Wal-Mart and their supporters tend to be on message, repeating the same tired themes and excuses for their failings. I found a piece today written by Moira Herbst that I think exhibits a series of great rebuttals to these oft-repeated themes. Here’s a sampling.
Wal-Mart defense #1:
When our critics cry, “a company with $10 billion in profits can do better,” it sure sounds like we should. But with sales of $285 billion last year, Wal-Mart earned a return of 3.6 percent – as compared to 8.5 percent for Exxon-Mobil. Seen another way, retailing’s more labor-intensive business model means that in 2004 Wal-Mart earned roughly $6,000 in profit per associate; Microsoft, by contrast, earned $143,000 per associate. For General Motors, the number was almost $12,000." - Wal-Mart CEO Lee Scott, 2/23/05
Why is Mr. Scott comparing Wal-Mart to Exxon-Mobil, Microsoft, and GM, instead of using other retail examples? Well, because it's not necessarily retail that is more labor intensive, it's Wal-Mart's business model. Here is a quote from Herbst's piece:
A 2004 Business Week study ran the numbers to test Costco’s business model against that of Wal-Mart. The study confirmed that Costco’s well-compensated employees are more productive.The study shows that Costco’s employees sell more: $795 of sales per square foot, versus only $516 at Sam’s Club, a division of Wal-Mart (which, like Costco, operates as a members-only warehouse club). Consequently Costco pulls in more revenue per employee; U.S. operating profit per hourly employee was $13,647 at Costco versus $11,039 at Sam’s Club.
The study also revealed that Costco’s labor costs are actually lower than Wal-Mart’s as a percentage of sales. Its labor and overhead costs (classed as SG&A, or selling, general and administrative expenses) are 9.8% of revenues, compared to Wal-Mart’s 17%.
Wal-Mart defense #2:
“For example, there are some who say that Wal-Mart’s wages and benefits have some kind of negative impact on wages across the board. That’s just plain wrong. Here are the facts:Wal-Mart’s average wage is around $10 an hour, nearly double the federal minimum wage. The truth is that our wages are competitive with comparable retailers in each of the more than 3,500 communities we serve, with one exception -- a handful of urban markets with unionized grocery workers.
This is only common sense. If Wal-Mart weren’t an attractive place to work, we wouldn’t find ourselves, as we typically do, with thousands of applications for the hundreds of jobs we create when we open a new store.
-Wal-Mart CEO Lee Scott, 2/23/05
Competitive wages at comparable retailers, Mr. Scott? Well, Costco is a competitive retailer, with only about 18% of their workforce unionized, and we learn from Herbst’s piece that:
Costco CEO Jim Senegal has said: “We pay much better than Wal-Mart. That’s not altruism. It’s good business.”Chief Financial Officer Richard Galanti explained: “From day one, we’ve run the company with the philosophy that if we pay better than average, provide a salary people can live on, have a positive environment and good benefits, we’ll be able to hire better people, they’ll stay longer and be more efficient.”
[…]
By compensating its workers well, Costco also enjoys rates of turnover far below industry norms. Costco’s rate of turnover is one-third the industry average of 65% as estimated by the National Retail Foundation. Wal-Mart reports a turnover rate of about 50%.
Also, Lee Scott claims that Wal-Mart, the largest private employer in the U.S., doesn’t have an effect on industry wages. Again, Herbst disagrees:
Though only about 18% of Costco’s total workforce is unionized, union representation creates a ripple effect and helps determine labor standards in all stores. The Teamsters represent about 15,000 workers at 56 Costco stores in California, New York, New Jersey, Maryland and Virginia. Workers are covered by West coast and East coast contracts, negotiated in February and April of last year. “The agreements lock in wage and benefits packages that are the highest in the grocery and [discount] retail industries,” said Rome Aloise, chief IBT negotiator for Costco and Secretary-Treasurer of Local 853 in San Leandro, Calif.Costco passes on similar compensation packages to its non-union workers; the contracts act as templates for other stores’ employee handbooks.
“The union contracts raise the bar and set the standard for all employees,” explained Aloise. “Still, while the company extends wage and pay raises to non-union employees, only union members enjoy benefits like seniority-based promotions, a grievance procedure and minimum hours for part-time workers,” he added.
To read the rest of Moira Herbst’s article, click here.
To read the text of Lee Scott’s speech where the above quotes were taken from, click here [PDF].
Posted by Brendan - July 6, 2005 04:47 PM - Real Facts