stress. People collapsed so frequently that Amazon arranged for ambulances to be standing by outside the facility. It was only after the story gained national coverage that Amazon broke down and installed air conditioning.

The intense pace of work has also contributed to accidents. In June 2014 the Occupational Safety and Health Administration cited third-party logistics company Genco and three staffing services for serious violations in connection with a December 2013 incident in which a temp worker was crushed to death at an Amazon distribution center in Avenel, New Jersey. OSHA proposed fines of $6,000 against each of the companies. The agency said it was also investigating a fatality at another Amazon distribution center in Carlisle, Pennsylvania. Amazon itself was fined $7,000 at its warehouse in Campbellsville, Kentucky.

Amazon has also been the subject of complaints regarding violations of the Fair Labor Standards Act, including the failure to compensate workers for time spent waiting in long lines at the end of shifts to be searched to make sure they aren’t stealing merchandise. In October 2015 drivers for the Amazon Prime Now delivery service in California filed a class action lawsuit charging that they were being misclassified as independent contractors and thus denied protection under state laws governing minimum wages, overtime pay and business expense reimbursement.

Reports about harsh working conditions have also surfaced in connection with Amazon’s facilities in Europe. In 2013 a German television program documented the brutal treatment of temp workers brought in from Poland, Spain and other countries to help with the Christmas rush at Amazon’s German distribution centers. The abuses were said to be carried out by black-uniformed guards employed by a security company hired by Amazon, which responded to the scandal by ending its relationship with the firm. Amazon was also confronted by its regular German distribution center employees, who began staging strikes to support demands for higher pay. Amazon, unlike most domestic and foreign employers, refused to cooperate with the country’s powerful labor unions.

Labor protests have also taken place in response to conditions at Amazon distribution centers in the United Kingdom. In 2013 the BBC sent an undercover reporter to work at one of those centers and aired a program describing the hectic work pace and quoting an academic expert as saying that it created “increased risk of mental illness and physical illness.”

Rather than improving working conditions, Amazon has focused on replacing workers with automation, a move assisted by the 2012 purchase of the robotics company Kiva Systems. A February 2015 article in the Seattle Times reported that a new Amazon warehouse in Washington was “teeming with hundreds of Kiva robots. Those are the squat, coffee table-sized gadgets that buzz around, lifting and moving shelves of products, delivering them to workers who pluck items to be shipped off to customers.” It seems that the robots are not making things easier for workers; instead, they are probably helping to intensify the pace at which the reduced workforce is expected to toil.

Labor controversies are not limited to distribution centers. Charges of abysmal working conditions have also been raised in connection with Mechanical Turk, a service created by Amazon to parcel out repetitive online tasks to thousands of individuals who are paid on a piecework basis. It’s been estimated that these “crowdworkers” earn an average of about $2 an hour.

In August 2015 the New York Times published an investigation of Amazon’s white-collar workforce, describing a situation in which employees were compelled to work long hours and were encouraged to criticize one another mercilessly. The rigid system was said to be governed by a series of principles promulgated by company founder and CEO Jeff Bezos that everyone was expected to follow. Those who failed to adjust to the system were dismissed.

When Amazon released its diversity data for the first time in 2014, the percentage of the U.S. workforce that was black or Hispanic was nearly 25 percent, far higher than at other tech companies. Yet subsequent data indicated that many of those minorities were employed at its warehouses and in other relatively low-skill jobs. Just 10 percent of Amazon’s executive and technical employees are black or Hispanic.

Speed-up, wage theft, union-busting, safety and health abuses: Amazon stocks the full inventory of exploitative labor practices.

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New in Corporate Rap Sheets: Food giant ConAgra, touting its Healthy Choice brand, has been involved in a long series of food and workplace safety controversies.

Business Crime Simple and Complex

Thursday, August 13th, 2015

thumbonscaleMuch of the corporate misconduct of the past decade has involved complicated schemes involving the likes of mortgage-backed securities and credit default swaps. A recent announcement by the Consumer Financial Protection Bureau is a reminder that old-fashioned business thievery is still very much with us.

