How Did Walmart Get Cleaner Stores and Higher Sales? It Paid Its People More
Can the answer to what ails the global
economy be found in the people in blue
vests at your neighborhood Walmart?What most store employees probably didn’t know was that Mr. McMillon and his executive team, who had been promoted into their jobs a year earlier, were under extraordinary pressure from investors. They needed to reverse a slide in business and fight off threats in all directions — dollar discounters on the low end, Amazon online, direct competitors like Target
.. “Walmart U.S.’s relentless focus on costs does seem to have taken some toll on in-store conditions and stock levels,” they wrote. The analysts wryly added: “If an item is not on the shelf, you cannot sell it.”
.. The company had been busy raising profits by cutting labor costs. The number of employees in the United States fell by 7 percent from early 2008 to early 2013, for example, a span in which the square footage of stores rose 13 percent.
.. Walmart had become viewed as a last-ditch option for employment — not the place that ambitious people might want to work. They were under such pressure to keep labor costs low that the employees they hired showed little loyalty or career-building devotion to their jobs.
.. To macroeconomists, it suggested that a falling unemployment rate was finally creating the response that theory suggests it should: employers raising wages to attract the workers they need.
.. And executives really had concluded that customer service woes and slumping sales were because of underinvestment in employees.
.. And the actions far well short of what Zeynep Ton, an associate professor of operations at the Sloan School of Business at M.I.T., calls a “good jobs strategy,” in which a retailer builds its entire operating philosophy around better-compensated staff members who are empowered to make decisions.
.. An employee making more than the market rate, after all, is likely to work harder and show greater loyalty
.. What is interesting about this is that, if you look at what’s ailing the broader United States economy, it looks a lot like what you would expect if employers were, en masse, failing to understand the possibility of efficiency wages.
.. Individually, employers may think they are making rational decisions to pay people as little as possible. But that may be collectively shortsighted, if the unintended result is less demand for the goods and services they are all trying to sell to these same people.
.. “Out of the gate, they’ve seen some improvement, but I think that’s because they were doing Retail 101 so poorly,” said Brian Yarbrough, a retail analyst at Edward Jones & Company. “The better question is what happens next year and the following year. The low-hanging fruit has been harvested.”