Wal-Mart rolled the dice on higher pay, and now it’s paying the price.
That’s one reading you could take away from the mega-retailer’s second-quarter earnings, announced last month. Profits slid lower, with the company citing increased costs for wages, training and employee hours, among other factors.
Will a white flag begin waving at Wal-Mart and other companies that have raised wages over the last year for front-line workers? Locally, those companies include Giant Food Stores and Stauffers of Kissel Hill.
“It’s not really an option for us to go back.”
Probably not, at least at Wal-Mart, which employs more than 50,000 people in Pennsylvania. And that will likely keep the heat on other employers who might be wishing the issue would go away.
In fact, underneath the bottom-line blues, the early indicators suggest that Wal-Mart’s investments in people are working. That’s the message I heard from Kory Lundberg, a spokesman for the Bentonville, Ark.-based retailer.
The wage increases began taking effect in April and are designed to raise Wal-Mart’s minimum pay to $10 per hour for current employees by this coming February. After that, new employees would start at $9 per hour and rise to $10 at the end of a six-month training period, Lundberg said. Early measurements show increased employee engagement and lower turnover.
“We’re seeing all the numbers trend in the right direction,” he said, adding that it is too early to share specifics.
And if the economy slows in the months ahead, will Wal-Mart rethink its commitment to higher wages and other employee-friendly changes?
“It’s not really an option for us to go back,” Lundberg said, noting that the company has been through plenty of economic cycles since its founding in 1962. “This is the new kind of starting point, and anything we do would go forward from here.”
The early turbulence for Wal-Mart simply represents the reality of raising pay, said Mark Price, a labor economist with the Keystone Research Center in Harrisburg.
“Doing this is hard,” Price said. “It’s not as simple as, ‘Hey, let’s raise wages and everything will be better.’”
It will take more than a disappointing earnings report — even if it comes from one of the world’s biggest retailers — to slow the momentum pushing higher pay for hourly workers, he added.
For many people, income has grown slowly, if at all, during the economic recovery of the last few years, and they are demanding a raise. “I’m not sure yet we’re at a stage where that pressure is going to go away,” Price said.
Nor is the pressure letting up on businesses. In today’s competitive environment, no job is truly unskilled or unimportant, especially on the front lines. A bad experience at Wal-Mart — such as a slow checkout line — risks sending a consumer to Amazon.
Wal-Mart appears willing to invest in making sure those experiences are positive (and so is Geisinger Health System, by the way, which announced a raise last week). Are you?
The week ahead
People still want to shop in actual stores, as you can see on any weekend at Park City Center in Lancaster. That place is always packed. Staff reporter Lenay Ruhl explores why in a story this week on what makes Lancaster County such an attractive destination for retailers.
In a similar vein, staff reporter Michael Sadowski asks about BB&T Bank’s attraction to Pennsylvania. The North Carolina-based company has taken two giant steps into the Keystone State, with the purchase of Susquehanna and National Penn banks. I guess we owe them a great big “howdy, y’all.”
The Inside Business topic this week is high-end commercial real estate and construction. Staff reporter Jason Scott offers an engaging look at the changing world of real estate investment trusts and emerging opportunities for local investors. We also look at recent upticks in construction work for local companies.
The lists are real estate investment trusts and commercial real estate agents.