WalMart “Absolutely Shafted” Washington DC; Here’s How
WalMart “Absolutely Shafted” Washington DC; Here’s How
Tyler Durden’s pictureSubmitted by Tyler Durden on 01/31/2016
It’s been nearly a year since a grinning Doug McMillon recorded a video message to the world in which he explained that WalMart was set to raise the minimum wage for its lowest paid employees.
After all, McMillon said, “it’s our people that make the difference.”
11 months later, those “people” (the lowly shelf stockers and cashiers) aren’t materially better off than they were before, because handing someone $10/hour instead of $9 is such a small concession that you might as well have done nothing. In other words, $10 is no more of a “living wage” than $9 is.
But while the impact on the retailer’s legions of hourly employees has been minimal, the consequences for the company have been nothing short of dramatic.
As we’ve explained on any number of occasions, you can’t very well just implement an across-the-board wage hike if you’re WalMart without making up for it somewhere. Why? Because the business model runs on razor thin margins and because WalMart is determined to maintain “everyday low prices” which means the cost of the raises can’t be passed on to the consumer.
First WalMart tried squeezing the supply chain by asking vendors to pass along savings to Bentonville and by charging a variety of storage fees. When that didn’t work, the company started firing people and cutting hours. Here’s how that works:
Some of the cuts came at the home office in Bentonville, meaning that the move to put a few extra pennies in the pockets of hourly workers resulted in the loss of hundreds of breadwinner jobs.
Finally, in October, WalMart threw in the towel and announced a shocking guidance cut that prompted the stock to plunge by the most in 17 years.
Earlier this month WalMart doubled down on the wage hike debacle by promising to raise wages for employees higher up the corporate ladder (something we predicted would happen last year). The retailer announced the new wave of raises just days after saying it would close 269 stores and fire 16,000 people.
Apparently, the good folks in Bentonville are oblivious to the connection between the closures and previous wage hikes.
Also oblivious are policy makers who have pushed for wage hikes without thinking through the consequences.
“Washington, D.C., is beginning to look like a cautionary example of what can happen when bastions of liberalism throw caution to the wind in raising the minimum wage,” IBD wrote, earlier this month. “The nation’s capital is now losing about 700 jobs a year at restaurants, hotels and other leisure and hospitality sector venues, a sharp reversal from the gain of 2,000 such jobs per year the city was enjoying before it hiked the minimum wage by 27%, first from $8.25 to $9.50 an hour in July 2014 and then to $10.50 in July 2015.” Here’s more:
Now, as D.C. employers brace for yet-another minimum-wage hike to $11.50 set for this coming July, Wal-Mart has called off two of the city’s most-prized retail developments.
Wal-Mart said it would close 154 stores in the U.S., mostly small-format locations. But even as the nation’s biggest retailer said it would keep opening supercenters, including 50 to 60 in the coming year, it told District officials that it won’t go forward with plans for two huge stores that were expected to create hundreds of new jobs in one of the city’s poorer sections.
Company officials cited the city’s coming minimum-wake hiketo $11.50 an hour as one of the reasons for its change of heart. Wal-Mart has signaled to investors that its already-narrow profit margins could shrink by one-third as it voluntarily hikes its own base wage to $10 an hour.
DC officials aren’t happy.
“It’s an outrage,” said former mayor Vincent C. Gray, who The Washington Post notes in 2013 completed the handshake deal for the stores. “This is devastating and disrespectful to the residents of the East End of the District of Columbia.”
“I’m blood mad,” D.C. Mayor Muriel E. Bowser (D) fumed.
As WaPo went on to recount, “under the initial deal, Walmart could build stores almost anywhere in the District, as long as it opened two stores in its poorest wards and areas of the city sometimes referred to as food deserts, with few — if any — options for fresh produce and groceries.”
While WalMart apologized and cited its own internal P&L calculations for the decision, officials say the real reason is the rising pay floor. Here’s WaPo again:
Council member Jack Evans (D-Ward 2), head of the council’s finance committee, sat in on the meeting Friday morning with Walmart officials and Brian Kenner, Bowser’s deputy mayor for planning and economic development.
Evans said that, behind closed doors, Walmart officials were more frank about the reasons the company was downsizing. He said the company cited the District’s rising minimum wage, now at $11.50 an hour and possibly going to $15 an hour if a proposed ballot measure is successful in November. He also said a proposal for legislation requiring D.C. employers to pay into a fund for family and medical leave for employees, and another effort to require a minimum amount of hours for hourly workers were compounding costs and concerns for the retailer.
“If I were mayor, I’d get on a plane and go to Bentonville,” Gray said. “We have absolutely been shafted. They should be held accountable.”
Yes, Mr. Gray, someone should be “held accountable” for the hundreds of jobs poor residents won’t get thanks to the city’s move to aggressively hike the pay floor. But when it comes to who should be held accountable, perhaps you should ask the city’s unemployed if they’d rather have a job with the minimum wage at $10/hour or be jobless with the minimum wage at $11.50/hour.
Once you get your answer, look inward on the whole “accountability” thing.