Housing Complex

Marion Barry vs. Walmart

As we wait for the D.C. Council hearing—scheduled for 10 a.m., and set to include a final vote on the living wage bill—to get underway, let's take a look at a snapshot of the debate over the legislation, which would require retailers in excess of 75,000 square feet whose parent companies make at least $1 billion per year to pay a living wage of $12.50 an hour. Walmart has threatened to cancel at least three of its planned D.C. stores if the bill becomes law.

This debate is between ex-Mayor for Life and current Ward 8 Councilmember Marion Barry on one side, and Walmart spokesman Steve Restivo on the other. It begins with a flurry of tweets from Barry:

Restivo responds with the following email:

Saw Councilman Barry’s tweets regarding profit…

PROFIT PER EMPLOYEE

1.     Exxon Mobil, $510,000

2.     Apple, $353,041

3.     CVS Caremark, $23,568

4.     Home Depot, $13,338

5.     McDonald’s, $12,420/employee

6.     Nordstrom, $12,049

7.     Kohl’s, $11,951

8.     Dollar General, $10,527

9.     Dillard’s, $10,222

10.  Family Dollar Stores, $9,595

11.  Starbucks, $8,648

12.  J.C. Penney, -$8,491

13.  Target, $8,307

14. Wal-Mart Stores, $7,726

Restivo points out regularly that lawmakers sometimes fail to recognize the difference between revenue and profits, and that a company that grosses unfathomable sums of money doesn't necessarily have a wide profit margin per employee. That said, if Walmart's per-employee profit is $7,726, that means the company can afford to pay each employee $7,725 more and still make a (very slim) profit. And because the living wage only amounts to $26,000 per year, minus benefits, for a 40-hours-a-week employee, that in turn implies that as long as the company is currently planning to pay its starting workers at least $18,275, it can probably pay the living wage and still be profitable.

  • John

    Restivo also (intentionally I'm sure) leaves aside that this is an _average_ (likely mean) profit per employee. Some locations, say ones in a high average income urban locale would very, very likely generate a much higher number than one of their old rural area locales. That's why they want into urban markets.

    It also probably tracks the three they are threatening to close vs the ones they aren't. Higher profit per employee.

    In other word, yeah, they can afford it easily. They just don't want to.

  • cspk

    And WalMart has the right to back out. It's not a non-profit, so the amount of profits WMT makes is immaterial to this argument. This seems more like a bait and switch by the District.

  • AP

    Again if a "Living Wage" is so important what about CVS, McDonald's or Apple ... this a double standard and it's wrong.

  • John

    The reality is they won't. They PPE is too good here and they need to get into urban markets. the only reason they won't is not the actual impact of the law, but fear of precedent. The likelihood is that they will bluster, then cave quietly after it passes and they run out of options. This is especially true of the 3 they aren't threatening to drop even now. Too good a PPE to let go of.

  • CrazyMBA

    I hate being in a position to defend Walmart, a place I would not step into voluntarily. But this is also no way to do business.

    The DC Government lobbied Walmart inclusive in that lobbying was things like laws, regulation and business environment.

    And right before several stores are set to open, wham...here is this new provision take it or leave it. This won't just send a message to Walmart it will send a message to every other corporation,

    and if you don't think so read the trade papers and the WSJ who have been discussing this in the context of bait and switch.

    Did D.C. Bait and Switch Wal-Mart on Wages?
    http://wallstcheatsheet.com/stocks/did-d-c-bait-and-switch-wal-mart-on-wages.html/?a=viewall

    I have heard over and over DC pols say the same thing John has said. This market is too good.

    Maybe???? it certainly under retailed for a city of this size we can certainly only go up.

    I heard them say it when they argued for aggressive parking plans...but now revenue from parking is down and so is in store traffic.

    I heard them say this with university tuition...students won't go anywhere this is still DC ..and enrollment is drastically down.

    And now they are saying it with Walmart...when people forget MD and VA is but a small metro or car ride away. Why don't people get that?

