Not even Wal-Mart is ruthless enough for Wall Street

As ruthless as Wal-Mart is, Wall Street has decided the retailer is not ruthless enough. Incredible though it might seem, financiers have been punishing Wal-Mart in part because the company has raised its minimum wage to $9 an hour.

Plans to increase slightly abysmally low pay and invest more money on Internet operations have Wall Street in an ornery mood because profits might be hurt. Is Wal-Mart Stores Inc. about to cease being a going concern? Hardly. For the first three quarters of this year, Wal-Mart has racked up a net income of US$11.8 billion — and the holiday season isn’t here yet. For the five previous fiscal years, the retailer reported a composite net income of $80.2 billion.

Alas, this isn’t good enough for Wall Street and its “what did you do for me this quarter” mentality. Traders have driven down the price of Wal-Mart stock by more than one-third in 2015, and a public statement on October 14 by the company that its earnings might be a little lower next year prompted the biggest one-day fall in its stock in 25 years.

Wal-Mart employees are joined at a rally by Reverend Billy and the Church of Stop Shopping in Vallejo, California (photo via Brave New Films)

Wal-Mart employees are joined at a rally by Reverend Billy and the Church of Stop Shopping in Vallejo, California (photo via Brave New Films)

Wal-Mart did attempt to offset that news by also announcing a new $20 billion buyback of shares, but not even blowing that kiss to financiers served to lift their moods. (A stock buyback is when a company buys its stock from shareholders at a premium to the trading price, which gives an immediate bonus to the seller and reduces the number of shares that divvy up the profits; news of this sort ordinarily sends financiers into paroxysms of ecstasy.)

This is the company that is the most ruthless in accelerating the trend of moving manufacturing to the locations with the lowest wages, legendary for its relentless pressure on its suppliers to manufacture at such low cost that they have no choice but to move their production to China, or Bangladesh, or Vietnam, because the suppliers can’t pay more than starvation wages and remain in business.

This is a company that pays it employees so little that they skip meals and organize food drives; receives so many government subsidies that the public pays about $1 million per store in the United States; and is estimated to avoid $1 billion per year in U.S. taxes through its use of tax loopholes.

We live under an economic system that is so insane that this has now been deemed by financiers to be insufficiently brutal.

The stack of billions is never high enough

How much further down can people be pushed? And when has so much money been amassed that even the most greedy are satiated? The answer to the first question has yet to be answered, but the answer to the second question seems to be “never.”

The four heirs to the Wal-Mart fortune are collectively worth $161 billion — they are the world’s richest family, richer even than the Koch brothers. The four are each, individually, among the 12 richest people on Earth. The Walton family pocket billions every year just from dividends — their company paid nearly $6.4 billion in dividends in 2014 alone, and the Walton family owns half the shares. The company spent another $6.1 billion in 2014 on buying back its stock. That’s $12.5 billion in one year handed out to financiers and the Walton family.

So it would seem that Wal-Mart could afford to pay its employees more.

Although the company said part of the pressure on profits will come from investments in building a larger Internet presence, it largely blamed its expected dip in profits on two planned boosts in pay, first to $9 an hour this year and then to $10 an hour in 2016. Reuters reported it this way:

“Wal-Mart Chief Executive Doug McMillon said a $1.5 billion investment in wages and training, including raising the minimum store wage to $10 an hour from $9, were needed to improve customer service and would account for three-quarters of the expected 6 percent to 12 percent drop in earnings per share next year.”

One and a half billion in wages and training for an unspecified period of time. Remember, this is a company that averages $16 billion in net profit per year. And in almost half the states of the U.S., mandatory minimum-wage raises would have forced stores in those states to raise the wage anyway.

Or to put this another way, the raises to $10 per hour — assuming the stated cost to the company is real — could be fully funded by cutting what the company spends on stock buybacks by one-quarter.

But it’s never Wall Street’s turn to cut back, is it?

No toleration of employee defense

Jess Levin, communications director for Making Change At Walmart, a campaign to advocate for Wal-Mart employees backed by the United Food & Commercial Workers, noted that pay raises could easily be offset by cutting hours:

“Walmart should be ashamed for trying to blame its failures on the so-called wage increases. The truth is that hard-working Walmart employees all across the country began seeing their hours cut soon after the new wages were announced. The idea that this truly drove down Walmart’s profits is a fairytale.”

What isn’t a fairy tale is Wal-Mart’s attacks on any attempt at organizing its stores. An In These Times report noted:

“A massive array of strategies has been tested, with little success: organizing department by department (when butchers at a Texas store voted for the union, Walmart eliminated all its butchers); organizing in Quebec, where laws favor unions (Walmart closed the store); organizing in strong union towns, like Las Vegas (several campaigns failed after supervisors intimidated a majority of workers out of unionizing).”

There are real-world consequences to these developments. A 2007 study by the Economic Policy Institute found that Wal-Mart alone was responsible for the loss of 200,000 U.S. jobs to China for the years 2001 to 2006, with Wal-Mart accounting for two-thirds of all U.S. manufacturing jobs lost during that period. Wal-Mart more recently has begun shifting manufacturing to countries like Bangladesh that are low-cost alternatives to China.

The Institute for Global Labour and Human Rights reports that garment workers in Bangladesh earn between 33 and 42 cents per hour, or up to $20 for a six-day, 48-hour work week. On the backs of those super-exploited workers, and on the backs of exploited store and warehouse employees, arise the fabulous wealth of the Walton family, Wal-Mart executives and financiers. Doug McMillion, the Wal-Mart chief executive officer, was paid $25.6 million for 2014 — or 24,500 times more than a Bangladeshi sweatshop worker working for a Wal-Mart subcontractor earns.

