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

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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

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Backdrop

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

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Growing wage inequality
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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

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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

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

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Three keys to success

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

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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

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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

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Wages graph
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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 Managers and professionals
• 6 Front-line supervisors
• 52 Sales workers
• 22 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

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Can quality service help?

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• High quality customer service requires skilled
  workers (Nordstroms, Home Depot)
• But there is also growing demand for fast,
  no-frills 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

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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

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Top ten occupations, job growth 2000-2010
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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

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Need two-pronged approach

• 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.
• Policies to pave the high road
• At industry level, create intermediary
  institutions that simultaneously address issues
  of productivity and workforce training
• Different industries need different mixes of
  these
• strategies. Retail in particular will need an
• emphasis on 1.