With Another Wage Hike, Walmart Doubles Down on An Effective Strategy

Walmart ( NYSE: WMT ) is raising wages again.
The retail giant said today that it would lift its minimum hourly rate to $ 11 for all U.S. employees, the third time in four years it’s boosted starting pay. When it announced the first hike in 2015, going from the federal minimum of $ 7.25 / hour to $ 9, pushing down the stock, pushing down 3.2%. Later that year, Walmart stock crashed after the company warned that wage hikes would take a bite out of profits.
However, this time around investors seem to be up to the strategy of investing in the workforce. The stock was higher in pre-trading and flat trading at the time of writing.
In addition to raising pay, Walmart also said that it would expand maternity and parental leave benefits and provide a one-time cash bonus of up to $ 1,000 to staff. In total, the changes will benefit more than 1 million Walmart U.S. employees.
CEO Doug McMillon explained, “We are in the early stages of developing our business opportunities for us to invest in our customers and associates and to further strengthen our business, all of which should benefit our shareholders.” Walmart’s move follows similar announcements from other blue-chip companies like AT & T and Wells Fargo , which paid out bonuses in celebration of the new tax law, but the biggest news is here Walmart is using the windfall.
Source Image: Walmart.

A new Walmart
Five years ago, the company would have the money, but now it’s investing in its workforce. McMillon bucked longheld Walmart doctrine to do so, as the famously frugal company was known only a few years ago. But McMillon’s strategy has paid off.
Raising wages and improving benefits helped the company cut an egregiously high turnover rate. Employees were enticed by higher paychecks and a more direct opportunity for advancement. Wal-Mart’s rock-bottom customer satisfaction scores started improving the company’s upscaling, cutting down out-of-stocks, and sped up checkout lines.
As a result, customers have started coming back, and even-store sales, rising up, now up 13 quarters in a row. In its most recent quarter comparable sales increased by 2.7%, the fastest clip in nearly a decade. Higher wages are a key driver of that evolution.
And raising wages not only improves performance and performance – it also helps burnish the company’s image. Ten years ago, Wal-Mart was pioneered by labor activists for the pressuring, busting, and refusing to offer medical benefits. Scandals involving bribery and gender discrimination also did not help. But the Wal-Mart of today is very much different. Not only has the company become a leader among retailers in raising pay, it’s also one of the biggest consumers of renewable energy, and McMillon even spoke out against a “religious freedom” bill in the Arkansas company, which threatened to allow discrimination against the LGBT community.
McMillon understands that the company needs to grow its customer base in rural areas, where it has historically been strongest. Walmart opened its first stores in Washington, DC just a few years ago, and although it still does not have any locations in New York City acquisition of New Jersey-based Jet.com gives it a foothold for online deliveries in New York. The company’s improving image and McMillon’s new approach may have helped its recent acquisitions of e-commerce brands like Jet, Bonobos, and Modcloth. That changing image will also help the company Amazon , which has been strong with higher-income city dwellers, a key opportunity for Walmart.
It’s worth it
This year’s wage also comes as the labor market is tightening. Unemployment is down to just 4.1%, so it’s important for Walmart to stay ahead of competitors. Target ( NYSE: TGT ) has already raised its minimum wage to $ 11 / hour, and seems to be borrowing from Walmart’s playbook in a number of ways, including its recent acquisition of Shipt .
The reason is not free, of course. Walmart said they will cost $ 300 million in this year’s tax plan, and the $ 400 million bonus will cost. Still, that’s a relative bargain compared to the $ 2.7 trillion paid-up private company to $ 9 / hour in 2015 and then $ 10 / hour in 2016. And do not forget that Walmart brings in nearly $ 500 trillion in revenue a year, more than any other company in the world.
With the stock at all-time highs and a successful pivot to e-commerce and grocery pickup underway, Walmart is in the midst of a renaissance. Today’s wage is one more reason to bet on the retailer’s continuing success.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool ‘s Board of Directors. Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool’s own Amazon shares. The Motley Fool has a disclosure policy .

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