Wal-Mart

Investors have begun bailing out of Brambles Ltd after it announced a major US customer, Wal-Mart, was reviewing its pallet arrangements with the logistics firm.  Brambles shares had slumped 14.56 per cent to $A8.57 ($NZ10.28) amid uncertainty over the financial impact of the announcement.

Brambles said Wal-Mart was changing its handling of pallets, including its arrangements with Brambles' pallet and container business CHEP, and other pallet pooling companies.  But the Australian logistics company did not give details of whether the decision would have any financial impact.

CHEP is owned by Brambles and currently manages the picking up and sorting of pallets, used to move goods, at many Wal-Mart facilities in the US.  Shaw Stockbroking analyst Brent Mitchell said it was difficult to quantify the revenue and profit at risk through CHEP's Wal-Mart contracts.  "That information is not available, so it's a bit hard to put figures on it," Mr Mitchell said.  He speculated that Wal-Mart contributed no more than 5 per cent to CHEP's US profit.  "It doesn't appear that all the businesses are at risk. You'd have to expect the Wal-Mart business to be at the low end in terms of the margin range."

Nevertheless, investors were responding to the uncertainty of how the announcement might affect Brambles outlook.  "The uncertainty that it has created has caused that reaction," Mr Mitchell said.

Brambles said Wal-Mart had indicated it may contract directly with third party pallet management service providers to retrieve and sort pallets at its own facilities in the US, or provide the services itself.  The company said it was working with Wal-Mart to identify ways in which CHEP could continue to supply low-cost services to Wal-Mart and its supply chain.  "Brambles and CHEP strongly value the relationship with Wal-Mart and will continue to work with Wal-Mart to develop the optimal supply chain solution for this important customer," it said in a statement.

Brambles was bullish in its outlook at its first half results in February, with plans to expand CHEP into India.  The company booked a first half net profit from continuing operations of $US296.7 million, which was up 10 per cent, or 3 per cent in constant currency terms.

CHEP sales increased 12 per cent to $US1.75 billion in the half year, led higher by CHEP Americas, where sales rose 11 per cent on strong demand for grocery products.

Ex-Woolworths boss Roger Corbett says the buyer of Coles Group could pay too much for the retailer in the current bidding war and it is clear some of its assets are in great distress.

Wesfarmers, which is battling for control of Coles Group, yesterday stood by its A$19.7 billion ($22.17 billion) offer, and its rival bidder, led by the private equity group Kohlberg Kravis Roberts (KKR), remains in the picture after signalling last week that it could trump the Wesfarmers bid.

Corbett, who works as a consultant for Woolworths, said it was early days but the current bidding climate had created a scenario where rational thought was tossed aside.

"Some of the assets in Coles Myer are clearly distressed and you get a competitive type of bidding process and that gets overrated and the due diligence process and careful rational thought get underrated.

"It is a great danger in a process like this," he said, "so very clearly there is a danger - a big danger - that people are overpaid for some of these assets."

Corbett said the buyer should weigh things up carefully as there would be great difficulty in turning the Coles supermarkets around, adding "they are a long way behind in the technology stakes".

"K-Mart is run down pretty badly, so a site is one thing, but rejuvenating a brand is another, so there are some great challenges," Corbett said.

It was a great pity that the business had not succeeded as it did hold some excellent assets, he said.

"But clearly, they have run down hill and that is very sad because there are many people in that Coles organisation who have been immensely loyal and who are long-serving people.

"I think the whole scenario is sad for lots of people."

Corbett said Wesfarmers had been a takeover-oriented company for some time but he was still surprised by its bid.

KKR was involved in a failed A$15.25 a share bid for Coles last year, which eventually opened the door to the sale of the retailer.

Woolworths chief executive Michael Luscombe said his company was interested in Target and office supplies store Officeworks.

Luscombe has not ruled out joining the rival bidding consortium led by KKR, and there have been rumours of another bid by UK-based Tesco.

Asked about possible interest from the US retail giant Wal-Mart, Corbett, who sits on its board, said: "I think Wal-Mart has got its own plans in the world, and I wouldn't imagine that there is any plans at this stage for Australia."

"You get a bit bitter and twisted," says Ken Earby wearily behind his glass cabinet counter. Earby and his brother Philip have been running Huntly Hardware Supplies for 30 years, 17 years from these premises, but now the wretched whiff of extinction rises from the Hitachi drills and hunting knives. Late morning, midweek, and not a customer in sight.

Since The Base, Hamilton's latest big-box shopping complex, opened on the city's northern fringe last year only 20 minutes' drive away, sales here have plunged 30 per cent. Road-works outside are compounding the problem.

"We're going to take another hit because the big Mitre 10's opening up there," says Earby. On some prices, his store beats the big chains like Bunnings Warehouse, but he's annoyed that shoppers have stopped bothering to check.  "People have got a built-in Warehouse culture, unfortunately, these days. They think The Warehouse will supply everything, and if it doesn't, they'll make do with what The Warehouse has got."