Citizens Bank will pay $18.5 million to settle CFPB allegations that it routinely pocketed the difference when customers mistakenly filled out deposit slips for amounts lower than the sums actually transferred. Taking advantage of the carelessness of others added up for the bank: $11 million of the payment by Citizens will consist of refunds, with the rest representing penalties imposed by the CFPB under its powers granted by the industry-vilified Dodd-Frank Act.

The under-crediting attributed to Citizens is the flip side of the overcharging that is surprisingly common among large retailers. Whole Foods is facing a shareholder lawsuit and sinking sales in the wake of allegations by the New York City Department of Consumer Affairs that its local stores were systematically and egregiously overcharging customers for pre-packaged foods. The agency found that: “89 percent of the packages tested did not meet the federal standard for the maximum amount that an individual package can deviate from the actual weight, which is set by the U.S. Department of Commerce. The overcharges ranged from $0.80 for a package of pecan panko to $14.84 for a package of coconut shrimp.” The company admitted it had made “mistakes.”

In February, Target paid $3.9 million to settle allegations by half a dozen district attorneys in California that prices charged at the register were higher than those posted in the aisles.

In April, Wal-Mart was hit with a proposed class action lawsuit alleging that the company overcharged customers at its vision centers by inflating insurance co-pay amounts.

Earlier this month, Genuine Parts agreed to pay $338,000 to settle allegations by the San Diego District Attorney that its several of its NAPA Auto Parts stores were overcharging customers.

Cases such as these belie the notion that “thumb on the scale” types of simple cheating are mainly to be found among small businesses. Large companies are apparently inclined to engage in both simple and complex misdeeds.

Citizens Bank symbolizes the link between the different types of misconduct. The company is a subsidiary of the Royal Bank of Scotland, which has been deeply involved in a variety of complex financial scandals.

Earlier this year, it pleaded guilty to criminal charges of conspiring to fix foreign currency rates, along with three other major banks. RBS was fined $395 million (and another $274 million by the Federal Reserve) and put on probation for three years. The SEC gave it a waiver from a rule that would have barred it from remaining in the securities business.

In 2013 RBS had to pay $153 million to settle charges that it misled investors in a 2007 offering of subprime residential mortgage-back securities. That same year, it paid $612 million to settle civil and criminal charges that it was involved in the manipulation of the LIBOR interest rate index.

Whether simple or complex, corporate wrongdoing needs to be prosecuted aggressively.

Redistributing Work Hours

Thursday, July 2nd, 2015

punching inThe Obama Administration’s new overtime proposal is an important and long overdue reform, but those who see it primarily as a way to address stagnant wages are missing the point. If the rule works properly, the main benefit will come in the form of time rather than money.

Noam Scheiber, the new labor reporter for the New York Times, exhibited the misconception in a news analysis arguing that the proposal “falls well short of helping substantially increase middle-class wages.” The piece compounded the problem by quoting Sen. Chuck Schumer calling the step “the middle-class equivalent of raising the minimum wage.”

Enacted in 1938, the overtime provision of the Fair Labor Standards Act (FLSA) is designed to discourage employers from compelling workers to work excessive hours. The time-and-a-half provision is meant not as a wage bonus but rather as a penalty for firms that overwork their staffs rather than increasing the headcount.

Under pressure from business interests, Congress wrote language into the FLSA providing an exemption from the overtime provisions for executive, administrative and professional employees. The rationale was that such persons would be paid a salary rather than a hourly wage, and their compensation would be high enough to make some extra hours tolerable.

It was left to the Labor Department to define exactly which employees would be covered by the exemption. It chose to set criteria that referred mainly to job content but also set a compensation level below which overtime had to be paid regardless of the nature of the job.

