business news in context, analysis with attitude

As MNB was about to be posted yesterday, stories came across the wire saying that Walmart had announced that it would raise its national minimum wage to $11 an hour, and would hand out one-time bonuses to many employees; Walmart said it could show this largesse because of the new tax bill passed by the US Congress and signed by President Donald Trump, lowering the US corporate rate to 21% from 35%. The move, Walmart said, would cost it about $300 million.

I commented, in part:

There is no question that this infusion of capital gives Walmart the ability to invest in people and technology in a way that it believes will make it more competitive. My main skepticism about the tax bill has been that most CEOs are rewarded based on lowering their companies’ labor costs and increasing investor dividends, and it gives me some hope when I see companies like Walmart doing this.

I just hope that this is the beginning of a pattern of investment, not an isolated moment that generates good PR. And, I hope we don’t find out down the road that Walmart has figured out a way to eliminate so many jobs that its labor costs don’t actually go up.

Within hours of the pay raise announcement, Walmart announced that it was closing down 63 Sam’s Club stores, or roughly 10 percent of the membership club chain; 10 of the stores will become e-commerce distribution centers, but the rest are just being shuttered. Thousands of people are expected to lose their jobs.

Scott Galloway, a professor of marketing at New York University’s Stern School of Business and the author of “The Four,” told the New York Times that Walmart “snatched defeat from the jaws of victory.”

In its analysis of the wage announcement, Bloomberg offered some context, asking, “What does that actually mean for the world’s largest retailer, which generates nearly $500 billion a year in global sales? About five hours.

“At about $57 million in sales per hour, that’s how long it would take to ring up $300 million -- the amount Wal-Mart expects to spend on the wage increases, excluding the costs of separate one-time cash bonuses. The company is on track for about $12 billion in net income this year, so it will take about nine days of profit to recoup the extra spending.

“Looked at another way, the $300 million payout is just slightly more than the $244 million that Wal-Mart U.S. e-commerce chief Marc Lore made in 2016, thanks to shares he received as part of the sale of his company,, to the retail giant.”

Fortune also was dubious: “First, it has already been raising wages, and began doing so well before the corporate tax cut passed. It first did so in a well-publicized move in early 2015, when it raised its minimum wage to $9 an hour. In 2016, it followed up with another increase to $10. The current increase simply continues a trend it started three years ago.

“Second, there are very good reasons for Walmart to increase benefits—even absent the tax cut—because of the labor market circumstances it faces. With the nation’s unemployment rate now at nearly 4%, labor markets around the country have grown tight, and at least some employers feel wage increases are necessary to attract and retain their best workers. Indeed, many economists … wish more employers were doing so, and wonder if our low national productivity growth prevents this from happening more frequently.”

And Josh Bivens, director of research at the Economic Policy Institute, tells National Public Radio’s Marketplace, “I think all of the recent bonus announcements are PR. Forty percent of American workers get bonuses every year. To trumpet them right after this tax cut is nothing, in my mind, but announcing to the world that you — as a corporation — are happy indeed that your taxes have been cut.”
KC's View:
Let’s concede one thing right at the start: There is nothing wrong with good PR. But you have to earn it, it has to be clean, and you have to make sure you aren’t sending mixed messages or undercutting yourself.

I think Scott Galloway got it just about right. Defeat from the jaws of victory.

I have no idea what the thinking was behind this confluence of events. Maybe they figured that the good news would make the bad news seem less bad. Maybe they just wanted to get it all out at the same time, be done with it, and move on.

We do have to keep this all in context. Walmart was laying off thousands of workers, but it employees more than a million in the US. It is shuttering 63 stores, but companies close stores all the time; Kroger, for example ,just said it is closing a half-dozen units over the next few months.

But this does somehow seem different, in part because it seems so calculated and cynical. I also think Walmart made a mistake by attaching the first announcement to the politics of the tax bill, getting a lot of positive tweets from Republican lawmakers … since the second announcement allowed Democratic legislators to say, “I told you so.”

One other thing. The fact that 10 Sam’s Clubs are being turned into e-commerce distribution centers has actually been sort of buried under the other news, but this strikes me in some ways as the big news, especially when seen in the broader strategic scheme of things. This is actually a blunt statement about how Walmart/Jet sees the world, and it is one in which an effective e-commerce operation supplants the membership club business.