As Black Friday approaches, retailers nationwide are waiting anxiously to see whether the nation’s busiest shopping day will deliver a boost in profits. But perhaps no company has more at stake than Walmart, the shopping behemoth that was the world’s largest retailer until Amazon supplanted it in that role this summer.
Months after announcing a $1 billion investment in raising wages for its lowest-paid U.S. workers, Walmart slashed its annual sales forecast and saw its stock values plunge. Now Walmart faces more pressure than ever to perform for investors who want short-term results. But Walmart should keep its eye on long-term gains.
While raising pay for workers may cut into profits temporarily, investing in its workforce will make Walmart—and the economy as a whole—stronger in the long term. Rather than shying away from the wage increase and cutting worker hours, Walmart can redirect the billions it spends on buying back shares of its own stock and double down on its workforce investment by giving workers the $15 an hour they are calling for.
Walmart announced in February that it would raise base pay for 500,000 of its workers to $9 an hour, $1.75 higher than the federal minimum wage of $7.25. The pay increase applies to employees who have completed a six-month training period, and will increase to $10 an hour in February.
But Walmart workers are clamoring for more. After years of walking out on strike on Black Friday, Walmart workers are raising the stakes this year. To amplify their call for full-time schedules and a wage of $15 an hour, they have been fasting in the weeks leading up to Thanksgiving in an effort to highlight the hunger many Walmart underpaid workers experience regularly.
And wage hikes appear to have boosted customer satisfaction. Walmart patrons have cited improvements in customer service and in the overall shopping experience.
This should come as no surprise: Research shows that better staffing practices lead to higher sales volumes, because customers can count on stocked shelves and knowledgeable employees. Investing in front-line services would arguably increase consumer spending at Walmart’s stores and ultimately improve company performance.
Hiking wages can boost sales for another reason as well. When families living close to poverty receive an extra dollar in pay, they tend to spend it immediately on goods or services that were out of reach before. This increase in demand in a still-depressed economy can lift sales at Walmart itself.
What’s more, given the company’s status as an industry leader and the tremendous size of Walmart’s workforce—1.4 million U.S. employees, including an estimated 825,000 workers who are paid less than $25,000 a year—further raising pay at Walmart would help exert upward pressure on the nation’s stagnant wages overall, further stimulating demand across the economy.
The bottom line: Walmart’s current wage increase—while helpful—won’t be enough to turn Walmart workers into robust consumers. In an analysis in September, Demos researcher Sean McElwee and I found that even with pay hike to $10 an hour, Walmart wages would still not provide enough income to support the basic needs of a single adult working Walmart’s full-time schedule of 34 hours per week, in any state in the country. Even if they are able to secure extra hours, workers still don’t have enough to afford the basics for their families.
Can Walmart really afford a $15 wage increase? It can if company executives dip into the substantial pool of money Walmart has allocated to repurchase shares of its own stock. Share buybacks, as they are called, reduce the number of shares traded on the market so that the same level of earnings are distributed over fewer owners, making each remaining share worth more. To bolster its stock price, Walmart recently authorized $20 billion for share repurchases in 2016 and 2017. But share buybacks do nothing to strengthen the company’s productivity or bottom line.
If Walmart redirected the $10 billion per year it has authorized for buybacks toward investment in human capital, it could provide its 825,000 lowest-paid U.S. employees a raise of as much as an additional $7.67 per hour without raising consumer prices by a penny. On top of the $10 an hour Walmart has already committed to, this would more than pay for the $15 an hour Walmart workers are calling for.
Walmart can afford to deliver. Indeed, one of the company’s own ads proclaims: “A raise in pay raises us all.” Now the only question is whether Walmart is prepared to truly stand behind that statement.