Exploiting Wal-Mart's Workforce Weak Spot

Responding to Wal-Mart doesn't necessarily mean meeting its employment standards.

January 30, 2004

Taking lessons from Wal-Mart Stores on innovative approaches to products and pricing may be a smart move for a competitor. But emulating its workforce-management practices may not be such a good idea.

    The Wal-Mart people formula goes something like this: pay low hourly wages, create conditions that invite yearly turnover in the range of 50 percent and price health benefits out of reach for large numbers of employees. Use the savings to keep prices low.

    Those who follow the company say that the clever thing for a competitor to do may be to flip the formula and place strategic importance on pay and benefits. They argue that Wal-Mart is operating on a 3 percent profit margin yet must feed the hungry beast of Wall Street expectations by producing 20 percent annual growth rates. It really can’t increase pay and benefits without cutting into its profit margin. So why don’t competitors exploit the already high turnover rate and cause even more dissatisfaction among Wal-Mart workers by paying their own employees more?

    "There is a lot of talk that conditions at Wal-Mart are creating low standards that other companies are going to have to meet--or they will perish," says researcher Roland Zullo of the University of Michigan’s Institute of Labor and Industrial Relations. "Responding to Wal-Mart doesn’t necessarily mean meeting its employment standards." Another way to go, which he sees as a clear trend among companies competing for a share of Wal-Mart’s business, "is to hire people with the idea of keeping them long term by giving them wages and benefits to match their contributions to the firm."

    Costco Wholesale and Trader Joe’s are among the companies often cited for putting good pay and benefits into their growth formula and making it work. So are Wegmans and Stew Leonard’s. "Wal-Mart is unassailable on price," says Ryan Mathews, a longtime retail consultant. "They don’t do many things wrong. Workforce management is their Achilles’ heel, if they have one. If I were in their market, I would pay my people better. I’d make sure they had better benefits. I’d make sure they were happy, and I’d make sure the entire world knew about it."

Workforce Management, February 2004, p. 34 -- Subscribe Now!