Why Wal-Mart is raising its wages
CEO believes move will result in 'superior customer experiences'
Wal-Mart’s fourth quarter earnings were all but overshadowed Thursday when the company announced that it would offer pay raises to roughly 500,000 of its U.S. employees this year.
In a long-awaited move — hinted at by Wal-Mart CEO Doug McMillon late last year — the company will bump current employees to a minimum of $10 per hour by 2016. The lowest starting rate will rise to $9 per hour in February next year and, after a six month training program, new associates will receive $10 per hour.
Combined with new training initiatives also announced on Thursday, Wal-Mart faces a $1 billion loss as a direct result of these changes in the current fiscal year. But these losses are all part of McMillon’s plan to grow the business by investing in its employees.
Why increase wages?
Protests over Wal-Mart’s low starting wage have become almost commonplace, with employees of the largest private employer in the country organizing for years. After a Wal-Mart executive boasted that only 475,000 of its 1.4 million workers in the U.S. made more than $25,000 at an investor conference in 2013, a large protest formed in front of a California Wal-Mart store, leading to 50 arrests.
“These changes came about by listening to our associates,” Wal-Mart spokesperson Kory Lundberg told Retail Dive in an interview. “All of these changes have been developing for quite some time, and associates at every level have been involved in creating this program and giving us feedback.”
In addition to the wage increase, Wal-Mart will join retailers like Macy’s and H&M by offering fixed schedules to some of its employees each week—a big issue for workers trying to juggle shifts with family life, school, and other jobs. Employees will also know their schedules at least two and a half weeks in advance.
The retailer will implement a new training program that “will help move people beyond the entry level jobs and move them higher up into the company,” Lundberg said.
The training programs should also aid the company in reducing turnover and retaining top talent—something that is increasingly becoming more of a challenge for retailers as wages rise for the bottom 10%. The number of people looking for work has also been declining, hitting its lowest level since 2007 in December.
“People are going to come into Wal-Mart, get this training and be better for it,” said Lundberg. “And whether they stay or go somewhere else, they are going to take this with them and get jobs beyond entry level as well. So we think this is going to have a nice ripple effect in retail beyond Wal-Mart stores.”
If Wal-Mart makes its employees happy, will customers be happy, too?
Wal-Mart's moves are garnering positive attention for a retailer that's accustomed to controversy. However, some labor groups are still calling the wage changes “inadequate.”
“When compared to the $16 billion in profit that the company rakes in annually, Walmart’s promise of $10 an hour — which even for a full-time worker is not enough to keep a family of four out of poverty — is meager,” Christine L. Owens, executive director of the National Employment Law Project, said in a statement.
Other retailers have implemented higher-than-average minimum salaries in the past year, including Gap and Ikea. None have come close to Costco’s wages though, which famously pays its hourly workers an average of more than $20 an hour.
It is interesting, then, to note that Costco recently topped the specialty retail stores category in American Customer Satisfaction Index’s 2014 Retail Report, which ranks retailers based on customer satisfaction. Perhaps not coincidentally, Wal-Mart took last place in the department and discount stores category, with a score of 71 out of 100, which was down 4% from last year.
There is a direct correlation between employee engagement—or the emotional commitment an employee has to its employer—and a business’s customer service, quality, and sales, according to more than 30 studies compiled by Kevin Kruse, an expert on employee engagement.
Improving Wal-Mart’s customer service is one challenge that has not gone unnoticed by CEO McMillon, who has implemented some new strategies since taking on the role over a year ago. These initiatives include beefing up Wal-Mart's online operations and improving its fresh foods and groceries business.
“We have work to do to grow the business,” McMillon said in a statement to analysts after the Thursday earnings release. “We know what customers want from a shopping experience, and we're investing strategically to exceed their expectations and better position Walmart for the future.”
“Our first priority is to run great stores and clubs,” he said. “We're strengthening investments in our people to engage and inspire them to deliver superior customer experiences.”