The Ups and Downs of Walmart

Walmart had a lot of big news yesterday. 

The giant retailer, which faces stiff competition for qualified workers in a tight labor market and pressure from unions to increase wages, said it would raise its minimum starting wage to $11 an hour, from $9. It will also expand maternity and family leave benefits, and give bonuses of up to $1,000 to eligible employees.

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They credit the tax cuts for being able to do this, and the move was celebrated all over the country, many touting it as a victory for the tax cuts.

But also yesterday... the Sam's Club two miles from my house decided not to open it's doors. Employees showed up as usual for work only to be greeted by a sign stating the store was closing. They clarified that the store will officially close in two weeks, but yesterday the doors did not open, leaving customers confused in the parking lot and employees wondering what was going on with their jobs. This same scenario played out across the country at 63 different locations. 12 of those locations will be turned into e-commerce fulfillment centers. 

Now, a lot of people are claiming that Walmart is shuttering their Sam's Club locations to pay for the upgrades at their standard Walmart locations. Let's discuss. 

- Walmart owns several businesses including Sam's Club and the Walmart Neighborhood Markets. Sam's Club and the Markets are not doing real well for various reasons. The standard Walmart stores and their online store are fairing much better. 

- After the closure of the 63 Sam's Club locations, 597 locations will remain. The upgrades and bonuses will also affect the workers in those remaining Sam's Club locations. (you can see the list of closures here)

- When a company owns several businesses, they don't usually tie in together. Meaning, when they do their books and figure out losses, gains, etc., they are figured as separate businesses instead of one big business. A company can have six different businesses and still thrive in five of them when one fails. Making cuts to one business is generally not going to roll over into the other businesses, unless they want to create a huge accounting nightmare. Of course, due to similar practices, you can run all six into the ground at one time. Sears and Kmart are a great example. Bad business practices ran Kmart into the ground right along with Sears, even though the business models were different and Kmart was a new acquisition. Companies will often cut failing businesses loose or close them up before they do start affecting the bottom line at other businesses owned.

- With all that said, some things are going to cross over. Such as the pay and maternity leave upgrades and the bonuses. As was stated earlier, these things are going to be available to both Walmart and Sam's Club employees. Did the closure of the 63 Sam's Club locations assist with that becoming a reality? I don't know without looking at their books. 

- Judging from the Sam's Club location near me, it was doomed. Ours is fairly new, and as stated, it is on the closure list. In our area, the market is over saturated. Sam's Club has a wonderful location compared to their competition, but they don't boast many other benefits. Only a few miles away there is a BJ's Wholesale Club, which was established earlier than the Sam's Club. Their gas prices are regularly better, and the store itself has coupon booklets it sends to members, and also accepts non-club coupons. Sam's Club does neither. On the other end, on another pretty heavily traveled highway, we got our very own Costco. That opened within the year. Granted, they are not as easily accessed by the folks who use Sam's Club as they are fairly far away from each other (it's probably a good 30 minute drive during moderate traffic, and it isn't worth it during rush hour). But again, their gas prices are usually better, and they are within easy reach of heavily used shopping centers and a major hospital. Costco also has a heck of a reputation, and on the weekends it's like a demolition derby inside. Sam's really can't compete with either the BJ's or the Costco. And when the Costco opened, a lot of people migrated over. I would assume prices and business practices probably played a roll across the Sam's locations. 

- The Sam's Club employees from the closing locations are getting a 60 day severance and the one time bonus of $1000. Walmart also claims that they are trying to relocate some of those employees to other Sam's Club locations. 

So is the shuttering of 63 Sam's Club locations a cause of the upgrades to Walmart's pay and leave policy? I don't know. It might play some roll, but when you consider the amount of stores closing is really not as significant as you would think - 597 locations are not closing, 63 are, with 12 becoming e-commerce centers that will need employees - it makes you think the two are not related. If they had decided to do away with Sam's Club, or closed half or more of their locations, it would be a wonder if that were the case. And while 63 locations means a lot of lost jobs, in the big picture, it isn't significant enough to affect pay and leave in other Walmart businesses (it is also unclear how many employees are actually losing jobs instead of being relocated). The new pay and leave will cost Walmart an estimated $700 million. 

Why, then, is the Sam's Club closures stopping the Walmart "victory lap" in their pay raises and leave practices? Because they apparently politicized it, which set everyone off. The two announcements were made on the same day, and the good news was credited to the tax cuts. Walmart praised the tax cuts:

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AP Photo/Sarah Bentham

“Tax reform gives us the opportunity to be more competitive globally and to accelerate plans for the U.S.,” Chief Executive Officer Doug McMillon said in Thursday’s statement.

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And critics took the angle of the Sam's Club closings as being the bigger issue. Had Walmart not mentioned the tax cuts, the reaction to the closures may have been different.