That latter provision turned out to be essential. It would be all too easy for an employer to give a position superficial managerial or administrative responsibilities with the aim of making it exempt from overtime. The problem was that the wage cutoff was set too low, and revisions tended to be slow in coming. After the cutoff was raised to $155 a week in 1975, it took another 29 years before it was increased again.

In the meantime, employers did everything possible to shrink the portion of the workforce eligible for overtime pay. This was perhaps most common in the retail sector, where workers were given bogus titles such as assistant store manager while most of their responsibilities were not managerial or administrative in nature. Once they were off the overtime clock, it was profitable for the real bosses to work them long hours.

Obama’s proposal, which would raise the cutoff to $970 a week, did not come out of the blue. Groups such as the Economic Policy Institute and the National Employment Law Project have been campaigning on the issue for years.

There’s also been a battle going on in the courts. A slew of lawsuits have been brought against major retail companies for misclassifying people as overtime exempt. Earlier this year, for example, a federal judge approved a $30 million settlement of overtime claims brought by so-called managers at Publix Super Markets. Payless Shoesource has agreed to a $2.9 million settlement of similar allegations.

Dollar stores, which are obsessive in their cost-cutting efforts, have been the target of numerous overtime suits brought by purported managers. Dollar General paid $8.3 million to settle one such case.

The employer class is, of course, up in arms over the proposed new standard, making the usual foolish claims about job cuts and loss of freedom. The Washington Post quoted one chief executive as saying: “Everything in this proposed rule is anti-American work ethic and culture.”

That in a sense is true, if one acknowledges that our work culture is now one in which some people are forced to work excessive hours and others, especially in the sprawling retail and restaurant sectors, are kept in involuntary part-time status with unpredictable schedules and not enough hours to piece together a decent living.

A measure of the success of the new overtime rule will be the extent to which it rectifies this lopsided distribution of working hours.

A Crowded Corporate Hall of Shame

Thursday, January 29th, 2015

2015_PublicEye_KeyVisual_550x275Over the past year, Chevron has had success in getting a U.S. federal judge to block enforcement of a multi-billion-dollar judgment imposed by a court in Ecuador, and the oil giant managed to pressure the U.S. law firm representing the plaintiffs to drop out of the case and pay the company $15 million in damages. Chevron has just had another significant win but of a less desirable kind.

The Berne Declaration and Greenpeace Switzerland recently announced that Chevron had received the most votes in a competition to determine the world’s most irresponsible corporation and thus was the “winner” of the Public Eye Lifetime Award.

For the past ten years, the two groups have countered the elite mutual admiration society taking place at the annual World Economic Forum in Davos, Switzerland by highlighting the misdeeds of large corporations. The previous awardees ranged from banks such as Citigroup to drug companies such as Novartis to Walt Disney, which was chosen because of its use of foreign sweatshop labor to produce its toys.

A few months ago, Public Eye sponsors decided to bring the project to a close but do so with a splash by naming the company that stood out as the worst. Activists from around the world promoted their choices from among six nominees: Dow Chemical, Gazprom, Glencore, Goldman Sachs and Wal-Mart Stores, along with Chevron. Amazon Watch, which led the Chevron effort, prevailed. Glencore and Wal-Mart were the runners-up.

Public Eye’s award ceremony featured the Yes Men satirical group, which in one of its rare un-ironic pronouncements stated: “Corporate Social Responsibility is like putting a bandage on a severed head – it doesn’t help”. This sentiment is especially appropriate in relation to Chevron, which has long sought to portray itself, through ads headlined WILL YOU JOIN US, as not only mindful of environmental issues but as a leader of the sustainability movement.

Given the prevalence of business misconduct, choosing the most irresponsible corporation is no easy matter. Even within the petroleum industry, Chevron’s environmental sins in Ecuador and the rest of its rap sheet must be weighed against the record of a company such as BP, infamous for the Gulf of Mexico oil spill disaster as well as safety deficiencies at its refineries that resulted in explosions such as one in Texas that killed 15 workers in 2005. Also worthy of consideration are Royal Dutch Shell, with its human rights abuses in Nigeria, and Exxon Mobil, with its own record of oil spills as well as climate change denial.

