AVERTING THE P.R. FIASCO - RETAILERS
TAKING ACTION TO BUILD A BETTER IMAGE PROTECTING THE CORPORATE REP.
By Katherine Bowers.
3,496 words
Women's Wear Daily
English
Copyright 2003 Fairchild Publications, Inc. All Rights Reserved
For anyone who considers corporate reputation as a
"fuzzy" or "feel good" discipline with little impact on the
bottom line, all they have to do is look at the recent problems at the world's
biggest company - walloped by a scandal involving illegal aliens cleaning its
stores, a gender discrimination lawsuit and a spate of media investigations
probing whether big equals bad.
So it should come as no surprise that Wal-Mart - which arguably
has the most polarized reputation in corporate
In light of this, mass retailers of all stripes, facing public
scrutiny and skepticism on everything from employment policies to expansion
plans, are recognizing reputation is a significant asset to be developed and
protected.
Their efforts to manage reputation go far beyond traditional p.r. or advertising - and include outside consultants,
dedicated staff and ties to the highest levels of the organizations.
"The whole concept of corporate reputation has become
radioactive," said Leslie Gaines-Ross, chief knowledge and research
officer for Burston Marsteller,
a research consultancy working on several reputation projects, including one
for a high-profile food services company. "Everyone cares. Everyone is
interested. The new generation of ceo's is on pins
and needles investigating their corporate reputations and their
audiences." Gary L. Davis, J.C. Penney's executive vice president and
chief human resources officer, also believes retailers are under a microscope.
"When one thing comes out about a competitor, people will look across the
industry to see if you're doing something similar," he observed.
"Associates watch their leaders, the media questions everything,
investment communities want assurance and vendors depend on you to stand by
your word. In these times, we must conduct ourselves in an impeccable
fashion."
Prompted by its board of directors two years ago, Wal-Mart began a
broad investigation into how core constituencies (associates, analysts,
customers and civic groups, among others) viewed Wal-Mart. Those findings
indicated jobs and community relations were Achilles' heels. "Community
officials did not see us as being flexible or being good enough listeners,"
said senior vice president Jay Allen, who heads Wal-Mart's reputation task
force. The body reports to the compensation committee of Wal-Mart's board,
implying the retailer's top brass are tying paychecks to the company's public
profile.
According to Allen, the second weak spot was "people who did
not respect Wal-Mart did not think much of our jobs. They did not see Wal-Mart
jobs as valuable or the company as offering good careers."
One of the sorest spots has been Wal-Mart's wages, thought to be
among the lowest in the retail industry.
Richard Drogin, a statistician hired by
the Impact Fund, which is spearheading the Betty Dukes gender discrimination
lawsuit against Wal-Mart, reviewed six years of the retailer's employment data
in connection with that case. He concluded experienced cashiers on average earn
between $13,000 and $14,000 annually, on wages ranging from $8 to $10 an hour.
WWD spot-checked entry-level wages for holiday help, discovering a
Wal-Mart in
In response to its detractors who claim these aren't "living
wages," Wal-Mart assembled two massive education, advertising and public
relations campaigns internally dubbed the "Good Jobs" and "Good
Works" initiatives.
Both have highly visible national television ad campaigns. In the
"Good Jobs" ads, single mother employees talk about company benefits
and advancement opportunities, while in the "Good Works" spots, an associate talks about volunteering for community
improvement projects, noting, "We live here, too."
Stores now have a "Good Works" bulletin board at the
front, with the words "Giving, Helping, Doing" in bright colors over
local thank-you letters from organizations that have received donations from
Wal-Mart. The retailer appears to be pumping money into these initiatives,
significant in itself because it doesn't part with pennies lightly.
According to New York-based Competitive Media Reporting, Wal-Mart
spent $178 million on TV advertising in the first six months of this year. A
"Good Works" ad runs nearly every morning on NBC's top-rated
"Today Show," at an average cost of $50,000 to $60,000 for 30
seconds, estimated Walter Coyle, senior vice president and media director for
ad agency Pedone & Partners.
