Over the course of the last year or so, wage protests have slammed retailers' reputations, leaving them open to the specter of regulations and consumer ire. Meanwhile, fiery developments have flared up this past week in Chicago. Hundreds of fast food workers have been rallying in the city in a Fight for $15 campaign. Of those, 50 have been arrested. As of Thursday evening, law enforcement had stuffed jails with about 400 of the thousands of Americans who had disrupted city streets as they expressed their needs.
Even without such dramatic news, the fact that so many citizens lack a living wage has become a flash point. Seattle has already mandated doubling its own wage minimum to $15 per hour, so the movement is clearly gaining traction.
If such laws are applied to the whole industry, some shareholders won't have to weep about a collapse in their profits and returns. That's because they have invested in retailers that have the foundation in place to shrug and go on with business as usual if minimum wage gets jacked up to $15 per hour.
Bad strategy is self-destructive
Shareholders who have shrugged off the idea that minimum wage workers deserve more for their hourly labors are in for a shock. There's a terrible predicament at hand. The possibilities of consumer defection, employee strikes and disruptions, and hard-and-fast laws lend increasing urgency -- they need to address the pay controversy with more than excuses, platitudes, and lobbying efforts.
Wal-Mart (NYSE:WMT) perfectly illustrates an economic "recovery" that has left some Americans behind -- way behind. It hasn't shown the fruits of the recovery in its own financial results, and it has helped dry up its own customer demographic.
The megadiscounter has been reporting poor sales for years, suffering from competitors like dollar stores. It has repeatedly said quarter after quarter that its customers have been pinching pennies, living paycheck to paycheck, and unable to buy beyond essentials. The strange thing is that those beleaguered people include its own employees. In fact, low wages and lack of benefits push many Wal-Mart employees onto public assistance.
For years now, Wal-Mart's been among the complacent retailers whose management (and shareholders) saw no need to run their businesses any other way. They have ignored economic realities and how some competitors were gaining competitive advantage. History even gives an example of how some companies have made everyone else look bad.
For example, let's contemplate auto giant Ford's (NYSE:F) history. Henry Ford increased employees' wages when a light bulb came on in his entrepreneurial brain. It only makes sense that one's own employees should be able to afford your product.
If consumers are the life's blood of our economy, the more who are employed with living wages, the more they can consume, bolstering all aspects of the economic engine.
Costco: the no sweat stock
Some retailers, as few and far between as they are, have insulated themselves from big changes like $15 per hour minimum wage or increased health care costs. That's because they're already in the place where more retailers might have to be.
Costco's (NASDAQ:COST) CEO Craig Jelinek has publicly supported a minimum wage hike. That's definitely kind and a great example of doing the right thing, but at this point, he and Costco shareholders can laugh all the way to the bank in the competitive sense too. Costco won't have to do much scrambling at all to adjust its business for such a reality.
According to employee review site Glassdoor, the highly rated retailer pays $11.50 per hour as a starting salary. The people who check you out in the Costco lines are compensated well in a stingy industry; cashiers pocket an average of $15.20 per hour. In addition, 88% of its employees have company-provided health insurance .
Cashiers at Wal-Mart's Sam's Club pocket an average $9.37 per hour; Target's (NYSE:TGT) cashiers, fare even worse, with $8.18 per hour .
Many retailers will have to adjust to the health care laws, and if the $15 per hour campaign turn a minimum wage hike into a reality, companies like Costco will have absolutely nothing to sweat about.
Employees are the best investment
In some ways, investors are to blame, too. Bidding up stocks on profits juiced by unsustainable strategies -- like managements ignoring stewardship of their own employees -- has created a perverse incentive to avoid things like good pay. Tons of employee-centric problems such as mass layoffs and tight corporate purse strings have put America in a position in which too many people have been left behind. Not only are they angry, but the economy suffers too. It's even given retailers' critics a logical argument, one that nobody can ignore.
Given recent developments with strikes, protests, and public outrage, we'd better think hard about who to blame. Retailers have the highest profile among minimum-wage paying companies, but the target on their backs could have been avoided by more strategic thinking. We shareholders can do some soul searching, too.
Change is coming -- the best companies are ready, their employees are happy, and their shareholders will feel great from the high road, and take it all the way to the bank.
Alyce Lomax owns shares of Costco Wholesale. The Motley Fool recommends Costco Wholesale and Ford. The Motley Fool owns shares of Costco Wholesale and Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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