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Al Norman

Al Norman

Posted: October 19, 2010 09:22 PM

Wal-Mart's Infant Formula Scam

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Wal-Mart Moms are not going to like this story.

The world's largest retailer was sued by the state of New Jersey two years ago for selling infant formula and over-the-counter drugs after the product expiration date. On top of that, Wal-Mart was selling items on sale that scanned in the cash register at incorrect prices.

To settle the case and get it out of the headlines, Wal-Mart signed a Consent Order on October 19, 2010, in which it agrees to pay $775,000. This lawsuit has been going on since 2008. The same lawsuit included Target as a defendant, along with a third retailer that has since gone out of business. Target settled their case a year ago, and paid $375,000 to the state.

Most of Wal-Mart's money ($500,000) will be civil penalties. Another $160,000 will go to pay the legal bills of the state of New Jersey, and $40,000 for the cost of state investigations into the case.

The final $75,000 will go into a new consumer education initiative, which may consist of: donations by Wal-Mart to selected New Jersey consumer education programs; placement of media advertisements by Wal-Mart; and donations by Wal-Mart to selected New Jersey elementary and secondary schools for consumer education.

According to New Jersey Attorney General Paula T. Dow, Wal-Mart sold or offered to sell expired infant formula and non-prescription drugs to consumers. A court ruled last August that the Attorney General and New Jersey Division of Consumer Affairs had proven four of the eight counts in their lawsuit. It appears that Wal-Mart's settlement offer was timed to shut down a trial that was about to begin in Hudson County, New York over other counts that the AG had leveled at the retailer -- what Dow referred to as "various instances of unconscionable business practices." No details on the "unconscionable" practices were spelled out in the AG's press release announcing the settlement.

As part of the agreement, Wal-Mart will have to periodically inspect its over-the-counter drugs and infant formula, and make sure its products are sold at their posted price at the point of check out. According to the settlement, Wal-Mart agreed to check the expiration dates on non-prescription drugs on a monthly basis, with all products' expiration dates checked twice a year, and verify monthly online that each stores has completed its expired non-prescription drug check.

Wal-Mart also agreed that its store managers will use a first-in, first-out method for the sale of infant formula and non-prescription drugs, and department managers will verify expiration dates on shelved infant formula containers when they restock such merchandise. The retailer agreed to remove infant formula from its shelves one month prior to the date of expiration; and remove non-prescription drugs from shelves at least three months prior to the date of expiration. The company will also follow uniform practices for destroying or returning to the manufacturing any OTC drugs or infant formula that are removed from shelves. Wal-Mart also has to guarantee the price accuracy of its products to ensure that merchandise is not "displayed, offered for sale and/or sold at a price that exceeds the price posted at the point of display or otherwise."

Wal-Mart says it will operate a "Pricing Credibility Program," which authorizes cashiers to give consumers the lower of the scanned or advertised price on merchandise when a scanning or pricing error is discovered at checkout. Department managers are required to conduct an investigation of the error to make sure that it can be investigated and the shelf label can be corrected.

Within the next month, all store managers at New Jersey Wal-Mart stores will be briefed on the summary of the Consent Order. Wal-Mart also is required to post "through a conspicuous link on its internal website for managers and associates" in each Wal-Mart store a summary of the Order.

"This settlement puts the onus on Wal-Mart to check expiration dates when stocking its shelves, to periodically recheck stocked items, and then remove from sale any infant formula or non-prescription drugs that are past expiration," said Attorney General Dow in a press release. "A responsible retailer should do no less and we expect full compliance at Wal-Mart's 54 New Jersey stores." But if Wal-Mart was a responsible retailer, this lawsuit would never have been filed in the first place.

As is customary in such out-of-court settlements, Wal-Mart admitted no wrongdoing. But Wal-Mart settles cases it knows it is likely to lose. This case is similar to one six years ago in New Jersey in which Wal-Mart entered into a Consent Order regarding infant formula that had expired and over-the-counter drugs.

For its part, a chastised Wal-Mart had little to say after the Final Consent Judgment. "Our customers depend on us to provide a good shopping experience with products and prices they can trust," a company spokesman said, "so we're committed to doing even more to make sure correct prices are posted and to remove products from our shelves well before their expiration dates. We also will conduct random price accuracy checks in stores throughout the state."

Wal-Mart has to be extremely careful of the trust relationship it maintains with its customers. If Wal-Mart Moms feel they have to carefully check the price and expiration date of each product they put into their cart, it undermines that trust. The fact that Wal-Mart was selling out-of-date infant formula is about the worst product you could pick to sow doubt among the Wal-Mart Moms.

Wal-Mart is relying on the hope that its shoppers will have a much shorter memory than the Attorney General of New Jersey. But the "infant formula scam" is a sloppy operations error for a company that prides itself on flawless execution. That's why it was worth $775,000 to shorten this story's shelf-life,

Al Norman is the founder of Sprawl-Busters. He has been helping communities fight big box sprawl for 17 years. His book "Slam Dunking Wal-Mart" is a grassroots classic on how to battle the giant retailers.