You get what you pay for

If you’ve been into a Walmart in the past few years, there’s a good chance you were disappointed in your experience. You weren’t the only one — Walmart’s management agreed with that sentiment.

The New York Times recently reported, “Shoppers were fed up. They complained of dirty bathrooms, empty shelves, endless checkout lines and impossible-to-find employees. Only 16 percent of stores were meeting the company’s customer service goals.” To boot, Walmart’s same-store sales numbers had dropped for five quarters, and total revenue actually dipped for the first time in the chain’s history.

walmart-check-outSource: https://www.flickr.com/photos/walmartcorporate/5684720360

During that time, I was making the rounds of Walmart stores to check on new items my company had in distribution. I’d often pick up household necessities while making those visits, and I continually had a hard time finding common items. I remember looking for diapers for my daughter and found vast swaths of items to be out-of-stock. For the variety of diapers we used in my daughter’s size, I had to borrow a mop from a nearby aisle and climb up onto a shelf to sweep the very last box available off that shelf. And there was no one around to help me.

What was less visible to shoppers was the intense cost-cutting measures behind the scenes. Walmart’s wages had dropped to a point where they could not attract quality employees, nor did they staff enough of them. They even eliminated the famous greeters that had graced the entrances to its stores for more than three decades. Founder Sam Walton would not have been pleased — he championed the idea of greeters and thought they had many benefits: to make Walmart shoppers feel special and well treated so they would return, and to prevent shoplifting in a benign rather than tough-cop way. (Walton’s autobiography touches on this topic and much more of his thinking.)

Once they saw the balance sheets, however, Walmart’s management realized they had cut too deep. In a video-feed address to its 1.2 million U.S. employees on Feb. 19, 2015, Walmart CEO Doug McMillion said, “Sometimes we don’t get it all right. Sometimes we make policy changes or other decisions and they don’t result in what we thought they were going to. And when we don’t get it right, we adjust.”

And adjust they did. Over the past 18 months, Walmart’s average non-managerial wage has increased 16 percent compared to 2014. For a price-driven retailer, that’s not trivial.

Though not discussed in the NYT piece, Walmart took an unprecedented step to move some financial burden to its vendors at the same time it announced that it would be increasing wages.  Payment terms were extended from typically 10 days to as much as 90 to 120 days, with an “early payment” discount of 2% still applying.  Additionally, new fees of 1% to hold inventory in Walmart warehouses were instituted, along with a one-time charge of 10% of the value of inventory shipped to new Walmart stores and DCs.

Employees are undoubtedly happy to have higher pay. Walmart also made moves to allow greater scheduling flexibility and better access to training for more opportunities for advancement, hence even higher wages. The goal is to help employees feel part of an organization that respects their work. I suspect this will lead to higher employee satisfaction scores. And, yes, same-stores sales have started growing again.

This mirrors findings from some of my past professors’ research, which found that employee satisfaction leads to customer satisfaction, which in turn leads to improved sales. To connect the dots: as employees become happier, sales become better (notwithstanding the increased employee shopping at Walmart, now that they’re making more money).

There’s a point when cost-cutting goes too far, and Walmart clearly found that point. Nearly unique among huge companies, though, is the speed at which it took action to make a change and reap the benefits.

As a result, I haven’t had to climb any shelves lately to grab a lonely box of diapers. Happier, better-paid employees are more available around the store. Greeters are back. Walmart is getting what they are paying for.

Manufacturers: If you supply (or aspire to supply) retailers like Walmart, it’s important to know that when you sit across the desk from a retail buyer on a sales call, they might have a lot more going on than is apparent on the outside. During the time I called on Walmart when they were cutting costs, it wasn’t perfectly clear to me as an outsider that they were feeling pressured and, in retrospect, it was an enormous burden on the people I was meeting with.

When you have your meetings, can you probe to find out what your buyers are challenged with? Can you help them meet their goals and not just yours?