Reading Assignment #3
1. In the 2012 article Ton explains that retailers mistakenly believe that the cost to the customer must increase with the increase is the amount invested in the employees. This typical line of though is because lower labor costs have an immediate and direct visibility in revenue and profitability. Ton’s research clearly shows that when retailers invest in the employees, the quality of work and performance is increased. With better performance and quality, retailer actually saw an increase in profit and revenue a decrease as is conventional wisdom.
2. Wal-Mart uses a variety of tactics to keep their prices low “by pressuring suppliers to hold down prices, building the most efficient transportation system in retailing, creating an extraordinary computer and inventory system, and maintaining rock-bottom labor costs.” (Greenhouse, 2008) The first of these, pressuring suppliers, has a trickle-down effect throughout the industry. Wal-Mart pressures the manufacturer to make the product for less by whatever means such as cutting their wages or moving portions or all of their production offshore. Companies eager to do business with Wal-Mart have no alternative to cede to their demands or risk the business. This pressure drives industry wages down and sends more job oversees. An additional practice that Wal-Mart uses is to be extremely rigid on cutting labor costs. Store managers receive a relative low base salary but they also receive an annual bonus that is related to their store’s profitability. The only real control they have on the bottom line is the labor costs, so they will enforce no overtime stringently.
3. Wal-Mart is notorious for paying their employees extremely low wages and very little else. As Greenhouse describes, in 2007 the average employee working a full time position at Wal-Mart made $1,500 below the poverty line. Greenhouse also provides details of a 2005 internal Wal-Mart study that showed 19% of its employees had no insurance coverage at all, while 5% of its employees and a shocking 46% of the children of employees depended on Medicaid for health coverage. The insurance provided and available to its eligible employees is bare bones and the corporate contribution is vastly lower than the industry average. Wal-Mart even has taken the extreme step of cutting full-time employees hours so that they are considered part-time which renders them ineligible for benefits. The company does not appear to take any interest in what is good for their employees. The company is only concerned about the company and the bottom line. Employees are expendable.
4. Unfortunately, Wal-Mart has become the nation’s largest retailer because consumers want low prices. Based on Ton’s research, companies underinvest in their employees to reduce costs in an attempt to increase profitability. However, striking a delicate balance can allow a company to invest in employees and realize increased profits. In an industry where companies are all interconnected by the effects of another companies practices, Wal-Mart’s cost reduction practices leave their competitors in a distinct disadvantage. Since Wal-Mart is a behemoth in the retail industry, they can easily force others out of business if they fail to adjust their business practices accordingly. The easiest step that provides virtually immediate results is lowering the labor costs and investment in employees.
5. Although the additional expense, Wal-Mart should definitely raise their employee wages. There is no reason that someone working full time should bring home wages that are below the poverty line. Although the direct impact of raising wages would be higher labor cost initially, the indirect effect of higher wages, as Ton explained, is employee satisfaction and loyalty. Job satisfaction can actually reduce labor cost over the long term by improving performance and productivity. When an employee is provided adequate wages and feels that they are valued for their contributions to the company, they will feel empowered and will be more dedicated to their job and the company. However, on the other end of the spectrum, if an employee feels that they are not respected or that the company they work for does not value their contribution, they often become complacent and less dedicated. Complacency leads to mistakes which can be extremely detrimental to the operations of the company. In addition, low wages also attract part-time, unskilled employees and will generally result in high turnover. The increase in wages must be balanced with labor costs as a whole in order to reduce the risk of effecting the profit margin. I would also add that if the employees were more satisfied with their job, the customer experience would greatly improve which would ultimately impact sales. An additional benefit of higher wages would also address some of the negative PR the company receives. Personally, I very rarely shop at Wal-Mart. In my experience at Wal-Mart, there are never enough cashiers, the store employees either can’t be found or can’t be bothered to answer questions, and the merchandise is often just a step above junk. Target and Amazon have become my go to retail outlets. Target has everything that I need, although often there are less varieties. Although Target may be slightly more expensive, I’m willing to pay the additional amount to have a friendly experience.
6. I will reference some of my comments above, Wal-Mart employees in general are not very friendly and are difficult when you need assistance. In my opinion, that translates to very low satisfaction in what they are doing. When someone likes their job and feels respected, they will almost always be eager to make the customer happy. I do not get that feeling from the employees at my local Wal-Mart and in lies the reason I have chosen to avoid shopping at the stores. The associates are generally quite rude and unwilling to assist when an issue arises. Although, I will give them some leeway because my guess is they are given very limited authority to make any decision or judgment calls on their own.
7. In conjunction with my previous comments, I do not feel that the associates at Wal-Mart are motivated to work hard or show any loyalty to the company. The high rate of turnover reflects the lack of commitment and/or loyalty. Why would their employees be committed to the company when the company will turn their back on them whenever possible? Using the example from Greenhouse, Mike was an exemplary employee in the loss prevention department until he got hurt going above and beyond to carry out his job to stop theft. Wal-Mart immediately turned their back on him because Wal-Mart perceived his injury as a threat to their profits. Although not directly involved, other employees would have known what happened and seen how Mike was treated. My belief is that Wal-Mart has a pervasive problem with the treatment of its employees. Employees will not thrive and perform well under such conditions.
Reading Assignment #3