Business Strategies and Employment Practices of Wal-Mart and other Mass Retailers Annette Bernhardt...
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Transcript of Business Strategies and Employment Practices of Wal-Mart and other Mass Retailers Annette Bernhardt...
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
Backdrop
1. Economic pressures on employers• Globalization of capital markets and production• Advances in information technology• Changes in financial markets
2. 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
Growing wage inequality
Change in wage percentiles for U.S. men, 1973-2002
10th percentile30th percentile
50th percentile
70th percentile
90th percentile
0.80
0.85
0.90
0.95
1.00
1.05
1.10
1.15
1.20
1.25
1.30
1973
1975
1980
1985
1990
1995
2000
2002
Inde
x (1
973=
1)
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
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
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: 1. buying products from manufacturers
2. distributing them to the retail stores
3. selling them to customers
Three keys to success
1) Technology: Integrated inventory management• Barcode at cash register• Real time inventory updates• Linked back to warehouses and suppliers• Automatic replenishment
2) 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-Mart’s IT systems
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
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
Wages graph
Hourly wages of non-managerial retail workers (in 2002 dollars)
Wages as percentof private sector
average
Hourly wages
$0
$2
$4
$6
$8
$10
$12
$14
$16
$18
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
70%
75%
80%
85%
90%
95%
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
Can quality service help?
• High quality customer service requires skilled workers (Nordstrom’s, Home Depot)
• But there is also growing demand for fast, no-frills service and cheap products (McDonald’s, Wal-Mart)
• These two definitions of “good service” have led to segmentation of industry and job quality – and this is unlikely to change
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
Top ten occupations, job growth 2000-2010
Job growth
Quartile rank of wages
Skill requirements
Food preparation and serving workers, including fast food
673,000 4 Short-term on-the-job training
Customer service representatives
631,000 3 Moderate-term on-the-job training
Registered nurses 561,000 1 Associate degree
Retail salespersons 510,000 4 Short-term on-the-job training
Computer support specialists 490,000 2 Associate degree
Cashiers, except gaming 474,000 4 Short-term on-the-job training
Office clerks, general 430,000 3 Short-term on-the-job training
Security guards 391,000 4 Short-term on-the-job training
Computer software engineers, applications
380,000 1 Bachelor’s degree
Waiters and waitresses 364,000 4 Short-term on-the-job training
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
Need two-pronged approach
1. 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.
2. 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 thesestrategies. Retail in particular will need anemphasis on #1.