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Why Wal-Mart Needs More Workers

By Alyce Lomax - Apr 6, 2013 at 10:00AM

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The discount giant’s showing an investing danger -- and an American danger, too.

The U.S. economy continues to struggle with some negative drags, not least of which is the still-high 7.7% unemployment rate. Many companies are fearfully sitting on cash or reluctant to hire more workers because of economic uncertainty when, in fact, more employed people are exactly what we need to get the economy going again.

Discount giant Wal-Mart (WMT 1.97%) employs a mind-boggling 1.3 million Americans. Although Wal-Mart currently has 120,000 fewer workers than it did in 2008, it's increased its store count by 455.

Now Bloomberg has reported that a large number of Wal-Mart customers are complaining of empty shelves, cashier shortages, and long lines that make life frustrating. In some cases, these disgruntled customers have started shopping elsewhere because they couldn't find the items they needed or couldn't tolerate the time it took to check out.

In response, a Wal-Mart spokeswoman told Bloomberg, "The premise of this story, which is based on the comments of a handful of people, is inaccurate and not representative of what is happening in our stores across the country." Bloomberg's data referred to 1,000 emailed customer complaints from all over the United States.

If you think about it, the idea that things may be going awry at many Wal-Mart stores is perfect common sense. If there's hardly anybody to do the work, of course lines build up and products are missing from shelves. In addition, the overworked employees are also probably not jazzed about their situation.

It sounds as if Wal-Mart definitely needs more employees, or else it could lose serious market share. Discounts are far less attractive when they mean wasted time, effort, and even money.

The fall of the falling prices
How could Wal-Mart come to this?

The company faltered during recessionary times, struggling to boost sales even when its low prices should have drawn more customer traffic. Some of its low-income, bargain-hunting customers traded down to dollar stores, and other big-time competitors, including Costco (COST 1.24%) and Target (TGT 2.41%), probably also lured some customers away.

Although some signs recently implied a possible turnaround at Wal-Mart, well, think about it. It's looking better after it fought mightily to kick its American business back into gear and get sales growing again several years ago. It looks as if profitability is being juiced by squeezing workers, not to mention possibly skimping on having enough labor to adequately man all stores.

Meanwhile, Costco has done just fine during tough economic times. In its most recent quarter, membership revenues increased 15%, implying that its customers are still pretty happy with its service and willing to pay for the privilege of stocking up there.

Speaking of which, Wal-Mart-vs.-Costco consumer sentiment heated up last fall because of Wal-Mart's low wages and shoddy benefits for its employees, resulting in labor union campaigns. Costco is a crown jewel in retail in terms of offering its employees living wages and good benefits; Wal-Mart, Target, and Kohl's all skimp on pay. According to independent IBISWorld research compiled in 2011, the latter three paid per-hour wages of $8.81, $8.13, and $8.02, respectively.

A big worry for Wal-Mart
Investors should be very worried by implications that Wal-Mart's squeezing productivity out of its workforce -- it's ultimately not good for workers, frustrated customers, or long-term shareholders. On an even higher level, Americans should be outraged because more companies should do their best to start hiring right now, since that's the only way our real economy will improve: People need jobs in order to spend. It's that simple.

Wal-Mart is a truly behemoth company. Surely it can figure out ways to hire more people and give them wages and benefits that will help chip in for a healthier economy for everyone, including its own business. If it doesn't, it's simply a short-term-minded dinosaur in the making, and eventually investors will feel the long-term ramifications, such as increased customer defections and a sullying of the brand forever.

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Stocks Mentioned

Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
WMT
$128.48 (1.97%) $2.48
Target Corporation Stock Quote
Target Corporation
TGT
$167.14 (2.41%) $3.94
Costco Wholesale Corporation Stock Quote
Costco Wholesale Corporation
COST
$470.76 (1.24%) $5.77

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