Walmart’s Labor Practices Backfire

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"Walmart’s Labor Practices Backfire"

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CREDIT: AP

Wolfe Research, an equities research firm, downgraded Walmart in a new research report, citing understaffing, among other problems.

The firm lowered Walmart from a “market perform” rating to an “underperform” rating, pointing to three main causes: understaffing, an erosion of its price advantage against competitors, and costs associated with intensifying pressure from worker organizing.

While cutting fixed costs, like the number of employees, as an attempt to get more from less can work for some businesses, the researchers note that this isn’t having a good impact for the company. “Walmart U.S.’s relentless focus on costs does seem to have taken some toll on in-store conditions and stock levels,” the note says in regards to understaffing. “[O]ur store visits over the last six months show a repeating pattern of stocking issues in many departments in the store.” When products aren’t on the shelves, that means Walmart can’t sell them, depressing overall sales. And if the shelves are empty and the lines are long, there may not be a reason for consumers to frequent the stores.

A few other research firms have lowered their outlook for Walmart’s performance, although most have assigned the company’s stock a “buy” rating, suggesting they think it is smart to invest more. The company didn’t respond to a request for comment by the time of publication.

Walmart itself previously recognized this problem, adding more full-time workers ahead of the holiday season last year after consumers shunned the empty shelves and sales plummeted. But it may be coming out of a deep hole, as its workforce has dropped by 120,000 over the past five years even as more stores opened up, and one survey last summer found most of its stores only hiring temp workers.

The research report also points out that the labor struggles that have ignited around its poor practices have come with a cost, noting, “Today, Wal-Mart spends a good deal of time and money in hopes of easing Washington scrutiny, bolstering its corporate image and assuaging labor groups.” The company is expected to spend around $300 million this year on regulatory and compliance enhancements, including dealing with the complaint against the company from the National Labor Relations Board that it illegally retaliated against its striking employees. Workers have staged repeated walkouts and protests, hitting nine different cities in November.

Workers have demanded something that could actually be a solution to sluggish sales for the company: more full-time positions. They have also demanded that workers be paid at least $25,000 a year — something the company could pretty easily afford without raising prices — and the ability to form unions.

The research note also pointed out that while Walmart was once the king of low prices, other competitors are catching up to it. And indeed some competitors can offer similarly low prices while giving workers better pay and benefits. Walmart says it pays full-time workers $12.78 an hour, on average, but other reports put average pay just over $8 an hour. Costco, on the other hand, pays workers nearly $22 an hour on average. Its sales are up 6 percent over last year. A small grocery chain in Idaho is even able to beat Walmart’s prices while paying workers more than $11 an hour and providing generous benefits.

Update

A company spokesperson pointed to a Credit Suisse report that upgraded the company from neutral to outperform in January but declined to comment further, saying the company will have more to say on the issue when it announces its results later this month and doesn’t generally comment on analysts’ opinions.

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