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Customers Abandon Wal-Mart As Their Treatment of Labor Wreaks Havoc on Sales
Wal-Mart’s infamously poor treatment of labor is starting to negatively impact its bottom line as customers abandon the superchain’s unstocked shelves, disorganized stores, and long waits for help.
Last month, Wal-Mart placed last among department and discount stores in the American Customer Satisfaction Index, the sixth year in a row the company had either tied or taken the last spot…
Wal-Mart is entangled in what Ton (Zeynep Ton, a retail researcher and associate professor of operations management at the MIT Sloan School of Management in Cambridge, Massachusetts) calls the “vicious cycle” of under-staffing. Too few workers leads to operational problems. Those problems lead to poor store sales, which lead to lower labor budgets.
“It requires a wake-up call at a higher level,” she said of the decision to hire more workers.
“When you tell retailers they have to invest in people, the typical response is: ‘It’s just too expensive,’” Ton told Bloomberg.
Last month, Wal-Mart was freaking out about their low sales, which they tried to blame on “the January 1 payroll tax ‘increase’ and higher gas prices.” “In emails leaked to Bloomberg News, Jerry Murray, Wal-Mart’s vice president of finance and logistics, called February the worst start to a month he had seen in his seven years with the company. An email from another company executive said in part, ‘Where are all the customers? And where’s their money?’”
Where are the customers? According to Bloomberg they fled Wal-Mart’s poor customer service for places like Costco. You know Costco, where they pay their workers a fair wage and back legislation to increase the minimum wage.
While Wal-Mart experienced February sales that were considered, “total disaster,” Costco’s earnings for the second quarter of the year climbed 39%. The New York Times reported, “Costco Wholesale’s net income for its second quarter climbed 39 percent as it pulled in more money from membership fees, sales improved and it recorded a large tax benefit.”
Costco CEO Craig Jelinek openly supports raising the minimum wage to $11.50 an hour, “At Costco, we know that paying employees good wages makes good sense for business. We pay a starting hourly wage of $11.50 in all states where we do business, and we are still able to keep our overhead costs low. An important reason for the success of Costco’s business model is the attraction and retention of great employees. Instead of minimizing wages, we know it’s a lot more profitable in the long term to minimize employee turnover and maximize employee productivity, commitment and loyalty. We support efforts to increase the federal minimum wage.”
Costco’s good treatment of labor results in higher productivity and less turnover. Bloomberg reported:
Ton’s research has centered on retailers that include discount club Costco, whose chief executive officer, Craig Jelinek, offered his support publicly earlier this month for legislation to raise the federal minimum wage.
Costco, which offers a starting hourly wage of $11.50 in all states and employee schedules that are generally predictable, has higher worker productivity and a lower rate of turnover than its competitors, Ton found.
Employees are an integral part of a company’s assets. Happy employees who feel good about working hard for a company that treats them fairly create good customer service. Costco is a great example of the long term viability generated by this old-fashioned business idea, before the age of gleeful, unapologetic greed and short term cash grabs.
Wal-Mart can’t keep its shelves stocked because it believes in cutting labor first in order to save money. Their utter disregard for long term business success has turned them into foolish Scrooges of flailing industry.
The customers are the market. If they’re not happy, they’ll go somewhere else. And they’re not happy with Wal-Mart. Wal-Mart’s entire business model is predicated upon sucking the most profit out of the least labor with no regard to their company image or customer satisfaction. That’s a short-term business model. The numbers don’t lie.
The chickens are coming home to roost for Wal-Mart. There’s only so long you can get by — even when offering the lowest prices — if your stores irritate and annoy shoppers to such an extent that they stop even trying to find what they need at your store. Wal-Mart was the leader in treating workers like crap, making sure they don’t work enough to qualify for health insurance, and thus forcing them into state and federal welfare programs even though they were employed.
It turns out that treating labor well is more than just the right thing to do. It’s also the key to long-term profitability. And contrary to what Republicans tell us, labor is not the enemy. Happy labor is actually a smart investment for a business.