Walmart Raises Wages and Cuts Jobs – Two Sides of the Story?

Walmart recently announced it would be using some of the benefits from the recent tax reform to increase worker wages and benefits. While no doubt welcomed by Walmart workers, and many in the administration as a sign that tax reform is working, is there more to it than just being a good corporate citizen?

Attracting and retaining a good brick and mortar workforce is increasingly important in today’s omni-channel world so some would say Walmart is only catching up to other large retailers. Yet, given its scale and reach, Walmart has potentially raised the wage structure and cost of doing business for scores of retail firms across the country. Obviously, Walmart felt that with its deep pockets, fueled in part by tax savings, this increased cost of business could easily be absorbed (and get them good press). But is there another side? For the many struggling brick and mortar retail locations across the country, further increases in costs may accelerate store closings, and potentially bring more business to Walmart.

But what does this mean for the retail labor force. According to the BLS, the retail trade lost 67,000 jobs in 2017. Notable highlights are a 90,000 drop in department and general merchandise retailers, offset by a 28,000 increase in the building materials and garden supply sectors. Store closings are driving part of this, but so is increasing automation (think Amazon GO). Retails will need to increase skill levels in order to provide increase value to customers, while facing mismatches between where traditional lower skilled labor is available versus where the jobs are and a potential shrinking labor pool as immigration becomes harder for entry level workers.

Notably, Walmart also made two other announcements immediately following the pay raise. The first was to close 63 Sam’s Club locations and shift about a dozen to focus on e-commerce fulfillment. This will ultimately result in thousands of jobs lost. Them, they followed that up with the elimination of a salaried co-manager position in many stores, which will result in 3500 positions being eliminated. Walmart’s moves are certainly a mixed blessing for the work force. While we might see wages raised, they could well be accompanied by a trend towards productivity, automation and less retail jobs.

Doug McMillon, Walmart CEO, addressed the NRF 2018 Big Show on Sunday. He was upbeat, as he should be, on Walmart’s momentum and direction and he couched the pay increases (and extended benefits for maternity and paternity leave) as both the right thing to do and a way to motivate the work force. More critically, he made a few comments that stuck with us…

• The first is that the customer is ultimately going to decide which retailers survive. Nothing could be more true. As we have always said with Walmart, customers vote with their wallets. If customers don’t like Walmart’s pricing, value, service or the way they treat employees, they will shop somewhere else. I believe Walmart is recognizing that it is critical that they become a better employer if they want to continue to be a successful retailer.
• McMillon said that Walmart’s purpose is their purpose (Save Money, Live Better in some form or another), their values are their values and that everything else is up for grabs. Their internal mantra, repeated at all meetings, is that the only constant is change

Tough to pull off at the world’s largest retailer but they seem to be pulling it off. Expect more changes, soon