WalMart “Absolutely Shafted” Washington DC; Here’s How

Tyler Durden's picture

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.

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Shop Local
Shop Local

“….the move to put a few extra pennies in the pockets of hourly workers resulted in the loss of hundreds of breadwinner jobs.”

Breadwinner jobs?

starfcker
starfcker

Think about this for a moment. For this line of reason to be valid, Walmart executives would have to be so incompetent that they couldn’t buy a simple program that could, with the push of a button, raise the price of every item in the store by the two cents or whatever it would take to neutralize those petty wage increases. I’m not a fan of increasing minimum wage laws, but they hurt walmart’s competitors (small retailers) far more than they could ever ding walmart, because they don’t have the volume to dilute the expense across. Bogus article. Propaganda

rhs jr
rhs jr

In 1985, my manufacturing job went to Mexico so I took the job of Walmart Lawn and Garden Manager paying $4.00 per hour. I later left for a state job as a Statistical Aide at about $4.50 per hour. In 2016, beginning Florida State employees with BS degrees make about $25,000 here yet Walmart’s lowest paid workers earn about $20,000? The idea that Walmart is really low pay isn’t true here; we are almost a Communist Society here now.

Llpoh
Llpoh

Star – those petty increases are in total probably two or three billion per year. Petty. Right. A blllion here a billion there and pretty soon you are talking about real money. And that is each year in perpetuity.

They would need to raise prices probably one percent more than normal to cover the costs.

I am always amazed how it is petty cash when it is other people’s money.

Walmart thought they could squeeze those billions out of their suppliers. They were wrong.

SpecOpsAlpha
SpecOpsAlpha

They are mad because they expected Wally to work at LOSS. There is truly no limit to the stupidity of liberals.
Yeah guys, jobs don’ have to produce wealth. Just go ahead and pick your jobs off the bush where you think they grow.
I swear the population is separating into two species were one species is incapable of conceptual thought. SMH.

starfcker
starfcker

Llpoh, not disagreeing. Trying to squeeze their suppliers certainly didn’t go well. Again, no fan of minimum wage laws. In my area, the prevailing wage minimum (the least you can pay someone and expect them to show up) is far higher than the legal minimum wage. I used to hire lots of part time high school kids, it was cheap, and by banging them around a bit, you found some good ones, and it was cheap to do it. I can’t do that right now, it’s just too expensive. That said, walmart’s point is nonsense. If they raised the prices in DC 1% to cover DC’S wage law, they would still have a virtual retail monopoly, and it would be revenue nuetral.

starfcker
starfcker

Llpoh, I have a theory that I have believed for a long time. The United states, and walmart, as currently run, cannot thrive simultaneously. So I’ve got to pick a side. It’s not walmart

Overthecliff
Overthecliff

I love to see this. Free shitters and corrupt politicians being screwed and used by crony capitalists, does a heart good. To make it even better, Walmart is beginning to get theirs too.

Llpoh
Llpoh

For the record, I hate Walmart. I vote with my wallet.

Overthecliff – um, Walmart increased sales and profit last year. Not exactly crumbling yet.

Capn Mike
Capn Mike

@starfcker
I’ll take Walmart, thanks. At least I get SOMETHING for my money.

David
David

Just get Krugman and sanders to repeal the laws of math and reality, they already have in their minds.

Sensetti
Sensetti

LLPOH Walmart is a piece of shit they’ve destroyed small towns across America. They throw a huge vacuum hose into a town and suck the money out leaving behind a few folks with low wages qualifying for food stamps. America would be better off putting Walmart down like a rabid dog!

llpoh
llpoh

Sensetti – people want Walmart. They vote with their wallets. Democracy at work.

IndenturedServant

It’s Walmart! Fuck ’em! When the free shit faucets get turned off Wally World goes under. Reason #131 to root for collapse!

The only thing I buy from Wally World is plinking ammo. It’s cheap, ‘Murican made and according to the local gun nut crowd, sold below cost when it’s on sale. They’re also the only place I can find .22LR consistently without driving 75 minutes round trip.

