- November 11th, 2016
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5 Priceless Ways Walmart’s Investment In Workers Is Paying Off
Last year, Walmart decided to give its associates a 10. In return, they gave it a serious high five, as in $5 billion.
That’s the amount by which Walmart’s sales rose in the first six months of 2016 after it boosted hourly pay to $10 in 2015. Revenue advanced to $149.5 billion from $144.2 billion in 2015, according to its second-quarter earnings report. The company attributes this gain largely to the ‘positive customer traffic’ that followed the pay increase as well as the creation of 200 management-track training centers.
Put another way, better-paid, better-trained workers are creating a better in-store experience for Walmart shoppers. Today, the world’s largest private employer reports its non-management workers make an average of $13.69 an hour, up 16% from 2014, according to The New York Times.
Combined with the training centers, the investment has cost Walmart about $2.7 billion, a bet that many retailers are eager to see played out. Will paying workers more and offering them better opportunities result in higher profits?
Higher Service Scores, Lower Income
The answer is… possibly. Since Walmart increased wages and invested in better training it has recorded the following:
- A reduction in employee turnover almost from the outset, according to RetailWire.
- An increase in the percentage of stores that meet the company’s internal goals for customer service, to 75% in 2016 from 16% a few years ago, according to the Times story.
- An improvement in customer surveys, with “clean, fast, friendly” scores rising for 90 consecutive weeks from early 2015, according to the Times.
- A rise in spending at stores by its own employees, the Times reports.
- A decline in operating income in the first half of the year, to nearly $8.8 billion from $9.5 billion, due to higher labor costs and other investments, according to Walmart’s earning report.
“During this time of increased investments, operating expenses may grow at a rate that is greater than or equal to the rate of our net sales growth,” the report states.
On the other hand, as it points out, operating income may grow at a rate that is less than or equal to the rate of net sales growth.
Other Ways To Measure Success
This of course should not mean all bets are off when it comes to investing in worker compensation and training. It takes time to recoup a few billion dollars, after all.
Further, it’s possible to record the return on investment in ways that can’t be accounted for in pure dollars. Following are five key return-on-employee investments that won’t make it to the financial report.
A better caliber of workers: Before adding its dedicated training centers, Walmart did not provide its employees a clear structure for achieving management status. This would be like treading water just out of sight of land. It’s not surprising, then, if a lot of workers were less motivated. Since investing in the centers, Walmart has begun attracting a higher standard of worker. “We get more people coming in who want a career instead of a job,” one manager told the Times.
More orderly stores: Hourly employees generally are not likely to make workplace cleanliness a priority, unless they are properly trained, experts say. Using Walmart as a case in point, the retailer said its customers are reporting higher satisfaction rates in store cleanliness, as well as speed and customer service. Clean stores not only are more attractive to shoppers, they make for healthier workers and require less frequent asset replacement (flooring or carpeting, for example).
Brand loyalty: Consumers are drawn to brands that share their beliefs, and most believe in a better living wage. Three-quarters of Americans support increasing the minimum wage to at least $12.50, according to a 2015 report from the Hart Resource Association. There is plenty of evidence that Walmart’s choice to raise employee pay has captured it positive media attention.
Further, better-paid employees are more likely to be brand loyal because the company has made them feel financially secure.
Friendlier environments: Workers who feel appreciated are more likely to seek camaraderie with others (and would be less likely to gripe). The more friends an employee makes at work, the more she is likely to love her employer. More than 70% of employees who have 25 or more friends at work (71%) love their employer. Of those with no friends, 24% love their companies, according to research by the Ohio University. As we know, love means never wanting to hand in your resignation.
Less shrink: OK, this is arguably a bottom-line figure but it gets back to sentiment. Unhappy employees, who are often stressed, underpaid employees, are more likely to take from the company. Also, they are more likely to care less if its products are inadequately cared for – whether the fresh produce is quickly stocked, for example. Employees steal an estimated $50 billion from companies every year, representing 43% of total retail shrink.
It should be noted that not all of Walmart’s 2.3 million employees are paid a minimum of $10 an hour. Those who joined the company since the beginning of 2016 started at $9; they get a buck-an-hour raise once they complete the chain’s skills and training program.
Which reinforces the overall “its pays to pay” strategy. Once trained, workers will be better engaged and worth every penny of that hourly wage, and then some. That’s worth a hive five.
This article originally appeared on Forbes.com, where Bryan serves as a retail contributor. You can view the original story here.