And what about the mining giants and their notorious treatment of indigenous communities around the world. A prominent activist once called Rio Tinto “a poster child for corporate malfeasance.” Then there is Big Pharma, made up of corporations that tend toward price-gouging and product safety lapses. And we shouldn’t leave out the auto industry, which in the past year has been shown to be a lot sloppier about safety matters than we could have imagined. Also not to be forgotten are the weapon makers, whose products are inherently anti-social.

Yet perhaps the biggest disappointment for corporate critics in the United States may be the fact that the Lifetime Award did not go to Wal-Mart. For the past two decades, the Behemoth of Bentonville has epitomized corporate misbehavior in a wide variety of areas — most notably in the labor relations sphere, but also promotion of foreign sweatshops, gender discrimination, destruction of small business, tax dodging, bribery (especially in Mexico) and the spread of suburban sprawl with its attendant impact on climate change. Yet perhaps the most infuriating thing about Wal-Mart has been its refusal to abandon its retrograde labor practices while working so hard, like Chevron, to paint itself as a sustainability pioneer.

It’s too bad that we will no longer have the annual Public Eye awards, but corporate misconduct will apparently be with us for a long time to come.

Business Success and Economic Failure

Thursday, September 11th, 2014

familydollarWhat does it say that an all-out takeover battle is being waged for a chain of no-frills stores selling cheap merchandise at outlets typically located in the most downscale parts of town? The answer is that deep-discount retailing, which entered the mainstream during the recession of the late 2000s, remains a lucrative business as much of the country struggles with stagnating income levels.

The focus of the current bidding war is Family Dollar Stores, the second largest chain of deep discounters, also known as dollar stores. A couple of months ago, Dollar Tree, the third largest chain, announced plans for an $8.5 billion purchase of Family Dollar, which had been targeted by several corporate raiders such as Carl Icahn, who bought a 9 percent stake in the firm.

Family Dollar’s management seemed willing to throw in its lot with Dollar Tree and create a combined company with about 13,000 stores that could not only neutralize Icahn but also challenge the current leviathan of the industry, Dollar General with its 11,000 stores.

Dollar General, which long had its eye on Family Dollar, did not take kindly to the prospect of being relegated to second place. It launched its own fatter bid for Family Dollar, and after being rebuffed, it is now going hostile. It has announced a tender offer under which Family Dollar investors could sell their shares for $80 each, well above the $74.50 that Dollar Tree said it would pay.

As interesting as this may be to analysts of mergers & acquisitions, the takeover battle is not the most significant story here. First, there is the alarming fact that it is taken for granted that the marriage of two giant dollar-store chains can receive antitrust approval. The original Dollar Tree-Family Dollar deal has been promoted by the two companies with the argument that it was likely to be blessed by the Federal Trade Commission. Dollar General argues that its promise to sell off 1,500 outlets would make its deal palatable to the federal regulators. Why shouldn’t any combination among the three chains be considered unacceptable? And what about the even more controversial possibility, as has been widely rumored, that Wal-Mart might try to take over one of the dollar chains to shore up its faltering small-store strategy? Are we to assume that would get approved as well?

At the same time, there has been surprisingly little discussion of how these companies operate. For example, there’s the matter of their labor practices. Dollar General, Family Dollar and Dollar Tree are not often mentioned alongside Wal-Mart, yet they are also low-paying, non-union employers that have been involved in numerous wage & hour controversies. The dollar stores, whose outlets have much smaller staffs than those at Supercenters, have mainly been accused of improperly denying overtime pay to so-called store managers and assistant managers who spend most of their time on non-managerial tasks such as stocking shelves and unloading trucks. Family Dollar, for instance, fought one such case all the way to the U.S. Supreme Court, where it lost and finally had to pay a $33 million judgment.