  • CrazyMBA

    But I do somewhat agree with John that Walmart is not making this stand based on their economic analysis they are doing it to make a statement. So they won't do so quietly this deal falls apart, DC's name will be MUD in every trade from Bloomberg to WSJ.

    And for that reason I believe they would go through with the threat move the stores planned to PG, Arlington and Moco and pay even more than the 11. per hour.

  • John

    Uh, MBA. There are already WallyMarts in PG, right over the border. If that worked for them, they wouldn't be trying to get in DC. And if you read the trades as you say, you also realize they are presently maxed out and actually in slow decline as a suburban/rural/exurban business. They desperately need to break the urban market, but urban areas reject them in every way possible. Without it, they're toast.

    So will they bail? Possible. A lot of business decisions are unfortunately made by executives who feel their ego/penis size has been challenged, so they may petulantly walk. But I honestly doubt it if the finance and strategy guys have final say.

  • Lynn

    San Francisco has a living wage. Any comments?

  • Typical DC BS

    @John - Uh, that's NOT the reason Wal-Mart is trying to start up in DC. They were promised certain things by the DC government, and are now discovering that DC government politicians are liars and business morons.

    Wal-Mart is in slow decline? Guess you don't know how to read financial statements. Their past five year performance shows consistent growth in revenue and profits EVERY YEAR. Typical non-business person spouting nonsense.

    Wal-Mart doesn't NEED DC. They don't have to put up with liberal, union bought and paid for politicians changing the rules on them. If the DC idiots who are on the city council had any brains regarding "strategy", they would have waited until ALL the stores Wal-Mart is trying to open were up and running before doing the DC "okey-doke" on them.

    Almost as idiotic as Marion Barry trying to force companies not to use criminal background checks when hiring in the District. Sheer stupidity by mental midgets.

    http://financials.morningstar.com/income-statement/is.html?t=WMT&region=usa

  • Jeff

    John,

    You take a little bit of a point and expand it absurdly. You're right they have greater potential to expand in the urban environment than they do in the suburbs/exurbs, but that doesn't at all mean they "desperately need" to or are toast without doing so.

    There are many other sites both in the US and internationally that they can expand to first. I'd also point out that expansion is not required for their business model. Their business model is about returning value to their shareholders. If they can't expand for the right price, it might be a better option to buy back their own stock.

    Remember, their success comes from the fact that they are extremely price conscious. Not only in the prices they charge but the prices they pay up and down the supply chain. A law that says they have to pay more than their competitors for labor is simply unacceptable. Walmart never pays more. Its that discipline that has made them as successful as they are.

    They also will hate the precedent. If they give in to this than other cities will try the same crap. They can't have that.

    They have other options. If DC is serious about getting its poorest residents access to inexpensive goods, it really doesn't have other options.

    They will back out of the 3 stores and it won't be about ego or penis size. I can guarantee you it is the right decision for the finance and strategy guys and they won't be toast without it.

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  • duh

    If Wal Mart didn't need DC, then they wouldn't have had someone write an editorial in the Washington Post yesterday. Of course they want to be in urban areas like this. Give me a break.

  • Jeff

    Duh!!!

    Big difference between need and want.

    Of course, they want to be in urban areas like this. Nobody would deny that. They don't need it though. Thats pretty obvious.

  • duh

    And explain why it's obvious.

  • Jeff

    I thought I did in the post above.

    They have plenty of potential other sites to expand to both nationally and internationally. Even without expansion, stock buybacks would probably give them a better return on investment than going into a market where there biggest competitive advantage (ruthlessly efficient control of costs) is undermined by being forced to pay more than competitors for a key input. Finally, they can't allow a precedent to be set that could be used against them in other cities.

  • duh

    what potential sites? in this area? Jeff, buddy, their whole new strategy in the U.S. is to expand into URBAN AREAS like DC. Therefore, they NEED this to work.

    I'd love for you to pitch your strategy to the board of Wal Mart. I'm sure it would go over great. Yeah, no more expansion.

