Walmart Faces a Gender Discrimination Suit

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Joe Raedle / Getty

A Walmart store in Miami

No one is more familiar with an old-fashioned public relations hit than Walmart, the world's largest company. Over the past decade, the retailer has been criticized for squashing the unionization of its employees, shirking on employee health care benefits and buying products that were produced in sweatshops, among other indiscretions.

In the last few years, however, Walmart has largely steered clear of headline-generating controversy. Sure, during Black Friday '08, a Walmart employee on Long Island was trampled to death by crazed shoppers. And just this March, a cringe-worthy announcement came over the public-address system of a southern New Jersey store: "Attention, Walmart shoppers: All the black people, leave the store now." Police later determined that a rogue 16-year-old boy, not an ignorant Walmart employee, was guilty of polluting the store's airwaves.

Unfortunately for Walmart, the company received a more serious setback this week. On Monday, a federal appeals court ruled that a gender-discrimination suit against the company, first filed in 2001, could move forward as a class action, a decision that could potentially cost Walmart upwards of $1 billion, inflicting a painful wound on its much-improved corporate image.

In June 2001, six current and former Walmart workers accused the company of denying equal pay to female workers. While the judge ruled that workers who left the company before the original court filing could not join the suit, lawyers for the Walmart employees say that more than 1 million female workers could be covered by the class action. Walmart asserts that fewer than 500,000 female workers are eligible to join. "No court has ever certified a class like this one, until now. And with good reason," Judge Sandra Ikuta wrote in a dissenting opinion. "In this case, six women who have worked in 13 of Wal-Mart's 3,400 stores seek to represent every woman who has worked in those stores over the course of the last decade." Walmart has said it plans to appeal the decision to the Supreme Court.

Will the controversy adversely affect Walmart's long-term prospects? Not really, say several analysts. "The anti-Walmart rhetoric has died down, and this is kind of like, O.K., here's something from yesterday," says David Strasser, a retail analyst at Janney Montgomery Scott. "Even a financial settlement is not going to affect Walmart's ability to spend in order to grow." Walmart generated $405 billion in sales, and $14.3 billion in profit, in 2009. Sure, if a trial drags on and the company is forced to dole out a massive $1 billion payout, it will suffer a short-term hit to its profits and share price. But if Walmart's Supreme Court appeal falls short, the company will likely settle for a much lower amount. Further, some recent settlements have barely caused a blip: in the fourth quarter of 2008, for example, Walmart settled 63 wage and hour class actions, resulting in a pre-tax charge of approximately $382 million. "The stock may take a hit that day," says Joe Feldman, retail analyst at Telsey Advisory Group, referring to a possible settlement or adverse ruling. "But then people would just move on."

Women are Walmart's core shoppers, and they could be turned off by the company's behavior. But will they leave the discounter en masse to shop somewhere else? "If I've learned one thing, it's that you have to do something really awful to screw up your customer base, especially if you're a discounter," says Britt Beemer, chairman of America's Research Group, which has been conducting consumer research for more than 25 years. When Walmart was receiving bad labor-relations press a few years back, Beemer polled the company's customers and found that only 6% of them even cared about the issue. No one indicated that they would stop shopping at Walmart because of the company's employment practices. A somewhat vague, nine-year-old class action, based on the claims of six women, likely won't change shopping habits now.

"I'll tell you what makes the customer unhappy," says Beemer. "Overcharging them repeatedly." Walmart will never have this problem. The world's largest company has an ugly legal battle on its hands. It won't have to fight as hard for the frugal consumer.