And then there’s the issue of the basic business model of the dollar stores. This is a sector that to a great extent profits from economic desperation. Although a small portion of its customers are middle-class people looking for a bargain, most are lower-income individuals who cannot afford to shop at the likes of Wal-Mart, much less non-discount chains.

The deep-discount chains were supposed to have shrunk once the economy was in recovery. Their continued growth is a symptom of ongoing wage stagnation, and their business success is a sign of a broader economic failure.

Ikea’s Double-Edged Living Wage Initiative

Thursday, June 26th, 2014

ikea2In an era of rising inequality, the announcement by Ikea that it will adopt a living wage policy for employees at its stores in the United States is good news for those who will enjoy a fuller paycheck. Yet the news is not as good as it could be.

Ikea’s move, like a similar action by Gap Inc. earlier this year, is a voluntary initiative, not a legislated or negotiated policy that can be enforced. Just as Ikea adopted the wage policy on its own, it could rescind or modify that policy in the future.

It’s significant that in its announcement Ikea noted that the new wage structure, which will raise the average hourly minimum to $10.76, does not apply to those working at its U.S. distribution centers and manufacturing facilities. That’s because, the company says, those facilities “have hourly wage jobs that are already paying minimum wages above the local living wage.”

What Ikea fails to mention is that some of those workers are represented by collective bargaining agreements that brought pay rates to their current levels. Also omitted is the fact that those unions were organized because of poor conditions, including inadequate wages.

For example, in 2010 the Machinists union (IAM) and the Building and Wood Workers International labor federation organized a campaign to pressure Ikea over dangerous working conditions and discriminatory employment practices, as well as pay and benefit issues, at the company’s Swedwood furniture plant in Danville, Virginia.

That campaign served as a springboard for a successful union organizing effort at the plant, where IAM members ratified their first contract with the company in December 2011. A month later, workers at the Ikea distribution center in Perryville, Maryland voted in favor of representation by the IAM. In May 2014 Teamster members  at an Ikea distribution facility in Washington State approved their initial contract.

It’s quite possible that Ikea’s new wage policy for its stores is an effort to undermine any union organizing at those outlets. For if there is one thing large companies hate more than paying higher wages, it is paying those higher wages and having to negotiate on other conditions of work.

The desire by management to retain control is the shortcoming of both voluntary wage increases and other initiatives undertaken under the rubric of corporate social responsibility. What proponents of CSR rarely acknowledge is that these supposedly enlightened corporate policies really amount to an effort to avoid stricter, enforceable regulations. Companies would prefer to congratulate themselves for deciding to cut greenhouse gas emissions or eliminate toxics rather than being compelled to take such actions under government mandate. A management-designed wage increase is more palatable than a union contract.

Corporate apologists would have us believe that CSR is preferable to tough regulations and collective bargaining, but what they fail to acknowledge is that major corporations have a long history of engaging in abusive practices.

In the case of Ikea, taking advantage of weak labor laws in the United States is far from the whole story. Two years ago, Ikea was forced to apologize after an investigation showed that it had benefitted from forced prison labor in East Germany in the 1980s. There were similar reports concerning Cuba. And now the company is facing allegations that during the same period it channeled funds to a firm run by the secret police in Romania.

Earlier, Ikea was embroiled in controversies over the use of child labor in countries such as Pakistan, India, Vietnam and the Philippines. One way the company sought to overcome that stigma was through philanthropic initiatives such as a partnership the Ikea Foundation created in 2013 with Save the Children and UNICEF to help children in Pakistan “find a route out of child labor.” Unaddressed, of course, was the issue of how companies such as Ikea got them into child labor in the first place through their use of exploitative contractors.

The same issue applies to the wages of Ikea’s U.S. store employees. There would be no need for a living wage initiative if the company had not been paying too little to begin with. That’s the problem with much of CSR and voluntary corporate reforms: they are all too often initiatives designed to address problems that companies created themselves and are structured in a way that does not prevent them from reverting to those bad practices again in the future.