Will signs like this go away?

Photographer: Robyn Beck/AFP/Getty Images

Wal-Mart Learns to Live Without Everyday Poverty Wages

Barry Ritholtz is a Bloomberg View columnist. He founded Ritholtz Wealth Management and was chief executive and director of equity research at FusionIQ, a quantitative research firm. He blogs at the Big Picture and is the author of “Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy.”
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I have been writing critiques of Wal-Mart’s wages and employment policies for years (see "How Wal-Mart Became A Welfare Queen" and "Wal-Mart's Minimum Wage Breakdown"). Today, I break with tradition and offer up some positive perspectives on the retail giant’s recent actions.

A brief history of Wal-Mart and its enormous retail staff is telling. The company’s 2.2 million employees make it the world’s biggest private employer. It also is one of the largest employers in the U.S., with 1.3 million workers in 4,540 stores.

Wal-Mart has historically given shabby treatment to its huge workforce. As we noted recently, labor was seen as a cost rather than a driver of sales. Wal-Mart never seemed to think of its associates as human capital, just a cost. Beyond low wages, there was a history of forcing full-time employees to work part time to minimize even the meager benefits the company offered.

QuickTake Minimum Wages 

But financial success trumped philosophical enlightenment, and for most of Wal-Mart's history the way it treated employees didn't hurt results very much. Wal-Mart became the world's biggest company by revenue and it ranks among the 20 most profitable.  

What we also know is that the way Wal-Mart treated employees was a major reason that turnover was very high compared with the rest of the retail industry. The 2001 documentary film "Store Wars: When Wal-Mart Comes to Town" reported that turnover was about 70 percent a year, much higher than the rest of the retail industry, though it has fallen since then.  

Two months ago, Wal-Mart said it would increase its minimum hourly wage to $9, higher than the federal minimum of $7.25.  That affects about a half-million of its workers; many others are in states with higher minimums or have worked their way into positions paying more than the minimum. Wal-Mart’s bottom pay scale will rise to $10 an hour next year.

As we suggested last time out, this has had a positive impact on employees. Last week, at the company’s shareholder meeting, Chief Executive Officer Doug McMillon made several announcements about the raises:

-- "Our job applications are going up and we are seeing some relief in turnover."

-- Wal-Mart is expanding its $1 billion program in wages, training and employee relations.

-- The company is raising minimum wages for another 100,000 U.S. employees.

-- The company will also be raising wages above next year's $10 minimum rate.

-- It will improve working conditions for 1 million U.S. hourly workers.

-- My favorite improvement: No more “constant loop of Celine Dion and Justin Bieber music blasted into stores from headquarters.” 

These are not minor adjustments. The company seems to have found some religion when it comes to how it treats its workers. Given the increasing competition for employees, it may have little choice. To remain competitive in reducing turnover and attracting new employees, it needed to do something.

Perhaps the company’s stock price is the motivation. It hit a 52-week low on Tuesday, down 20 percent since January.

The company also is struggling to address the issue of slowing growth. First-quarter earnings fell about 6 percent from the year-earlier quarter, and sales were little changed. Some of this could be attributed to the recovering economy, as customers who can now afford to shop elsewhere often do.

But it's likely more than that. As we noted in February, the Wal-Mart shopping experience is one to avoid if you can -- merchandise is often in disarray or missing, the aisles can be messy, the staff often is surly. My personal experience is that the stores are dingy and depressing. Apparently, I am not the only one who sees them that way. Greg Foran, who runs Wal-Mart's U.S. Stores unit, noted “If we look at what customers say about our business, about half of [our stores] are where we would want them to be, and the other half need improvement.” That is corporate speak for 50 percent of our stores stink.  

The bottom line is this: The strengthening economy and competitive labor market have forced changes on the retail giant. So far, it seems to be having a beneficial effect for the employees.

Time will tell if it's enough to turn around the world's biggest retailer.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Barry L Ritholtz at britholtz3@bloomberg.net

To contact the editor on this story:
James Greiff at jgreiff@bloomberg.net