In addition to buying all the national television airtime, the
retailer has a reputation team of about 17 employees at headquarters, the
reputation task force and one of the largest networks of community-relations staffers
spread across the U.S. Wal-Mart would not comment on the extent of its
investment in reputation-building campaigns or the size of its community
affairs staff.
This month, Wal-Mart created an office of diversity, charged with
developing a pool of qualified women and minority candidates. It tapped one of
its top-ranking female executives, Charlyn Jarrells Porter, to run the office and recruited the head
of AT&T's foundation and corporate social responsibility programs, Esther
Silver-Parker, to serve under Porter. Although Wal-Mart denies it, some
observers believe the move is connected to the Betty Dukes gender
discrimination case, which stands to become the largest class-action suit of
its kind.
"In our internal training piece, we're working with the
senior management so they can go out and spread the word," noted Allen.
"We want people out in the community who can be reputation warriors for
us."
Addressing reputation at the company's analysts meeting at its
Bentonville, Ark., home office in September, Wal-Mart president and chief
executive Lee Scott sounded a determined note, saying Wal-Mart will not waste
energy "getting our detractors to love us," but that it was important
to become more skillful at "not creating the ammo that allows people to
attack us. They attack us because they want to slow us as a company."
Scott said he's driving the message down to the rank-and-file. "The one
person who does something bad gets held up as a poster child," he said.
"Rather than be defensive, we need to step up and teach our people the
cost of exposure on all 1.4 million of us."
Acknowledging the "disconnect between who Wal-Mart is as a
retailer and who Wal-Mart is as an employer," Marie van Luling, head of public relations firm Manning, Selvage
& Lee's corporate practice, said Wal-Mart has an opportunity to turn things
around and, in so doing, reset the benchmark on corporate responsibility.
"Wal-Mart is seen as a leader in many of the ways it does
business," she said. "If it is successful on the other side of this
gender discrimination lawsuit, I think it will be perceived as a leader in all
aspects of how it does business."
As Wal-Mart's case illustrates, the days when a company could bank
on a solid reputation by simply being law-abiding and writing an occasional
check to charity are gone.
Wal-Mart isn't the only retailer looking to mobilize reputation as
a key corporate asset. Target, as well, seems to be cognizant that every
business decision is stronger with a reputation underpinning. The company's
red-and-white Visa card, one of its major revenue sources in recent quarters,
is prominently linked to a program donating 1 percent of the cardholder's
spending to a school of choice.
Experts give the retailer kudos for the card initiative, as well
as for the simple, focused messages on charitable giving that are at every
register and store front.
"Wal-Mart might do just as much good, but Target has
certainly been more effective at communicating its contributions to its
customers," noted George Whalin, president of
Retail Management Consultants in San Marcos, Calif. "Of the three big
discounters, Target has the best reputation, partly because it has done a
fabulous job of embracing women's causes."
Kmart has yet to take the wraps off a major reputation-restoring
initiative, but it has charged its new ad agency, Grey Global Group, with
"looking at everything under the sun when it comes to redefining
Kmart," said the retailer's spokeswoman. "We're putting every
decision through a filter of how it would be seen by our customers and
stakeholders."
Reputation management is inherently tricky, mostly because
"reputation" is a fluid asset, composed as much by public perception
as by facts. Rochester, N.Y.-based research firm Harris Interactive attempts to
quantify reputation by assigning companies a "reputation quotient"
derived from public surveys of everything from a company's financial
performance to its level of social responsibility.
The top-ranking company for the past two years, Johnson &
Johnson, scored an 82.14 out of 100. Retailers ranked
in the 2002 RQ, the latest available, scored fairly well, near or above the
70-point benchmark for positive credibility, according to Joy Marie Sever,
director of Harris Interactive's reputation practice.
Target scored a 73. Sears and J.C. Penney scored 70.9 and 69.3, respectively, a
difference Sever called statistically insignificant. Kmart trailed sharply, at
53.4.
Wal-Mart, always an unusual case, scored highest of any ranked
retailer, with a 75.2. But the retailer also made the list of top 10
"worst companies" for reputation in a poll Harris conducted
simultaneously.