LLPOH, do you have a Wally World near you down under?

bb

Hey I buy my blood pressure medicine at Wal-Mart for 4 dollars per month and I’m happy. I buy my ammo at Wal-Mart and I’m happy. I buy my cat food at Wal-Mart and I’m happy( little bb to ) Screw all you Wal-Mart
Haters.

Weedhopper
Weedhopper

I shop at Walmart all the time…bought a Sam’s Club membership on Saturday. Free markets ROCK!

TPC
TPC

@llpoh – “Sensetti – people want Walmart. They vote with their wallets. Democracy at work.”

Normally I’d agree with you, but one of the ways Wal-mart has been able to succeed is by actively placing their employees on every form of social aid and welfare our country provides so they can save a few bucks.

Normally businesses can’t do that, only mega-corporations, the kind that form a monopoly where ever they go, can do such a thing.

Wal-mart is where it is due to a crumbling middle class and a government so intent on blowing the poor and the rich that they are willing to crush the producers to see it happen.

Anonymous
Anonymous

TPC,

Explain “actively” and what it consists of.

Does their human resources have some king of welfare department that aids in their applications?

The way so many leftist organizations encourage and aid welfare signups?

Llpoh
Llpoh

TPC – what would happen if all Walmart shoppers, well, became X-Walmart shoppers today?

Walmart would be history is what would happen. Hell, they would go into total meltdown if no one bought anything for just an hour.

People want Walmart. They could kill it off in a single fucking day. But they will not do it. Because they love that cheap shit and they have brains lthe size of stunted acorns.

If there is a market and stupid consumers, someone will fill the void. Walmart is that someone.

Yes, fuck Walmart. But they can be killed off easy as swatting a fly. If people felt like swatting it.

This is capitalism at work. Pure and simple. Walmart exists only because idiots want it.

Bob
Bob

Labor markets have moved above and beyond $7.25 for the most part. Responding to political pressure to establish a uniform rate of $10 appears to be Wal-Mart’s biggest mistake. Depending on location, the same money could have been spent by establishing varying starting rates, depending on labor market conditions in each area – say, a range of $9.25 — $11.25. It is interesting that Wall-Mart chooses not to discuss the benefits it may be reaping in reduced recruiting costs, and retention of a more stable work force.

I suspect the real reason for the pullback from D.C. was the threat of a $15 rate.

Llpoh
Llpoh

Bob – seriously dude, you need to go buy a clue.

Do you really think that out of nowhere their “recruiting” costs just plummeted because of an extra dollar an hour, or that their retention rate of the psuedo-chimps that “work” there will be influenced much by that $1? Or that any benefits thereof will offset the billions in extra wages?

Walmart undoubtably believed they could screw suppliers to make up the difference. But the suppliers were past being able to be screwed further.

Your $15 an hour theory is likely correct though.

TPC
TPC

@Anon – “TPC,

Explain “actively” and what it consists of.

Does their human resources have some king of welfare department that aids in their applications?

The way so many leftist organizations encourage and aid welfare signups?”

Pretty much. Employees are given their 20 hours a week and then told to get on welfare to make up the difference. In many cases it is suggested to them that the company is doing them a favor by letting them get on welfare.

Much like McDonald’s.

I’m not defending leftists, I’m stating that Walmart operates as it does due to a fucked up system that is NOT free market.

@LLPOH – “Yes, fuck Walmart. But they can be killed off easy as swatting a fly. If people felt like swatting it.

This is capitalism at work. Pure and simple. Walmart exists only because idiots want it.”

Maybe back when they first started, but not anymore. Too many areas are reliant on the megalith for all goods and services, a capitulation of Walmart would leave the town without the half dozen mom and pop stores that sustained their town for 100 years. Food deserts abound.

—————————————————————————————–

Pretty much the only point I’m trying to make here is that Walmart is not free market, it operates as a monopoly.

Like Comcast or the Government, only less evil.

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