    And, they wouldn't be paying more than competitors, they would be paying the SAME as competitors.

  • CrazyMBA

    Again I have heard this they need DC argument more than we need them.

    DC Council doubled tuition at UDC, thinking the number of students was a fixed and guaranteed asset. There is no such thing, enrollment plummeted.

    Parking in the city...the number of parking and people going to attractions was fixed.

    Neither of this assumptions proved true. Not because DC doesn't have all the components for a business to thrive, income, population density....yes yes,yes.

    And Yes a student would prefer to be here than the suburb of MD. Yes, if I am going to eat I want downtown over Arlington. But no I am not going to pay an extra 8K for the privileged or calculate an addition 25 dollars ticket on my night out.

    DC is fundamentally wrong on the premium people are willing to pay for that special "DC Value" Business have market analysis...the breaking point a consumer is willing to pay...when DC has someone at five dollars they always try to go 50. But if this Walmart deal goes south it won't be just Walmart it will be other corporations thinking DC's Development is not worth toilet paper.

  • duh

    Again, is there any evidence that Wal Mart doesn't need to be here other than saying that...they don't need to? They are the largest business in the world. If you've got an mba, crazy mba, then you're familiar with the corporate mentality. They aren't looking to shrink or stay the same. they want to be everywhere. The question is not just whether DC needs them, but whether they need us. and they certainly do.

  • Jeff

    Duh,

    They would be paying more than their competitors. If there competitors have less than 75000 square feet, lower wages. <1b sales, lower wages. Grandfathered in, lower wages. Union contracts, lower wages. Pretty much everybody agrees, the whole point of this bill is that Walmart pays more than its competitors. If you want to talk about increasing the overall minimum, thats a different argument. This was intentionally written as the screw Walmart bill.

    I think you are misinformed. Their strategy is not to expand into urban areas. Their strategy is to invest their money wherever they can be the most profitable. If thats DC, great. If its Lima Peru, also great. If it is nowhere and they can use free cashflow to buy back their own stock at a discount, that's great as well.

    Its true that the focus is currently on US urban areas, but you're a fool if you think that Walmart's board cares about expansion to anywhere in particular for its own sake. When the same rules as their competitors, DC is a better bet than Lima. With the deck stacked against them, its not. This really should be obvious.

    I'd be more than willing to make that argument in front of their board and I'm sure that they would all agree. It sounds to me as if that is the exact argument they've made.

  • duh

    Jeff,

    So, which stores do you consider their competitors? It appears that anyone and everyone could be their competitor according to you. But that's not really the case. Their major competitors in this market are Target and Costco. I honestly don't care whether this is a screw wal mart bill or not. What we are talking about is whether Wal Mart needs to be in this city to advance its business model.

    So, finally, you are admitting that there is a strategy to be in major urban areas in the U.S. The argument is not whether or not DC is preferable to Lima, the argument is whether Walmart does or does not need to be in Washington, DC. If we're talking about customers in this region, and in this country, then the answer is resoundingly yes. Walking away would be a huge blow to them, particularly since they've already put a lot of work into three stores.

    If you honestly believe that Wal Mart does not want to expand any more than you really should not accuse any one else of not knowing what they're talking about. Totally ludicrous and totally uninformed. You would be laughed out of the room.

    I'll let the name calling slide and stick to the subject.

  • Jeff

    There competitors are not just Target and Costco. Thats really missing the point. Their competitors are anybody that sells anything they sell. Thats Safeway, Staples, Best Buy, Amazon and the neighborhood bodega. It is pretty much anybody and everybody. Thats why so many people hate them so much. Many businesses compete with them and because they are very good at what they do, many businesses lose to them. Not wanting to compete on price, they find b.s. ways to hire lawyers and lobbyists to stack the deck in their favor. The vast majority of their competitors are now allowed to hire people at a lower wage rate.

    Of course they have a strategy to be in the major urban areas. Thats where they see the most potential profits. But you are missing the point. Being in the major urban areas doesn't mean being in all of them. Are you saying that if they aren't in DC, they will not sell as much in St Louis? That seems to be what you are saying.

