A new study by the Economic Policy Institute says that Wal-Mart could increase the wages paid to its employees without raising prices and still earn a profit – though it conceded that the profit would be smaller than the profits it earns now.
"The more important question for the future isn't whether Wal-Mart is a force for good or evil in the American economy, but whether the economic benefits provided by Wal-Mart can be preserved even if their labor compensation is dramatically improved," write economists Jared Bernstein and Josh Bivens.
The economists say that Wal-Mart could reduce its profit margins from 3.6 percent to 2.9 percent and free up more than $2 billion that it could use to improve wages and benefits. That would still keep its margins above those of, say, Costco (which has margins of about two percent, according to the study), but roughly half those of Target. And, it would be likely to help take some of the pressure being applied to the company by activists who object to its wage and benefits policies, its growth strategies, its treatment of women employees, and just about everything else the company does.
The Wal-Mart argument, of course, is that its profits are good for its shareholders, and that its low prices are good for families by giving them greater buying power when they walk in the store.
Economists Bernstein and Bivens write: "Wal-Mart does a lot right. It has expanded productivity by being more efficient and leaner than many other companies. Many of the benefits shoppers accrue from Wal-Mart's expansion could be preserved even if the retailer had to meet the expectations of its critics regarding fair worker compensation."
"The more important question for the future isn't whether Wal-Mart is a force for good or evil in the American economy, but whether the economic benefits provided by Wal-Mart can be preserved even if their labor compensation is dramatically improved," write economists Jared Bernstein and Josh Bivens.
The economists say that Wal-Mart could reduce its profit margins from 3.6 percent to 2.9 percent and free up more than $2 billion that it could use to improve wages and benefits. That would still keep its margins above those of, say, Costco (which has margins of about two percent, according to the study), but roughly half those of Target. And, it would be likely to help take some of the pressure being applied to the company by activists who object to its wage and benefits policies, its growth strategies, its treatment of women employees, and just about everything else the company does.
The Wal-Mart argument, of course, is that its profits are good for its shareholders, and that its low prices are good for families by giving them greater buying power when they walk in the store.
Economists Bernstein and Bivens write: "Wal-Mart does a lot right. It has expanded productivity by being more efficient and leaner than many other companies. Many of the benefits shoppers accrue from Wal-Mart's expansion could be preserved even if the retailer had to meet the expectations of its critics regarding fair worker compensation."
- KC's View:
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While Wal-Mart hasn’t responded specifically to this study, we suspect the company’s response will be simple: “We could, but why should we? We pay people a living wage, and we have a right to make the profits we want to make. More importantly, we have a right to make profits that will encourage investors to believe in our company and buy shares of our stock.”
Which is sort of hard to argue with.
Besides, people looking to compete with Wal-Mart shouldn’t even pay attention to such studies. They should be trying to figure out how to differentiate themselves with their people, their products and their store environments.