He's hoping the new Countdown coming to Huntly will bring shoppers who'll browse the main street after they've filled their trolleys. New subdivisions should also help. "You gotta hang through," he says. "Within six months it should start picking up."

Up the road $5 Max and Mr Max is a different world. Merchandise clutters tables and racks in a twinkling confusion of colour and plastic. A steady flow of shoppers comes to hunt out their bargain; a thin middle-aged man buys a thin-bottomed saucepan.

Huntly has three of these ultra-cheap, lucky dip-style shops that have sprung from the ashes of more traditional local stores in New Zealand's small towns and suburbs since the 1990s.  Owners Clive and Jan Quintal are unfazed by competition from the likes of the Red Shed. "Competition has always been there, it's just getting a bit more aggressive, and the opponents have got to be a bit smarter," he says. "You've just got to go with the flow, wherever you can make a buck, that's what you've got to do."

Since New Zealand's big-box retail revolution spread to Waikato in the 1990s, Huntly's shopping strip has slowly but surely changed. A forlorn Deka sign still towers on spindly poles above K Beez' grocers-cum-$2 shop - the department store chain an early Red Shed casualty.

David Lane is stoical. He and his wife Doreen have run D & D's Family Footwear for 11 years, and Lane is chairman of the local business association.

"We are still surviving. A lot of the shops have changed, but there's only two empty," he says. Huntly is on the up - a new surfwear store has opened across the road; the money-lenders who moved in a few years back have moved out again.

They've had to downsize - Rebel Sport's pulling power resulted in Adidas cancelling its supply to the store five or six years ago, and when The Warehouse in Hamilton started stocking slippers, D & D's had to stop. The Warehouse was selling them for less than the shoe shop used to buy them for. But in a twist, "Now the suppliers can't supply at the price The Warehouse is selling them for, so The Warehouse stopped getting those slippers." He shrugs. "The shoe shop's surviving - it's got good stock. But we just need a bit more foot traffic."

"The Warehouse is a way of life for countless New Zealanders. We make a difference to people's lives, especially family life, by making the desirable affordable." - The Warehouse core purpose

"In everything we do, we're driven by a common mission: to improve the quality of life for everyday people around the world." - Wal-Mart website

Call it the Wal-martisation of New Zealand. On once-pastoral town fringes and in far-flung suburbs, see the monolithic malls and super-sized discount chains sprawl. Last year, the Property Council counted 151 shopping centres nationally. Their combined shop space alone totals 183 hectares. Australian companies such as Westfield own almost all our centres, with the notable exceptions of the Palm Shopping Centre and Ngai Tahu's Tower Junction mega-centre, both in Christchurch. Then there are the big boxes: 87 Warehouse stores, 43 Warehouse Stationery stores, 38 Briscoes stores.

Retail's biggest concentration of power lies in our supermarket chain duopoly. Foodstuffs, a privately owned New Zealand co-operative, gives us New World, Pak'N Save and Four Square and claims 54 per cent of the supermarket market. Progressive Enterprises, owned by Australian's second-biggest retailer, Woolworths, gives us Foodtown and Woolworths and claims the other 46 per cent market share.

We spend $11 billion a year at the two supermarket groups - nearly $1 in every $10 spent overall. Is all this just the latest phase in retail's inevitable evolution? A bargain-basement boon for low-income shoppers?

Or is it a retail cancer poisoning our small businesses, our towns, our land, increasingly bleeding profits out of New Zealand and turning the screws on local suppliers?

Warren Snow managed the Tindall Foundation, The Warehouse founder Stephen Tindall's charitable arm, until he grew deeply disillusioned by the Red Sheds' impact.

Now he heads sustainable-development group Envision that helps small businesses fight back. "We have allowed a destructive model of retail sprawl to crawl over the land, where mega-retailers battle amongst themselves for market share by selling ever-cheaper, non-repairable, unrecyclable, sweat-shop-made junk that all ends up in our landfills. Cheap junk for quality of life - what a bargain!"

And it's no thanks, he says, to the Resource Management Act and Environment Court, where the parties with the deepest pockets tend to win protracted legal wrangles.

Meanwhile, main streets that used to be the heart of their community, where shopkeepers were in the same sporting clubs and school committees as their customers, where locals could get most of their daily needs, are now colonised by some mix of bargain-bin stores, takeaways, bric-a-brac shops and cafes for tourists and chain stores. (At least chain franchises retain a kind of local ownership, Snow adds.)

We've already seen the first wave of casualties from The Warehouse revolution, he says. But wait, there's more. "Buoyant farming and tourism of the last few years have stopped many town centres from declining into dead ghost towns, but if these twin pillars collapse for any reason, there will be a second wave of small business closures... in a long-term Wal-martisation (read pauperisation) of the New Zealand economy."

