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Originally published Friday, October 28, 2005 at 12:00 AM

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Wal-Mart memo puts retail giant on defensive

Wal-Mart, which built its reputation — and a virulent opposition — on rock-bottom prices, has talked a lot lately about becoming...

Los Angeles Times

Wal-Mart, which built its reputation — and a virulent opposition — on rock-bottom prices, has talked a lot lately about becoming a kinder, more responsible company.

But the retailing giant is finding that convincing the world it is "committed to change" and to keeping costs low is a tough balancing act.

On Monday, Chief Executive H. Lee Scott Jr. pledged to bring health insurance within reach of his 1.3 million U.S. employees.

On Tuesday, Scott called on Congress to raise the country's minimum wage from $5.15 an hour, saying Wal-Mart customers are "struggling to get by."

But on Wednesday, a leaked company memo revealed "bold steps" to rein in Wal-Mart's employee-benefit costs.

Among the recommendations: using more part-time workers, cutting life-insurance payouts, pushing spouses off health plans through higher premiums and trying to dissuade people not in good health from seeking jobs by, among other things, requiring cashiers to gather carts in Wal-Mart's vast parking lots.

What's more, 46 percent of the children of Wal-Mart employees either are on Medicaid or are uninsured, the memo said.

That marked the first time that Wal-Mart has acknowledged that a significant number of employee dependents rely on public assistance.

In the health-care memo, whose contents were first reported in The New York Times, Executive Vice President of Benefits Susan Chambers wrote to Wal-Mart's board that its workers on average spent 8 percent of their income on health care — almost double the national average.

Last year, Chambers wrote, nearly two-fifths of those enrolled in Wal-Mart health plans spent 16 percent of the average Wal-Mart income on health care.

Chambers described Wal-Mart's problem: a work force that is older and less healthy than the national average, and a population that overuses the most expensive kinds of care, such as emergency-room visits, leading to a 15 percent annual growth rate in benefit costs.

Fewer than half of Wal-Mart's workers at more than 3,600 stores are covered by the company's insurance programs.


If not addressed, Chambers said, benefit costs would consume an incremental 12 percent of total profit by 2011, or $30 billion to $35 billion in market capitalization.

A Wal-Mart spokeswoman called that figure "unacceptable."

"We have to do better and we will," spokeswoman Sarah Clark said Wednesday. "But ... that challenge isn't just limited to Wal-Mart."

Clark said the memo was not a final list of recommendations and was the result of a six-month study of employee benefits.

"Those are the things that we are looking at — how do you continue to provide the best benefits to employees and remain competitive?" Clark said. "There is a genuine desire to do just that at Wal-Mart, but we feel like we can certainly improve our offerings today."

To some Wal-Mart watchers, the difference between what Wal-Mart says and what Wal-Mart does makes perfect sense.

"I don't think the DNA of Wal-Mart has changed at all," said HSBC Securities analyst Mark Husson, returning Wednesday from an analyst meeting at Wal-Mart headquarters in Bentonville, Ark.

"It's like a religious cult," Husson said. "It has a low-cost gospel to bring to the country and sees it as a divine duty to do that, and nothing is going to get in its way. It will do what it has to do and say what it needs to say to get there."

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