Wal-Mart Stores, Inc. (NYSE:WMT)’s Wage Move Mirrors Old Ford (NYSE:F) Strategy

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Wal-Mart Stores, Inc. (NYSE:WMT)’s across board wage improvement is eliciting mixed reactions among analysts. There are those who think that the retailer has just come to a point where it feels that inequality could hurt its future if it doesn’t do something about it today. Then there are those who think that Wal-Mart is driving towards greater profits with the wage raise, almost comparing the company with Ford Motor Company (NYSE:F) under Henry Ford.

Will Hutton, from the Guardian, is among the vocal voices seeing Wal-Mart Stores, Inc. (NYSE:WMT)’s wage increase move as predicated on the desire to offset inequality. Hutton goes as far as calling Wal-Mart’s $10/hour minimum wage unnecessary allocation of funds to labor. It would have been better if Wal-Mart prioritized capital investment over wage boost, Hutton suggests in his recent article.

$10/hour minimum wage

Wal-Mart initially released a program to boost minimum wages for its store associates. The retailer’s wage increase program is progressive in the sense that the initial increment was to be implemented in 2015, whereby the minimum wage rose to $9 per hour and will be rising further to $10 per hour in 2016.

In addition to sweetening wages for store workers, Wal-Mart Stores, Inc. (NYSE:WMT) also recently expanded its minimum pay boost to include more employees. Some 1.4 million Wal-Mart employees are set to benefit from the expanded pay increment.

Ford’s strategy in Wal-Mart’s wage move

A number of analysts have challenged Hutton’s perspective of Wal-Mart’s wage increase. Those who differ with Hutton say that Wal-Mart is driving towards greater profitability. For example, if the retailer can pay its workers better than rivals, it can attract and retail great talents, reduce workforce churn and inspire better customer service, all of which should have a positive impact on sales and profits at the end of the day.

It is cited that employee churn costs companies so much, which is why getting workers to stay a little longer in the company helps the bottom-line. The strategy worked for Ford, which was facing high employee training costs and related expenses. Ford solved the problem, by boosting pay for its workers and Wal-Mart Stores, Inc. (NYSE:WMT) could reap the same benefits.

Neha Gupta

Neha Gupta has been in the financial space for over six years now. Gupta earned her MBA degree from Symbiosis Centre of Distance Learning in 2009 and her passion for finance led her to pursue Chartered Financial Analyst (CFA) course. She has successfully completed Level II of her CFA. She is a veteran in article writing, which is depicted in her numerous pieces published on SeekingAlpha, Nextiphonenews, InsiderMonkey, MarketWatch, and Techinsider. Her crisp and eloquent writing finds its best place in Researchcows, where emphasis is given on developing rich content for various websites, products, business plans, trainings, and book writing.

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  • ToxMarz

    I thought Fords strategy was to pay his employees enough to be able to afford his products. Something they wouldn’t be able to do if they had to rely on public assistance for food, housing and health care even though they worked full time.

    • investcorrectly

      I think you are right too but there was multiple reasons for Ford’s move and talking points as to the positive elements. To an extent you do get what you pay for with low wages. If turnover is high, then that has an expense as well.

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