    I'll underline this again because it doesn't seem to have sunk through yet. They don't want to expand everywhere. In fact, they are constantly closing existing stores. They want to sell where they can earn the most profit. Historically, that has been in the exurban/rural US. That market is mostly saturated now. The urban and close-in suburbs are not. Nearly everything outside of North America is barely scratched. They are proceeding with plans to expand but with so many good targets, they have absolutely no reason to expand to unprofitable locations.

  • Jeff

    Does anyone else feel like the real impact of this bill will be that all future grocery, department or discount stores in DC will be 74,000 square feet?

    I feel like that is what will ultimately happen. It won't benefit workers. It will screw customers on both price and selection. The only people it will benefit is existing storeowners. Keep an eye on donations from Safeway and Giant to those councilmembers.

  • duh

    Jeff, who said that they want to expand everywhere? No one. I suggest that you read carefully. In no way did I say that if they aren't in DC they will not sell as much in St. Louis. Not once. They are doing this for their brand more than anything. If they can move from being perceived as a redneck haven to a place where hip, urban people go for essentials, then they've accomplished a hell of a lot.

    None of those businesses that you listed will lose to Wal Mart, because they are very good at their niche. Except for the bodega.

    Why are you spending so much time defending Wal Mart?

  • Jeff

    I'm not sure why I'm obsessed with this. I guess I just get that way about things.

    I don't think they give a shit about their brand being associated with rednecks or hip urban people. I think they are pretty clear on what their brand is: "low prices". Walmart has never been and will never be hip. The fact that they are successful as they are is testament that when push comes to shove, most consumers prefer saving a buck to being hip.

    They want to come to SE DC because there are a lot of under-served price conscious people in SE DC. There are a lot of under-served price conscious people in a lot of different places and as you said, you can't expand everywhere. Skyland and the other two were marginal locations even before this. It sounds like you are saying that the Walmart board should want to expand into DC before Peru because Skyland people are hipper, even though they could get bigger profits in Peru. I don't think you understand businesspeople very well if you think that makes even a tiny bit of difference.

  • duh

    Jeff, please. You are inserting things that were never said into my argument. Try again . I have no idea what wal mart wants to be perceived as. Perhaps you're right. But who the fuck cares? They need to be in this city, just as they need to be in other cities, but even more so here because they have tapped out in the region.

    I never ever said that Wal mart wants to be in DC before Lima. So, please try again. I don't think you're very good at reading comprehension. So, I guess we're even.

  • Jeff

    In other words, Walmart needs to be here but no more than they need to be anywhere else in the world that they aren't already. The city council's actions have just turned SE DC from one of there highest priority expansions into one of their lowest. Skyland might get a tenant but only after they've already saturated Latin America, Asia, Europe, Africa and Australia.

    They need it in the sense that they'll probably be back trying to expand there roughly 30 years from now?

    I suppose you are right. I guess they do need it. I guess my reading comprehension must suck because you and I have very different definitions of the word "need".

  • duh

    Jeff, last one for me because I really don't want to waste my time with personal attacks.

    Walmart is a business. They have a model that they hope will work for them to not just maintain profitability, but to increase profitability. I would argue, and I think most people would agree, that Wal Mart is an adherent of classical economics. They don't care about anything but profit, and, specifically, maximizing that profit.

    That is their way. You can ssy that they WANT to increase profit and expand, but I'd bet if you asked board members and higher level management, they'd say that they NEED to increase profit and expand. This is their self-perceived nature. No successful, large company wants to just hold on to its market-share. They NEED to INCREASE their market-share.

  • Jeff

    We agree. They need to increase profitability. That need was going to bring them to SE DC where they would have also given a lot of people jobs (albeit some of them low paying jobs) and they would have significantly increased grocery supplies and decreased costs for a lot of poor customers. Now that need is going to take them someplace else.

    I suppose you could thank the DC council for helping a lot of poor people in other countries have access to a Walmart.

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