Whether or not a retailer was ranked depended on how many
independent mentions the company received (either as a "best" or
"worst" company) in Harris' survey of roughly 8,000 households.
Bill Margaritas, senior vice president for worldwide
communications at FedEx Corp., considered a role model for its polite couriers
and its corporate focus on reliability and community safety,
has worked extensively with Harris Interactive on reputation research. He
called reputation "an asset that can be harnessed in the marketplace. It's
a tailwind when you're on offense and a life preserver in a crisis."
Margaritas said the number of requests he receives across a variety of
industries to speak on the topic has risen. "It could take up all my time
if I let it," he said. "What people are realizing is reputation is
the day-to-day actions that bring the brand to life. It is equity you can tap
into, in a crisis situation or when you're trying to do something new such as
entering a new market." FedEx uses training, newsletters, an internal TV
network and its Intranet to "impress upon employees that the stronger our
reputation is, the more competitive and successful we will be," said
Margaritas.
The push to examine and manage reputation is more than just a
post-Enron pendulum swing, said Charles Fombrun, founder and executive
director of the Reputation Institute, a New York-based think tank. In his book,
"Reputation: Realizing the Value From Corporate
Image," Fombrun argues companies have become "modern icons for
our mass society." As such, he continued, companies are "increasingly
subject to the scrutiny of a demanding audience. More than ever before, they
are in the limelight."
Paul Argenti, professor of corporate communications at Dartmouth's
Tuck School of Business, who worked on reputation initiatives with Kmart in the
early Nineties, said "scorecard" programs like Penney's are now
crucial to ensure there's no gap between executive perception and ground-level
reality. "Companies need to measure the effect of the things they
do," he noted. "They need to monitor how the media is reporting on
them. They need to do polling with employees to see how leadership is perceived.
It's becoming more critical."
In Fombrun's estimation,
retailers stumble in their "tendency to focus on brand-building to the
neglect of other reputation staples, like employee and community relations.
They should take lessons from the pharmaceutical industry, which learned it's
the credibility of the company that makes you trust the drug."
Indeed, a good reputation accrues all sorts of benefits, from an
ability to attract and retain talent to more clout with suppliers. Experts
sited Penney's reputation for having a tight-knit and plain-dealing corporate
culture as part of the reason it attracted top-shelf talent Allen Questrom. In turn, Questrom's
reputation has kept investors, media, Wall Street and vendors consistently
speaking of Penney's "turnaround story," even though quarterly
performance has shown misses along with successes.
There's also a bottom-line return on a good reputation. Studies
have shown companies topping Fortune's "Most Admired" list enjoy
price-to-earnings ratios "consistently well above the average
returns," according to van Luling. P/E ratios
reflect investor confidence as much as actual performance. In contrast, a poor
reputation can expose a company to media cynicism, government scrutiny,
lawsuits and even customer boycotts. All these impact the bottom line.
Wal-Mart's miss of its third-quarter earnings - a blue-moon event for the
retailer - set some Wall Street analysts wondering whether a spate of negative
publicity had impacted results, or would be likely to do so in the future. UBS
analyst Gary Balter wrote in a research note after
the retailer missed its third-quarter earnings, "Recent negative publicity
is not likely to help what we see as deteriorating appearances at many Wal-Mart
stores and may gradually impact the multiple." Consumers are
"increasingly aware of a company's activities outside the product they're
selling," said Fombrun. "In that context, reputation acts like
a magnet. It either attracts consumers toward purchasing or repels them."
No company better illustrates the attract-repel
paradox than Wal-Mart. Although the company enjoys a sterling reputation in the
business community and with millions of loyal customers, its image as a
corporate citizen has become sullied. Power-play battles with communities,
organized labor and parts of its own associate populace have created festering
wounds.
By its sheer size and clout, Wal-Mart will always draw negative
attention - some of it merited, some sour grapes and
some irrational fear.
Speaking at its annual analyst meeting, ceo
Scott alluded to the burden of bigness, noting, "We find disadvantages of
size come without any work at all, but the advantages of size require a great
deal of coordination and work."
