Walmart’s new strategy: Better pay

Great piece on QZ on how Walmart is working to reduce the income inequality gap: read more here.

The author starts with the fact that income inequality is the greatest in the USA among developed world countries. While most politicians are speaking about either taxing the rich or the government raising the minimum wage and increasing funding to welfare programs. There is a third way, one I have spoken about with my friends -- having corporations do the right thing.

Then there’s a third way, one that calls for increasing the pay of the poorest workers without government intervention, but through the free market.

It requires corporate executives to forget the lessons of finance classes and set aside their preoccupation with quarterly earnings and short-term results. It means taking the view that happier employees who care more, quit less, and work harder will, in the long term, produce better returns.

What a novel concept, but public corporations are in a hell of their own creation that requires them to view everything from a "quarterly" lens. The metrics for success don't take the long term prospects into consideration; a lot is sacrificed at the altar of YoY growth. Well, Walmart has recognized that its onus on cutting costs by under-paying employees has contributed to the decline in wages across the retail sector. In a Volte face, Walmart in 2015 increased the salaries of many of its employees. And when Walmart does something like this, the competition ought to follow...

Walmart employs one in 10 US retail workers, and one out of every 100 US private-sector employees. Just as the company forced competitors to hold the line on wages, increasing its pay is now pressuring rivals to match it.

In 2015, Walmart committed to spending $2.7 billion over two years on increased pay and better training. In April of that year, it raised starting pay for store workers, some of whom were making the federal minimum wage of $7.25, to at least $9 an hour, and bumped them up to $10 an hour the following year.

An improved customer experience is what Walmart was seeking, and it realized that the key to unlocking this change was happier employees:

Without explicitly acknowledging it, Walmart came to the same conclusion Costco and Starbucks arrived at decades ago. Paying workers more, and providing them with substantial benefits like health care and parental leave, attracts more applicants, and gives employers more choices when hiring. It also reduces turnover, which leads to more experienced employees with a greater investment in the health of the business. All of that pays off in a better customer experience, the critical component in whether shoppers return or seek out competitors.

While Walmart’s stock hasn’t returned to its pre-2015 heyday, things are looking up for the world’s largest retailer. I don't shop at Walmart but acknowledge the impact that they can have on the income gap and laud them for their efforts in this regard.

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There is a lot more in this piece about Walmart, but the aspect that the author missed was how Walmart can continue down this path while remaining competitive with Amazon. From my vantage point, the last two large retailers standing post the great retail apocalypse are going to be Amazon and Walmart. In the final fight between these super heavy-weights, the victor will be decided based on who has more channels through which consumers can acquire goods. In the red corner, there is Amazon with its store, apps, affiliates, Whole Foods and Alexa. In the blue corner, we have Walmart with its gigantic store footprint, website and Jet.com. The difference-maker in my opinion is Alexa.

If I were in Walmart's Digital leadership team, I would push for a partnership with Google Home (and every non-Alexa enabled Smart Home device maker) to compete with the Alexa-enabled retail channel that Amazon has quietly established into a powerhouse. As of last week, Google announced a partnership with Target, but Walmart (and Jet.com) have the more optimized supply chain and better prices. Maybe Google could negotiate a better deal with Target, which would be why they went with them vs. Walmart. Walmart needs to fix this ASAP.

The reality is that Amazon is practically giving Alexa devices away in a manner reminiscent of how Gillette gave their razors away. Alexa plus Amazon getting into every retail segment plus Amazon branded items plus FBA plus Prime plus ... is a multi-prong approach that will require a number of companies to band together to counter. From my vantage point, no one company can compete against this Goliath / Ser Gregor alone.