Wal-Mart warning
Watch out for rising wages,
Wal-Mart stock dropped Tuesday after the retailer reported how much it will cost to hike wages for employees in the U.S., but it’s unlikely to dampen a movement for fairer wages that is gaining ground in North America, said labour leaders and business experts.
“I think that what Wal-Mart is doing is playing the long game. They know the $15 minimum wage campaign has caught fire. You have presidential candidates and prime ministerial candidates talking about it. They know the public has bought into this campaign,” said Sid Ryan, Ontario Federation of Labour president.
The Fight for $15 began in November 2012, when fast-food workers in New York City walked off the job, demanding better wages than the $8.75 some of them were then earning. The movement has since caught on in cities across the U.S. and Canada.
“I think it won’t be too long before you see more of the retailers fall in line. This campaign has got serious legs,” said Ryan.
The decision by Wal-Mart to increase wages to at least $10 an hour by next year, along with an effort to improve training and bolster staffing levels, will reduce profits by 24 cents a share, Wal-Mart reported Tuesday. Wal-Mart had previously said the changes would cost 20 cents per share, but extending worker hours is proving more expensive than first thought.
Shares dropped $2.42, or 3.3 per cent, to $69.48 (U.S.), reflecting concerns that Wal-Mart’s costs are escalating faster than sales growth. Operating costs, including labour expenses, rose 3.1 per cent last quarter from a year earlier. Revenue barely grew.
The 24-cent drop in earnings adds up to about $773 million (U.S.), based on WalMart’s roughly 3.2 billion shares outstanding. Still, that represents less than 1 per cent of the company’s total $93.4 billion in operating expenses last year.
“Share prices go up and down. I think this may just be a little blip that doesn’t mean much in the larger picture,” said Kevin Banks, director of the Centre for Law in the Contemporary Workplace at Queen’s University.
“To me, the question is really, if they’re thinking about raising the minimum wage, will this affect business models in a way that creates unemployment?
“It does seem that in countries like Canada, where the minimum wage is relatively low compared to European countries or Australia, there is room to gradually move up the minimum wage without creating significant unemployment.”
Banks and others pointed out that while raising wages can create temporary pain, it puts more money into the hands of consumers, which ultimately benefits retailers.
“Wal-Mart’s challenges stem from a broader cluster of issues, including understaffing which means inventory isn’t getting replenished quickly. And while earnings may have been somewhat lower than expected, the company still made $3.63 billion in profit last quarter,” said Kendra Coulter, associate professor at the Centre for Labour Studies at Brock University.
“There is a movement towards better pay across the U.S., with a number of stores raising wages and more governments legally mandating higher wages. Because of the growing public pressure, and because retailers benefit when people have more money to spend, I expect that trend to continue.”
Wal-Mart reaps cost efficiencies from its huge and enviable position in the supply chain; it even has its own ships, said Anil Verma, professor of industrial relations and human resources at the Rotman School of Management. Verma also cited the minimum wage movement as an influence in rising wages.
“Companies that pay better are not necessarily being foolish. They are aiming for higher-margin customers, and that increases their profits,” he said. With files from Bloomberg