September 1, 2009, 12:00 AM

NRF/RILA Bust-up

The bust-up of the planned merger of retail trade groups NRF and RILA illustrates the divergent interests of big and small merchants.

by Don Davis

F. Scott Fitzgerald once wrote of the rich: "They are different from you and me." The millions of small U.S. retailers may well feel the same about how different they are from the chains.

The deep differences between the interests of small and large retailers came to the fore recently with the collapse of a planned merger between the National Retail Federation—whose more than 5,000 members include many small and midsize companies—and the Retail Industry Leaders Association—an association of 200 big retail chains, consumer goods manufacturers and vendors—formed in 1969 by Wal-Mart as an alternative to the NRF.

The immediate cause of the breakup may have been a sharp difference over President Barack Obama`s proposal to require employers to offer health insurance to their employees. But behind that divide lies the vast difference in the makeup of the two major retail trade associations, says Jim Okamura of retail consulting firm J.C. Williams Group.

"Whether related to health insurance or not, the downfall of the merger was really in trying to appeal to these quite different bases," Okamura says.

The merger seemed off to a good start when it was announced in April. The two organizations emphasized how the combination would give retailers a single, stronger voice in Washington and state capitals. And industry executives privately suggested that, at a time when many retailers were struggling to stay afloat, it made sense to cut costs by combining two Washington area-based organizations with similar missions.

Both the Washington, D.C.-based NRF and RILA, headquartered in suburban Arlington, Va., lobby on similar issues, usually on the same side. And they both sponsor conferences, which, like many trade shows, were impacted by the recession. The NRF`s annual conference, for instance, attracted 17,000 in January, down 8% from 18,500 a year earlier. Joint conferences presumably would be more sustainable.

Even the often-thorny succession issue seemed well in hand. Tracy Mullin, who has been NRF`s president and CEO since 1993 and has spent 30 years with the trade group, planned to retire once the two groups combined. That opened the way for the new organization`s top spot to go to Sandy Kennedy, former senior vice president at NRF who took over as president of RILA in 2002.

That`s what made it surprising to many when NRF and RILA announced in late June that the merger was off, without offering an explanation. Some insiders whispered about differences over health care reform, and that rapidly gained currency based on what happened next.

Strong language
On June 30, six days after NRF and RILA called off the merger, Wal-Mart released a public letter to President Barack Obama supporting a requirement that all but the smallest companies offer health insurance to their employees, a position that ran counter to the views of most corporations.

Also surprising were the co-signers: Andy Stern, president of the Service Employees International Union, which only a few years ago was mounting a campaign to embarrass Wal-Mart; and John Podesta, President Bill Clinton`s chief of staff who now heads the liberal Center for American Progress.

NRF CEO Mullin responded to what she called "this stunning turn of events" with a blistering open letter that directly attacked Wal-Mart.

"Although the move may provide a short-term public relations boost to Wal-Mart, it could have long-lasting, devastating consequences to retailers throughout the country," the letter said. "We could stand by and allow Wal-Mart to tip the scales on the health care debate, cower and release an innocuous statement that would neither support nor condemn their decision, or stand up for all retailers and come out swinging."

Mullin said the choice was easy. "NRF is the retail industry`s association, which means we represent all retailers—large and small—not just a select few." She added that Wal-Mart is not an NRF member, "and, after this dispute, I`m not expecting a dues check from them anytime soon." (While Wal-Mart does not belong to NRF, Walmart.com and such other RILA members as Target Corp. and Best Buy Co. Inc. belong to Shop.org, NRF`s e-commerce unit.)

No connection?
Wal-Mart does write a big dues check to RILA—retailers that sit on the organization`s board must be premium members, paying $250,000 a year in dues. Wal-Mart has a seat on the 17-member board and carries extra weight in that another seat is occupied by its former chief operating officer, Donald Soderquist.

On the health insurance issue, RILA staked out a position between that of Wal-Mart and the NRF. "Although we have not expressly opposed the employer mandate proposal, we are skeptical of a one-size-fits-all approach that could create barriers to hiring entry-level employees," John Emling, RILA`s senior vice president for government affairs, said in a statement.

While many observers surmised that the disagreement over health care contributed to the merger breakup, Emling flatly denied that was the case. "I can definitively say that this or any other public policy issue had no impact on the merger whatsoever," he said in the statement.

An NRF spokesman is less definitive on what role health care might have played in ending merger talks. "I don`t believe that was the specific cause why the merger didn`t happen," he says, "but obviously it demonstrates a difference between the organizations."

It also highlights a big difference between the NRF`s constituency of small and midsized retailers—that often do not offer health benefits—and the larger chains in RILA that typically do.

In fact, only 40% of retailers provide health benefits, compared with 63% of all employers, according to the Kaiser Family Foundation`s Health Research and Educational Trust`s 2008 report. Across industries, 99% of companies with at least 200 workers offer health benefits compared with 62% of firms with fewer than 200 employees, the report says.

Wal-Mart, for example, says nearly 52% of its workers have health insurance through the company, and almost 95% have some health coverage, including those covered by parents` or spouses` plans.

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