He's turning his attention to helping local retailers "claw back business that the big guys took from them" by pushing their advantages: their profits go back into the community, they participate in the social life of the community, they know their customers' needs, and they can provide genuine service and product back-up.

Laila Harre, head of the National Distribution Union, believes the jury's still out on the impact of big retailers on local economies. But it's a different story for suppliers. "As retailers become bigger, they're dictating terms of supply in a way that's unprecedented." Most pressing, she argues, is the threat our supermarket duopoly poses to New Zealand food producers. Harre is worried that we're underestimating it.

Woolworths Australia is particularly aggressive when it comes to driving down wholesale prices, she says. Local producers who can't weather the squeeze on their profit margins lose out. And it goes wider. "If we can't produce for the domestic market, we won't have the base for export."

Harre says we're a way off the kind of food-plus-general-retail domination of United States titan Wal-Mart.

The Warehouse Extra, which includes a supermarket, is a baby next to the Wal-Mart. But a step in that direction looms in the shape of either Woolworths Australia or Foodstuffs buying a controlling share in The Warehouse. Both supermarket chains have sought Commerce Commission clearance to make their bids, and the authority has promised a decision in coming weeks. Harre adds that if either gets the go-ahead, this would quash the threat to the duopoly.

There's speculation that Wal-Mart may get a foothold in New Zealand through buying parts of the Coles Group, the remnants of Coles-Myer, Australia's biggest retailer, which would mean more profits going overseas. The group is Kmart's parent company.

Wal-Mart has been widely attacked for shutting out unions, crushing local stores, playing hardball with suppliers, paying low wages and providing poor working conditions - all criticisms vehemently denied by the company. Says Harre, "If Wal-Mart gets a stake in New Zealand through Kmart, then I think we need to be very afraid."

SAN FRANCISCO - The largest sexual discrimination lawsuit in US history moved forward against Wal-Mart on Tuesday when a federal appeals court approved class-action status for seven women who claim the retailer was biased in pay and promotions.

The plaintiffs estimate as many as 1.6 million women who have worked for Wal-Mart in its US stores since 1998 could join the lawsuit. The number makes the group the largest ever to sue for gender discrimination.

"We hold that the district court acted within its broad discretion in concluding that it would be better to handle this case as a class action instead of clogging the federal courts with innumerable individual suits," Judge Harry Pregerson wrote for the United States Court of Appeals for the Ninth Circuit.

"Although the size of this class action is large, mere size does not render the case unmanageable," he said.

Wal-Mart, the world's largest retailer, said it plans to seek a reversal in the decision. Its shares ended little changed on the news, closing at $48.58 on the New York Stock Exchange.

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The plaintiffs in the case allege they were denied promotion opportunities, with some also saying they were sexually harassed or subject to sexist remarks.

The 2-1 ruling by the three-judge panel took no position on those claims, stressing the decision only affirmed a lower court ruling to certify the case, Dukes v. Wal-Mart, as a class action against the world's largest retailer.

In a class action, individuals bring a suit on behalf of a larger group that suffered similar harm.

"Class actions have been for four decades now the critical ingredient in employment discrimination litigation," said William Gould, a Stanford University emeritus professor of law.

"There is very little incentive for the defendants to change their practices unless a finding is made that there is a nexus between the named plaintiffs and the group," he said.

Bentonville, Arkansas-based Wal-Mart has argued it did not discriminate and that class-action status should be dismissed because the company grants its 3,400 US stores a great deal of independence in their management.

In a dissent, 9th Circuit Court Judge Andrew Kleinfeld said the case should not be a class-action lawsuit.

"This case poses a considerable risk of enriching undeserving class members and counsel, but depriving thousands of women actually injured by sex discrimination of their just due," he wrote. "Plaintiffs' only evidence of sex discrimination is that around 2/3 of Wal-Mart employees are female, but only about 1/3 of its managers are female."

"Not everybody wants to be a Wal-Mart manager," Kleinfeld added. "Those women who want to be managers may find better opportunities elsewhere."

The decision by the San Francisco-based court will keep Wal-Mart on the defensive, said Brad Seligman, a lawyer for The Impact Fund, a nonprofit group in Berkeley, California representing the plaintiffs.

"Two courts now have ruled that Wal-Mart is going to have to face a jury," he said. "We fully expect Wal-Mart to keep appealing but we're very confident now that two courts have upheld this certification."

Donald Gher, chief investment officer of Coldstream Capital Management, which owns Wal-Mart stock, said the decision was a setback for the retailer and would cheer the company's critics in the US labor movement.

"Clearly this is a big win for the tort lawyers and for the unions who are looking to cases like this to help bolster their ranks," he said.

But Gher noted that the lawsuit is far from over. "This could drag on for a very long time," he said.

- REUTERS