Photo: Walmart
Walmart finds it pays to pay workers better
You do get what you pay for. That appears to be the simple conclusion when looking at Walmart’s results since management made the decision to raise the pay of hourly workers beginning last year while investing more in training and offering more transparent paths to advancement.
All workers hired by Walmart before Jan. 1 of this year earn a minimum of $10 an hour. Those who have come on since the beginning of the year start at $9 an hour and get bumped up to $10 once they successfully complete the chain’s entry-level skills and training program known as Pathways. The increased wages and training were all part of a $2.7 billion investment made by the company.
According to a New York Times article, Walmart has seen a significant improvement in store cleanliness and a substantial drop in out-of-stocks since it began making the investment in its workers. Today, 75 percent of Walmart stores meet the company’s internal goals for customer service, up from 16 percent a few years ago.
Almost from the outset, Walmart said it saw employee turnover slow as a result of its higher pay scale. In August, the company announced customer traffic to its stores for the eighth straight quarter. Same-store sales were up 1.6 percent during Walmart’s second quarter, the seventh consecutive quarterly increase in comp sales for the retailer.
Walmart paid an additional $200 million in second quarter cash bonuses to 900,000 hourly associates. The bonuses were based on individual store performance during the quarter. The bonus program has been designed as an incentive for associates and is paid out four times a year.
Training is a key component in Walmart’s improvement strategy. In addition to Pathways for entry-level employees, the company announced plans earlier this year to open 200 Academies across the U.S. to teach more advanced skills to department managers and hourly supervisors.
- How Did Walmart Get Cleaner Stores and Higher Sales? It Paid Its People More – The New York Times (tiered sub.)
- Walmart is copying one of Costco’s winning strategies – Business Insider
- Is Walmart on a roll? – RetailWire
- Walmart Associates Earn More Than $200 Million in Cash Bonuses – Walmart
- More Than One Million Walmart Associates to Receive Pay Increase in 2016 – Walmart
- Wal-Mart execs say investment in people paying off, must do more for stores – The City Wire
- Walmart gets a quick return after raising employees’ pay – RetailWire
Discussion Questions
DISCUSSION QUESTIONS: Do you expect to see continued improvement in Walmart stores as a result of its investments in higher wages and employee training? What would you suggest Walmart do next to continue building on the momentum created by its investment in its associates?
Poll
BrainTrust
Dick Seesel
Principal, Retailing In Focus LLC
Tom Dougherty
President and CEO, Stealing Share
When Walmart began its initiatives to pay more to its associates (and to spruce up its stores), its quarterly earnings took a hit. The company caught some flak from investors, except for those with the long view that these changes were overdue. Now the investment is starting to pay dividends, although Walmart admits it still needs to work on its hiring and training in the critical area of fresh foods. Assuming continued improvement in sales and the store experience (and lower turnover), this is a pretty simple lesson for other retailers considering the same strategy.
The article also indicates that Walmart’s profits have not grown in proportion to the increase in sales, so the end of this story has yet to be written. It does make sense for Walmart and other retailers to invest in their employees. Turnover decreases, sales increase and customers are happier. Retail management will be waiting to see if profits, after falling, will rebound in the long run. If they do, all of these moves will be vindicated. If not, a trade-off decision will need to be made.
George’s first sentence pretty well wraps up the discussion for me. This is the epitome of Psychology 101.
Continued interest in their employees’ welfare should continue to reap benefits. They may need to come up with the next thing to work on when most/all employees are in a happier place, but that’s what good companies do.
Walmart needs to focus on the shopping experience. Part of that experience is discovery and availability.
By investing in higher wages (the wages are still low compared to other industries) they can somewhat stem some of the turnover problems from which retail suffers. The wages make it a job rather than a career. Turnover is a game of catch-up that spells for inconsistencies in service and services. Having to train new employees in company best practices is a challenge for consistency and consistency is the hallmark for shopper experience.
Smart move by Walmart! Executives used to work hard to cultivate ignorance about the importance of employee satisfaction. I’ve seen firsthand how strong an impact empowered associates have on attracting/retaining customers. Monetary incentives and proper training are key in making associates feel valued.
Remember, hourly workers make or break the shoppers’ experience. They define the bottom line.
I’d be curious to know what prompted that down-vote. Was it the notion of executives fostering two cultures: magisterial “suits” walking the stores on visits versus “plebes” working the aisles 24/7? Because I think you could argue that, more than anything else, such an antiquated model of management is holding retail back.
Agreed. Increased compensation and adequately training bridges the gap between management and hourly associates, creating a more unified company. Cultivating and calling upon the talents of hourly associates should be a retail standard. Employees that are just punching a clock to get by don’t create a retail experience anyone wants to be a part of.
In my opinion turnover slowed because of reduced hours worked. Employees could make the same earning working less hours. That means more time at home, less child care expenses and less physical output. The improvements Walmart has seen will probably taper off until additional incentives are provided. Finding employees willing to work is Walmart’s biggest challenge. They must still compete with other retailers along with government that offers incentives not to work more than a certain number of hours. Overhaul of an expensive health care system would go a long way to encourage more people into the work force which in turn would encourage more people to want to work at Walmart.
The New York Times piece was inspired PR. Keep that up. That article is being reposted all over.
As we all know, wage stagnation and job loss continue to thwart the economic recovery of the U.S. middle and lower classes. As a result, dollar and convenience stores are unique in their strength among retailers. Walmart also faces pressure from a resurgent Target as it sorts out its self-inflicted challenges. And Kroger is relentless in its pursuit of all things grocery.
So following Les Wexner’s axiom “retail is detail,” Walmart has increased frontliner compensation, improved housekeeping and in-store merchandising. Fix the retail basics to ensure the shopping experience is positively better than the past. This is a major culture shift, removing the friction. And it will take time to burn in the new associate behavior so keep at it. So simple, yet so hard to be consistently good.
As we like to say, “retail ain’t for sissies!”
The next step to parity in pay is improvement in training and reducing turnovers. The profitability issue comes from a combination of online and in-store, but if Walmart lets the store deteriorate, it can’t move forward. There will always be a customer segment for store purchasers that look for bargains and that goes up as the chance of downturn increases post election. It is a fine balancing act that Walmart has to walk on profits and positive store experience.
I do expect to see continued improvement if the initiatives continue to progress and improve, if it’s properly promoted, and consumers begin to observe and feel the improvement at the store level.
I suggest Walmart exercise patience in waiting for the consumer’s positive reaction. It will not be immediate, but when it arrives it will be well worth it.
Walmart has taken a huge PR hit from the massive taxpayer subsidy of its underpaid workers. (That even merited a scene in House of Cards.) Walmart seems to be moving in a positive direction; we can all hope that they continue in this direction and realize the benefits we all predicted.