But while Wal-Mart takes the most public lumps, other mass retailers
aren't immune to the same sort of troubles.
"This idea that big is bad - that the more successful you
are, the more likely you are to be evil - that strikes at all categories,"
said
Experts said all mass retailers have reputation vulnerabilities -
or competitive opportunities, depending on how they manage it - primarily on
two fronts: jobs and expansions.
Big box stores sitting in asphalt puddles have become the popular
symbol of a sedentary, generic, traffic-jammed world. Civic groups routinely
question the cost of low prices on community quality of life.
News archive searches turn up battles all over the country against
Wal-Mart and virtually every other big box retailer, from Ikea (Somerville,
Mass., and Brooklyn, N.Y.) to Kohl's (Stilwell, Kan.) to Target (Bedford, N.H.,
and Savannah, Ga.), not to mention the legislative fight raging in California
about whether the state will allow retail to become "supercenter-sized."
Grassroots civic groups have become increasingly savvy adversaries
of big retail. They share information, experience and strategy, passing along
tips on how to gather signatures or how to rewrite zoning laws. A Montgomery,
N.Y.-based citizens' group, for instance, claimed victory in October 2002 when
Target Corp. abandoned plans to build a 1.6-million-square-foot distribution
center in their town. The group's Web site, bearing a crossed-out red bull's
eye and the words "Don't Target Our Village" is still active as a
"guide to other groups."
Daniel Hurwitz, executive vice president of Developers Diversified
Realty, which develops and manages open-air shopping centers, said anti-sprawl
groups have become "a huge problem" for all concerned.
Speaking at the International Mass Retail Association's annual
conference, he cited a recent project in Colorado where a civic group
threatened to withhold key permits if DDR didn't ban specific retailers from
taking space in the new center. He declined to name the tenants, but called the
civic group's practice "patently illegal." The retailers "ended
up pulling out, even though they had invested a considerable amount in zoning
research. They didn't want the risk of litigating and having it take five to 10
years," Hurwitz said.
It's likely both Sears and Penney's, if
they press on with the big-box formats they're now testing, will need a
strategy for allaying community concerns.
For its part, Wal-Mart will focus on "sifting through the
concerns that are sincere - traffic, location or other issues. Those things
deserve answers," said Allen. "The irrational resistance - the people
who don't want Wal-Mart to be a success and who tell lies and are not
interested in real answers - those we will treat entirely differently."
Jobs are the second major reputation quagmire for mass retailers,
particularly since industry turnover of all jobs is 65.4 percent, according to
the National Retail Federation. Part-time workers, including seasonal
employees, turn over a staggering 105 percent, NRF found.
It's no wonder then that at IMRA's
convention, top executives from Wal-Mart, Target, Best Buy and Office Depot,
among others, repeatedly cited the difficulty of attracting and retaining
service-minded workers. In an audience poll that asked executives to choose
their greatest business concern, "hiring people" took the top spot,
trumping worries about supply chain and inventory control. The problem is
entry-level retail jobs have a near-universal reputation of being low-paying, drab
and undignified. Wal-Mart's alleged misdealings with
women and illegal aliens add to the whole sector's struggle to recruit new
talent.
Wal-Mart itself has made reducing turnover a key initiative and
has been able to push turnover below 50 percent, according to a spokeswoman.
She declined to specify what turnover was before the company began
working to reduce it.
Yet, according to
"They could push government for more affordable housing,
which would be a way of showing their workforce they are concerned about their
general well-being."
Large retailers have advancement opportunities and often, an
established culture of promoting from within. At Wal-Mart, climbing three or
four levels up could land an associate in a six-figure store manager's job - a
fact the retailer is working hard to publicize in communities where it opens
new stores, Allen said.
"That's a good job in those communities," he noted.
If retailers can distinguish themselves as considerate, fair
employers, they may be able to reap considerable advantage, siphoning off the
best prospects from competitors and holding down costly turnover. J.C. Penney's
"On campuses where we recruited several years ago, the
questions would be `How fast can I move up?' Now they're asking `What is your
ethical position?' which didn't even come up before,"