The Strategist

Wal-Mart Game Changing Move Against Rival Retailers

03/12/2015 - 19:06

Wal-Mart has taken a remarkable step to increase wages for its 500,000 employees.

Wal-Mart Stores started experimenting with its business model under the leadership of former CEO Mike Duke. However, his insignificant efforts were unable to turn the tide. Doug McMillon, who became the new CEO of the company in 2014, is expected to adopt aggressive strategies to boost Walmart’s growth. His development policy includes additions to small-format stores and expanding the e-commerce presence of Wal-Mart. And in the first month of his leadership, the company announced opening up of 270-300 small format stores in FY 2015 which was much higher than the earlier plan. The company is likely to expand its operations by opening 180-200 neighbourhood markets.

 Most striking step is the latest announcement of Wal-Mart to spike wages for its low level workers. This step has sent a wave of surprise across the retail and fast food sectors. The company announced that it would increase the minimum wages to $9 per hour in 2015 and $10 per hour in 2016. The decision came up in the situation of tight labor market where less-skilled workers can easily shift between different retailers as well as fast food chains. The company took this decision with the aim to improve its lagging customer services.  However, this announcement has increased pressures over companies like, Target and Gap.

Off late, Wal-Mart has been witnessing a stagnant profit growth. The company recorded an underlying EPS of $5.07 in FY 2015, which was slightly lower than $5.11 EPS reported in FY 2014 and was considerably lesser than its EPS guidance of $5.10-$5.45.

During the last year, when Gap Inc. hiked the minimum wages at $9 per hour and claimed to increase it to $10 per hour in 2015, many workers switched from Wal-Mart to the apparel retailer. Now, the step taken by Wal-Mart will help the company to decrease the worker’s turnover and will further build up pressure on Target. However, Target will be required to take necessary steps in order to retain its staff. The Target officials said that the company has always been following the policy of attracting and retaining talented resources and hence provides the employees market competitive hourly rates. However, the companies Target, Wal-Mart and Staples are almost paying their low-skilled employees nearly the same hourly rate.

The surprising step taken by the largest retailer in the world has proved that the future cannot be won with the help of prices and convenience rather with best services and good experiences. Higher pays encourages the worker to offer better services thereby giving the consumer a richer experience.

In today’s world, the consumer wants to spend their precious time and money in companies that value customer relationships. Wal-Mart’s step towards investments in better services is a clear indication of the new economy, in which consumers require exceptional experiences. Though the impersonal experience are unable to compete with the e-commerce. However, establishing a connection with the consumers is very essential for success of any brand. Yet, the prospects of an experience driven retail business is highly positive.       

Tags : Wal-Mart