It seems that for every action there is an equal and opposite one. At least that is one of Newton’s laws of physics, and Walmart applied that principle to their companies financial restructuring last week.
Walmart raised its basic age from $9 per hour to $11 per hour and at the same time issued a statement that it is closing 63 Sam’s Club stores in the US which impacts over 100,000 employees. This means that over 1.4 million Walmart employees can get a higher wage because 100,000 are being fired. What many Hollywood film villains state as “the few shall suffer for the greater good.”
Walmart CEO, Doug McMillon stated that they were in the early stages of assessing the new tax bill and will also introduce benefits based on the tax reforms, including extended maternity leave. At the same time that McMillan stated the benefits package, John Furner CEO of Sam’s club told the press in regard to the planned shutdown that “We know this is difficult news for our associates and we are working to place as many of them as possible at nearby locations,” Sam’s club will give each employee a one-time bonus of 60 days pays to help with the transition. However, this message surprised all employees.
While Walmart full-time employees will enjoy 10 weeks of paid maternity leave and six weeks of paid parental leave, employees that do not fit into those categories will enjoy a $1,000 onetime bonus. The wage increase will take effect from February 2018 and will add $300 million to this fiscal year’s cost forecast, and the one-off bonus will add another $400 million dent. Walmart joins American Airlines, AT&T, Comcast, Wells Fargo and Bank of America as a company that is using its increased profitability use to the tax bills changes as a source of funds to improve employee income.
Walmart is in a constant battle with Amazon for e-commerce dominance, where Amazon leads the pack globally and does not have or rely on “brick and mortar” stores for income, Walmart has increased its home share of the market. Walmart can now boast a $500 billion in revenues from all its retail operations during 2017.
The national unemployment rate is around 4.1% which is at a 17-year low, but for many American families, $11 is still an income that is well below the poverty line. $11 per hour will give a worker $22,000 a year. Or just under $1,850 a month. This goes hand in hand with the synonym that Walmart workers have, being the “low paid” employees of the retail market.
Now let’s look at the reasons why Walmart is trying to show off a good face.
- It makes Walmart look good, freeing up money from Trump’s tax bill to help strengthen their employee’s income. Sort of like a Robin Hood stance, where taxes are used for helping the poor.
- It helps strengthen the bond between Walmart and Washington, where Trump gets a huge nod of thanks from the image that is generated by Walmart’s distribution of freed up tax wealth.
- It helps ease the pressure from Union demands to increase the wages of these underpaid workers.
- They laid off 100,000 Sam’s Shop workers, which is equal to a saving of at least $1.1 million per hour! This means that they might increase 1.1 million workers wages by $1, but they took it away from 100,000 others, which in the end means that Walmart is saving money, since wages also means corporate responsibility, as well as capex and operational overheads and that, costs more than the $1.1 million an hour a trade-off. Basically, Walmart saved money by making this wage increase, while trying to trade off the pain of 100,000 against the gain of 1.1 million.
Bottom Line
Walmart is a market that serves a poorer clientele. When compared to Costco that sells to more affluent income clientele, Costco goes in for fewer shelves, more palette based products that save shelf stacking time and fewer items. This allows Costco the ability to pay higher wages to fewer employees. Walmart is possibly trading its business model from high employee count and high SKU to lower employee count., but same SKU. Raising the hourly income for those that remain. This will allow Walmart the chance to change the way it provides a service, by reducing the number of shelves, making management of the stores easier and cheaper to maintain. This does not mean that Walmart will reduce the number of items it sells, with a larger variety of items to choose from, Walmart still dominates the “cheaper” and more abundant alternative to Costco. It will merely transfer a lot of its trade to online e-commerce, transferring labor from “brick and mortar” to warehousing, which uses fewer employees and is highly automated.
This means that Walmart is not actually raising wages to increase workers income, it is transferring funds to wages while reducing the number of employees, effectively saving more money, and streamlining their operations.
