“Every time you use a self-checkout lane or a touchscreen ordering system, it’s a task that used be part of someone’s job description.”
That was the stark message in a 30-second advertisement that ran on national TV networks in the US last year. The voiceover was accompanied by images of shop assistants and waitresses vanishing into thin air, only to be replaced by machines. The commercial formed part of a campaign funded by the restaurant and retail industries against President Barack Obama’s calls to raise the federal minimum wage to $10.10, compared to the $7.25 level last set more than five years ago.
On Thursday, Walmart broke ranks with many other employers of low-paid workers and said it would pay all of its employees a starting rate of $9 an hour, rising to $10 an hour for existing staff by February 2016.
Many expect the focus to turn now to whether other low-pay employers, especially in the fast-food sector, will follow suit, either because they are competing for the same entry level workers, or because public pressure and statewide minimum wages make it impossible to hold out.
Tara Sinclair, chief economist at jobs website Indeed and a professor at George Washington University, said the move would “reverberate well beyond the retail sector”.
Businesses throughout the “low-wage economy” would now feel extra pressure to raise pay, said Damon Silvers, the policy director for the AFL-CIO, America’s union umbrella organisation. “As the largest private sector employer in the country, Walmart has tremendous power to shape economic trends.”
The move comes as companies find themselves in the middle of a fierce debate in the US about the minimum wage — which last increased in 2009 — and broader income stagnation. Minimum-wage workers now earn 20 per cent less in real terms than in the late 1960s, sparking calls from unions and Democrats for companies to offer bigger increases.
President Obama renewed his calls for a higher federal minimum wage in a report to Congress on Thursday, but White House deputy press secretary Eric Schultz welcomed signs that businesses such as Walmart were meanwhile taking action on pay unilaterally.
“We continue to call on Congress to give all workers in America a wage . . . hike. But given their recalcitrance on this . . . we’re going to continue to make progress in other ways,” he said.
Companies in much of the US already have to pay more than the federal minimum, after 29 states introduced higher minimum wages from January, including Washington state, Oregon and Connecticut. All of those floors remain below $10 an hour, however.
Even at $10, a Walmart worker with a family of four would need to rely on government assistance to be taken above the federal poverty line, said David Cooper, an economist at the Economic Policy Institute, a left-of-centre think-tank.
The EPI has called for a bigger increase in the federal minimum to $12.50 by 2020, saying this could provide raises for close to 40m workers directly or indirectly through the “ripple effects”.
Walmart said that $10 an hour was just its starting wage and that it aims to quickly move people beyond entry-level pay, with its average staff wage standing at $13 an hour.
The $1bn cost of Walmart’s decision was eye-catching, but represents a fraction of its $486bn in annual revenue. Investors still reacted negatively, sending its shares down by more than 3 per cent.
Analysts were divided on the ramifications. Goldman Sachs warned that “Walmart’s cost of doing business is clearly rising, reflecting . . . self-imposed wage pressure”.
Walmart’s cost of doing business is clearly rising
Yet Nomura’s Robert Drbul applauded the move. “We believe this . . . is quite logical and long overdue. We are optimistic that this investment will ultimately translate into a better customer experience, driven by higher associate satisfaction and higher retention, longer term.”
In raising pay Walmart was acting in its own corporate interest, argued Justin Wolfers, a senior fellow at the Peterson Institute for International Economics. He cited evidence that improving workers’ earnings can boost a company’s productivity, as well as improving retention.
“There is good reason for them to expect there is a pay-off from this,” as the company attracts better workers and gets more out of them, he said.
The company’s decision probably also reflects a tightening labour market, with America’s private sector adding jobs for the longest uninterrupted period on record.
Walmart has signalled for some time that it was ready to tackle the minimum wage issue at its stores, which has prompted a spate of strikes organised by unions and employee groups. It is not the first retailer to offer higher wages — Ikea, Costco, Whole Foods and Gap are among those pay rates above the federal minimum.
However, the fast-food sector, dominated by McDonald’s and Pizza Hut owner Yum Brands, has been much more resistant to higher wages.
McDonald’s has argued that its local franchisees, rather than the company, are responsible for working conditions. But its latest quarterly filing with the Securities and Exchange Commission contains several warnings that a rise in minimum wages could hurt its business.
“The impact of campaigns by labour organisations and activists to promote adverse perceptions of . . . our brand,” could hamper the company’s ability to grow profits and sales, McDonald’s said in the filing, as could an “increasing focus on workplace practices and conditions”.
Yum Brands’ annual filing contains a similar warning: “Competition for qualified employees could also require us to pay higher wages to attract a sufficient number of employees, which could adversely impact our profit margins.”
Yum is also facing litigation relating to its employment conditions. Its Taco Bell unit has been named in a number of class action lawsuits, which allege it underpaid workers, denied them meal and rest breaks, and handed out improper wage statements. The company denies the allegations.
There is good reason for them to expect there is a pay-off from this
The company negotiated a settlement with drivers at its Pizza Hut chain, who filed a separate lawsuit claiming they were not reimbursed for their vehicle or uniform costs.
Yum, which already operates with low costs, could find it harder to absorb wage increases than Walmart. Labour costs as a percentage of sales at its Taco Bell stores are already running at 38 per cent. Last year, the restaurants reported a profit margin of 18.9 per cent, a decline of 60 basis points, which it attributed to “commodity inflation and higher food and labour costs”.
McDonald’s and Yum did not respond to requests for comment.
Walmart looks to Asda for inspiration
Walmart’s decision to spend $1bn to boost the wages of 500,000 low-paid workers brings their pay more into line with that of Asda, Walmart’s UK subsidiary, writes Andrea Felsted.
The changes at Walmart will mean that 500,000 full-time and part-time workers in its US stores will eventually be paid the equivalent of about £6.47 per hour. Asda’s starting hourly rate is £6.89, above the UK minimum wage of £6.50. It also offers a bonus scheme, and the opportunity for Asda employees to buy Walmart shares at a discounted rate.
The changes at Walmart will apply only to the US business, and will be funded by that territory. There are no plans to make any changes to pay levels at Asda. But Walmart increasingly looks to Asda, which it acquired in 1999 for £6.7bn, for inspiration on everything from grocery home shopping, to food sourcing and fashion. A number of senior Asda directors, including former finance director Judith McKenna, pictured, have recently been elevated to roles at the US group.
Asda also draws on the clout of Walmart, for example jointly sourcing products for Black Friday discounting after the Thanksgiving holiday. Asda has pioneered the tradition in the UK — with mixed results for the retail industry.
Asda also revealed this week that it would overhaul its branding to look more like its parent. It will introduce elements of the Walmart logo — yellow rays of sun — into the Asda brand identity. It will also adopt Walmart’s catchphrase: “Save Money. Live Better”. The increasingly close co-operation between the two companies has raised questions as to whether Asda will ditch its identity, and simply be known as Walmart in the UK, with the brand overhaul the first step to this.
Andy Clarke, chief executive of Asda, insists this is not the case. He says it is the first time that the chain has sought to reinvigorate its identity for over a decade. It is doing so now because it is about to begin a big refurbishment of its stores.
“The brand of Asda in the UK is loved by customers,” says Mr Clarke. “This is not the first step; it’s the step. It’s about refreshing the brand.”
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