Business Strategies and Employment Practices of Wal-Mart and other Mass Retailers

Annette Bernhardt Brennan Center for Justice at NYU School of Law

Prepared for the 56th Annual Meetings of the Industrial Relations Research Association, 2004

Backdrop
1. Economic pressures on employers
Globalization of capital markets and production Advances in information technology Changes in financial markets

2. Institutional changes
Deregulation of industries Decline in unions Decline in minimum wage

Have resulted in:

Reorganization of work and production On net, deterioration of front-line jobs

Growing wage inequality

Change in wage percentiles for U.S. men, 1973-2002
1.30 1.25 1.20

90th percentile

Index (1973=1)

1.15 1.10 1.05 1.00 0.95 0.90 0.85 0.80

70th percentile 50th percentile 10th percentile 30th percentile

1973

1975

1980

1985

1990

1995

2000

2002

Retail trade
18% of workforce (23.3 million workers) Low wages, few hours, few benefits, little training

Major segments are:

Hard

goods: department stores, specialty stores, mass discounters

Food:

supermarkets, upscale grocers, mass discounters

Upheaval in the industry

Strong increase in competition has led to an intense focus on cost-reduction

Industry maturation: the overstoring of America

Two new market entrants: category killers (Toys-R-US) and mass discounters (Wal-Mart)
Rapid consolidation of the industry no more mom-and-pop stores Increased power of shareholders in the stock market

The Wal-Mart model

Immense coordination problem:
Tens of thousands of products
Shipped to more than 3,000 stores via 103 distribution centers Stores manned by a million workers serving more than 100 million customers weekly (domestic)

The answer: Just-in-time linking of:

1. 2. 3.

buying products from manufacturers distributing them to the retail stores selling them to customers

Three keys to success

1) Technology: Integrated inventory management
Barcode at cash register Real time inventory updates Linked back to warehouses and suppliers Automatic replenishment

2) Relationship with suppliers

Focus on core set of manufacturers Cut out middle men Relentless pressure for bigger discounts Require help in delivery and stocking products Require integration into Wal-Marts IT systems

Keys to success, continued.

3) No investment in front-line workers
Starting wages $6-$7 per hour; yearly raises 25 to 30 cents an hour
Even department heads start at only $8/$9 an hour Chronic understaffing Full-time is defined as 28 hours/week: allows Wal-Mart to increase the hours without hitting up against the mandatory over-time limit Health benefits: workers must contribute 40% There is no pension plan; stock options plan hollow Virulently anti-union: growing evidence of wage & hour and labor law violations

Upshot
Wal-Mart emphasizes reengineering process, not the workplace The model is extremely efficient, productive, profitable

Wal-Mart outperforms other retailers on almost every measure of productivity, sales, and profits Has had profound impact on industry practice, throughout the supplier chain Now the biggest private employer in the country Near monopoly status in hard goods

Wages graph
Hourly wages of non-managerial retail workers (in 2002 dollars)
$18 $16 $14 $12 85% $10 $8 $6 $4 $2 $0
1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

95%

Hourly wages
90%

Wages as percent of private sector average

80%

75%

70%

Lack of career ladders

Lean hierarchy:

Typical Wal-Mart store: one store manager, four assistant managers, 200 hourly workers
In 2002, general merchandise stores had:
6% 6% 52% 22% Managers and professionals Front-line supervisors Sales workers Office and administrative support

Increasing external hiring of managers

Retailers train workers an average of seven hours, putting the industry last among 14 business sectors

Can quality service help?

High quality customer service requires skilled workers (Nordstroms, Home Depot) But there is also growing demand for fast, nofrills service and cheap products (McDonalds, Wal-Mart) These two definitions of good service have led to segmentation of industry and job quality and this is unlikely to change

Can new technology help?

Technology has had a major impact on industry But effect has primarily been on back-end of retail operation

Has not affected the actual work that sales workers do, has not increased demand for skill
Store

workers still ring up sales, stock and neaten shelves, and handle lay-aways

Top ten occupations, job growth 2000-2010

Job growth Food preparation and serving workers, including fast food Customer service representatives Registered nurses Retail salespersons Computer support specialists Cashiers, except gaming Office clerks, general Security guards Computer software engineers, applications Waiters and waitresses 673,000 631,000 561,000 510,000 490,000 474,000 430,000 391,000 380,000 364,000 Quartile rank of wages 4 3 1 4 2 4 3 4 1 4 Skill requirements Short-term on-the-job training Moderate-term on-the-job training Associate degree Short-term on-the-job training Associate degree Short-term on-the-job training Short-term on-the-job training Short-term on-the-job training Bachelors degree Short-term on-the-job training

The lesson
The absence of high-performance does not mean lack of performance Alternative strategies have emerged, which do not emphasize human resources but which are nevertheless highly efficient and profitable Non-market intervention will be needed to shift retailers and other service firms away from the Wal-Mart model

Need two-pronged approach

1. Policies to shut off the low road:

(Re)create the legal structures that set the ground rules for what employers can and cannot do i.e. wage floors, right to organize, pay or play health insurance, etc.
At industry level, create intermediary institutions that simultaneously address issues of productivity and workforce training

2. Policies to pave the high road:

Different industries need different mixes of these strategies. Retail in particular will need an emphasis on #1.