Walmart surprises with industry-leading change to wages

Walmart has changed its hourly pay for some newly hired workers.

Sep 9, 2023 - 22:30

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Walmart surprises with industry-leading change to wages

Walmart (WMT) - Get Free Report is a retail Goliath. About 230 million customers shop at Walmart every week and the company generates $1.5 billion in sales every day.

The company’s size means it relies heavily on its 2.3 million workers. It also means that when Walmart makes decisions on employees’ pay, many competitors follow its lead.

Unfortunately, Walmart’s latest decision may not make workers happy.

Walmart navigates recessionary worry

Walmart weathered the Covid crisis relatively better than many retailers. While lockdowns impacted the U.S. economy, Walmart’s online retail sales surged, rising from $25 billion to $65 billion in 2021. In the fiscal year ending January, e-commerce revenue eclipsed $80 billion.

The company’s increasing e-commerce penetration has lifted its online market share above 6.3% in 2022, according to Statista, ranking it the second-largest e-commerce retailer behind Amazon.com (AMZN) - Get Free Report, which had a commanding 37.8% share.

The online push helped insulate the company in 2022 when supply disruptions and surging inflation caused sales and profit to sour. Walmart has since worked down excess inventory and refocused its business toward non-discretionary items, like groceries.

The moves helped sales grow in the 2022-2023 fiscal year, but adjusted earnings per share slipped to $6.29 from $6.46 in the fiscal 2021-22 year, increasing pressure to cut costs to improve profitability.

Investors are bullish on the company. The shares are up 15.5% in 2023. That's eighth among the 30 stocks in the Dow Jones Industrial Average (^DJI) - Get Free Report, which is up only 4.3%.

Walmart takes aim at wages

Walmart has long opposed unionization, and reports of low pay causing workers to rely on welfare programs have attracted national attention in the past.

The retailer has made strides to improve its reputation, voluntarily increasing pay and benefits for many workers. Those moves helped it compete for employees in 2020 and 2021 when many left the workforce because of Covid.

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Nowadays, the situation is different. Economic uncertainty has reduced worker competition, and increasing job applicants are reducing the pressure to pay increasingly higher wages.

In July, Walmart responded to the changing labor market with a decision that will likely frustrate many would-be workers.

According to The Wall Street Journal and other news outlets, new applicants for some Walmart jobs will receive $1 per hour less than what they would have earned if they had been hired earlier this year.

Specifically, those hired to fulfill online orders for curbside pickup and restocking shelves will receive a lower hourly rate.

Walmart hasn’t said how much the cost-cutting move will save, but it’s likely meaningful given how many employees work there. In 2021, Walmart said it employs 425,000 people in its digital and stocking workgroups, with starting pay ranging from $13 to $19 per hour, depending on store location and market.

Wall Street analysts estimate that Walmart's earnings will grow 3% this year to $6.45 a share and 10% next year to $7.09 a share.

Walmart’s decision to trim wages for select workers could be a harbinger of things to come across retail.

If key competitors like Target (TGT) - Get Free Report follow suit, new workers could find themselves in a tough spot, given headline inflation increased by 3.2% over the past year in July.

The prospect of a smaller starting wage and a higher cost of living will likely strain household budgets for impacted workers, particularly once student loan payments, which had been paused because of Covid, restart on October 1.

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