Why Should Wal-Mart Pay More?

Wal-Mart's (NYSE: WMT  ) plans for expansion in Washington, D.C., took a hit yesterday.

The world's largest retailer abandoned its proposal to open three stores and is weighing its options for three other sites that are currently in construction after the D.C. City Council passed the Large Retailer Accountability Act of 2013 last night.

Under the new act, any chain with at least $1 billion in sales and stores greater than 75,000 square feet must pay 50% more than the minimum wage for D.C. locations.

Wal-Mart was the target all along. Unionized businesses are exempted from the new requirement, and non-unionized chains that already have a presence in D.C. -- including Macy's (NYSE: M  ) and Wal-Mart rival Target (NYSE: TGT  ) -- have four years to comply.

Asking Wal-Mart to shell out at least $12.50 an hour while the competition can get away with the minimum of $8.25 an hour is controversial. Your political bent probably dictates how you feel about the measure.

However, could this have flown if any other retailer than Wal-Mart was being targeted? Let's face it: The public generally has a poor opinion of the mammoth superstore chain. The retailer may claim that 60% of the country shops at Wal-Mart in any given month, but it's a popular target for union-backed protests. Wal-Mart also isn't cool, unlike Target -- or Tar-jay -- with its "cheap chic" appeal.

Wal-Mart rolled out a new ad campaign two months ago. "The Real Walmart" series of ads showcasing shoppers, employees, and suppliers was done to help spruce up the discounter's image.

Can you imagine any other retailer having to put out commercials pointing out how 75% of store management began as hourly associates or that quarterly bonuses are paid out at well-performing stores?

Wal-Mart is held to a different standard, even though the retailer is one of the more generous chains when it comes to passing on savings to customers. The company's gross profit margin over the past four quarters is 24.8%, well below Target's 31.1% take. Traditional department store chains go for ever larger markups above what they pay for goods, hence Macy's clocking in at 39.9%.

We don't know how the dynamics would have played out if Wal-Mart had bit its lip and decided to play along. Would entry-level workers have flocked to apply at Wal-Mart, forcing smaller chains to boost their wages to stay in business? How high would product prices go to offset the increases in labor costs? Would the benefit of having more minimum-wage workers with 40-hour workweeks making $26,000 a year instead of $17,160 be enough to offset the higher standard of living?

These are questions for the political talk shows to tackle. For now, Wal-Mart's plans to expand in an attempt to accelerate sales growth from last year's modest 5% uptick have hit a roadblock -- and nobody wins that way.

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  • Report this Comment On July 11, 2013, at 11:54 AM, DrP79 wrote:

    If the public has a poor opinion of Wal-Mart, and that is itself debatable, it is because of false information provided by those who wish to harm its reputation.

    Even the title of this article is misleading. There is NO justifiable reason for forcing one retailer to pay a certain wage that is different than others, even if one accepts the premise of a minimum wage in the first place.

  • Report this Comment On July 11, 2013, at 6:06 PM, xetn wrote:

    The remark about "political bent" is completely stupid. It is an economic issue. An employer is not in business to over pay for anything. An employer will only hire the next employee based on what he expects the employee to contribute.

    Walmart is already probably overpaying at $8.25. Just go to a Walmart and see the "great productivity of its employees".

  • Report this Comment On July 11, 2013, at 6:31 PM, ScottPletcher wrote:

    The political remark is NOT stupid: you forget that socialists / marxists, such as those on the D.C. council, actually believe that govt dictating unsoundly high wages is a good thing. Yes, that's stupid and false, but it's what they really believe. They just don't understand private economics.

    The sad thing is that D.C. residents will be hurt, at least two ways: they can't get good prices or jobs from local Wal-Marts. As usual, intended govt "help" causes far more harm than good.

  • Report this Comment On July 11, 2013, at 6:40 PM, Coquant wrote:

    Interesting that there is often a consolidated effort to block stores, yet after they open the parking lots are always full.

    Seems as if the elitists have a difficult reconciling with their constituency--those without skills that need a job, and those who need choices in where they shop.

    Wal-Mart in DC would provide both.

  • Report this Comment On July 11, 2013, at 7:00 PM, SwiperFox wrote:

    You all can bray all you want. I'll keep taking my business to Costco. I guess I'm just "elite" that way.

  • Report this Comment On July 11, 2013, at 7:08 PM, TheDumbMoney wrote:

    Not only was this a mean-spirited targeting of one company, but it was a bait-and-switch. WalMart was wooed for years by D.C. Then after it had signed leases and began construction of three of six stores, the D.C. City Council pulled this. The assumption was that Walmart had enough sunk costs by that time that it would have no choice but to proceed. And it may still have to with the three stores it has started on. But the other three or dead, and you can be sure it will evaluate whether the existing three can compete with Targets that are exempted from this law for three years. It seems like a really devious act by the City Council, a true bait-and-switch, whatever one may think of Walmart.

  • Report this Comment On July 12, 2013, at 1:08 AM, kmtominey wrote:

    What Walmart does is break their word to communities once they are in and run up social program costs by helping their underpaid part timers get rent subsidies, food stamps and onto medicaid. They are not worth what they cost a community.

  • Report this Comment On July 12, 2013, at 9:08 AM, roadslide wrote:

    it's a democrat thing, walmart you get 40 lashes...

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