Walmart move on wages could have ripple effect

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BENTONVILLE, Ark. — Walmart stunned the retail world when it announced recently that it would give raises to approximately 500,000 employees, increasing its base hourly pay rate above the federal minimum wage. In the wake of Walmart’s move, industry observers and analysts have been examining the possible implications for the rest of the industry.

Through the initiative, current and future associates will earn at least $9.00 per hour, or $1.75 above the federal minimum wage of $7.25 per hour. By February 1, 2016, all current associates will earn at least $10.00 per hour.

“For several months, our leadership teams have been developing and testing new ideas to reward associates for their service to our customers and give them clearer pathways for opportunity,” president and chief executive officer Doug McMillon said in remarks prepared for the company’s year-end conference call last month.

“We’re pursuing a comprehensive approach to our hiring, training, compensation, scheduling programs and store management structure that is sustainable over the long term … We’re also realigning our store operational structure to give associates a closer relationship with their supervisors. Associates will have more ownership over their schedules. In addition, we’ll provide them with more resources and training to enable merit-based career advancement and higher levels of pay.”

In addition to the pay raise, the retailer is testing a new training and education program to help employees upgrade their skills and prepare themselves for a career. Together with the Walmart foundation, the company has also committed $100 million over five years to explore how workers in the retail and related industries can be better trained and prepared for advancement. The foundation will work with other foundations, employers, community colleges and nonprofit organizations to address what the company termed a fundamental challenge for America.

“Walmart is also piloting a new, comprehensive on-boarding and training program to create clear career pathways for associates so they can earn more and seek promotions,” McMillon elaborated. “We’re encouraging our associates to continue their education by providing no-cost access for them to complete their high-school diploma or GED, as well as free and low-cost college credit to reduce the time and cost of earning a college degree. The skills and training that an associate receives through this program will be transferable outside of Walmart.”

Early response to the initiatives was mixed. Because the investment involved for this year will total more than $1 billion, Walmart’s operating profit and net earnings will be pressured. According to chief financial officer Charles Holley, the new wage structure will shave approximately 2 cents per share from first quarter earnings and reduce full-year earnings by about 20 cents per share.

Predictably, Wall Street reacted with an initial thumbs down, promptly driving down Walmart’s share price 3.2% on the day the initiatives were unveiled. At the other end of the advocacy spectrum, supporters of a $15 minimum wage denounced the policy as cynical and antiquated.

“This is a symbolic victory for Walmart,” Tom Juravich, professor of sociology at University of Massachusetts Amherst told Fortune magazine. “They have no intention to meet the Fight for $15’s demands. This is a classic technique that we see in collective bargaining and organizing campaigns. Management will give a small or symbolic raise to take the energy out of the campaign. That’s what they’re intending to do here.”

In fact, Walmart’s motives behind the move are not entirely obvious. McMillon clearly linked it to improving the customer experience, which presumably will help drive sales growth. Significantly, he said that management is also evaluating product assortments and the retailer’s approach to service, both in-store and online, in order to be relevant to today’s customer.

So ultimately, the pay and training initiatives appear to be part of a broader shake-up of the business that McMillon has put in motion, not only to improve Walmart’s near-term performance but to position it more competitively for the ­future.

Some observers argue that Walmart is simply responding to the labor market, which has seen recent increases in hourly wages and job growth. For example, Aetna Inc. announced in January that it would establish a $16 per hour minimum wage in order to reduce turnover and attract more qualified ­candidates.

Speculation is also mounting over whether competitors such as Target Corp. and other retailers will follow Walmart’s lead, and if so, what the implications will be for their financial performances.

In a research note, Credit Suisse analysts recently compared the initiatives to two past moves by Walmart that had major impacts beyond the company: its introduction of $4 generic prescriptions and its drive for sustainability. According to Credit Suisse, with its wage hike and training program Walmart is reestablishing its leadership position in the retail industry.



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