More is never enough — Wall Street is cracking its whip, demanding no letup in this massive upward flow of money. No slack is allowed. When do we stop believing this machine can be reformed?

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25 comments on “Not even Wal-Mart is ruthless enough for Wall Street

  1. Sally G says:

    BOYCOTT! Interesting that “training” was cited as a cost factor, but this article does not mention that—certainly that is a “cost” that helps everyone (except those focussed on short-term profits alone): employee, customer, supervisor and will increase profits over the long term, all else being equal.

    I agree that Wall Street greed is unmitigated and unconscionable. I do my best to patronize businesses that are at least somewhat removed from the excesses: local banks and stores, nonchain restaurants, etc. Build the local economy and let Wall Street worry about the big companies.

    • Sally, you bring up an excellent point. People who shop at Wal-Mart because they save 50 cents on a hammer are actually paying much more when we add up the social cost of Wal-Mart’s low pay and poor benefits (those employees often need food stamps to survive); the foregone taxes the company doesn’t pay; and that local mom-and-pop businesses are driven out of business, so retail dollars are shipped to Wall Street and the Walton family’s bank accounts instead of being re-circulated in the local community.

      Every person who patronizes a Wal-Mart contributes to the massive social dislocation that it spawns.

      It is indeed revealing that “training” is considered a negative, a cost, by Wall Street despite the longer-term benefits derived from training. An example of the dangerous short-term thinking — more profits today regardless of cost tomorrow — imposed by the bloated financial industry.

      • Sally G says:

        Speaking of the “bloated financial industry”, the overuse of credit and debit cards (maybe “overuse” is more judgemental than it should be, but using plastic for a cup of coffee or a bagel strikes me as odd at best) means that the financial industry skims 3–5% off every transaction, meaning that the vendor is getting less. Does Bank of America really deserve that 36¢ off your $8 sandwich? Multiply that by a day’s worth of lunches, say 100, and that is $36 in that businessperson’s pocket. Yes, it means visiting the bank teller (or ATM) a bit more, and if you are in a really dangerous neighborhood, that is also a consideration, but for most of us, most of the time, we should think about controlling our own cash (cuts down on interest, too, if one carries a balance).

  2. Revealing news about Walmart and Wall St. Great comments.

    What are considered ‘good’ profit percentages these days? At what point do profit percentages become ‘excessive?’

    • Thanks for the questions, JoAnn. The answer I would suppose depends on the morality of a given individual. The pharmaceutical industry, for example, has an extraordinarily high profit margin compared to other industries and of course this is done directly on the backs of sick or injured people in need of medications and treatments. Great if you are a financier, awful if you are a human being with normal human feelings.

      Beyond margin, there is high volume, which is more how Wal-Mart does it although with a healthy profit margin. Here these profits, gigantic in absolute terms, are created directly on the backs of its employees and sweatshop workers at its subcontractors.

      Pharmaceutical company executives and shareholders make money off those companies paying their employees much less than the value of what they produce the same as any other capitalist enterprise, but not to the same ruthless degree as Wal-Mart exploits its low-paid workforce. But because they sell products that are needed very badly by purchasers, they can jack up the price, thus earning what could be considered “rent” in the macro-economic sense of that term — a special advantage leveraged to extract an unusually high price.

      • I think that business must require sensible risk and intelligent management. If a company can’t ‘make it’ without exploiting workers and the environment, then they they should leave the field to others who are capable of doing so. It should always be challenging to make money. I hate it that we allow such easy profiteering.

    • Sally G says:

      Good question. I have heard that grocery stores/supermarkets operate on a 1 to 2% margin, which is very small, indeed. I also heard that if you buy clothes on sale at a retail store and pay more than 1/3, they are making SOME profit. These are anecdotal numbers, and old, so would like to hear from others who may have better info.
      Another question, why must profits always go up to be considered success? If a (randomly chosen numbers) 10% profit is good this year, why must it be 11% next year? Why is 10% not good enough in year 2? (I suspect that it is just greed.)

      • Supermarkets do operate on a small margin but have a large volume that adds up. Distributors also take a profit. It’s the farmers, at the mercy of giant agribusinesses, who get screwed.

        To answer the question of why must profits always go up, the answer is that speculators demand that they do, and the financial industry can impose that demand through the aggregate buying and selling of stock and other securities. When I worked on the Dow Jones lead newswire in the 1990s, there was a well-known computer maker that reported an $800 million profit one quarter, bigger than the year-ago quarter’s profit. Yet there was a swift selling off the company’s stock, resulting in a significant drop in the price. I wondered why, and I discovered that the rate of the profit increase had slowed — that was enough for financiers to be mad!

        Much of the compensation to chief executive officers is now given in stock, so that the company’s management has the same interest in raising the stock price as speculators. Since, at bottom, buying stock is a gamble on future profits, the stock will rise in price if profits get bigger.

        If the profits are merely stagnant, speculators get upset, and are really upset if profits decline. They sell off the stock, driving down the price, and others don’t want to lose more value so they begin to sell, too, adding further downward pressure. The CEO and other executives with lots of stock are losing some of the value of what they had expected. So pressure mounts on the top executives: More profits or you will be forced out. If it comes to it, the biggest speculators will attempt to put their choices on the board of directors (this is happening a lot lately), and have their directors fire the CEO and put someone in charge who will do as the speculators demand.

      • Very good point. Logically, profits would increase over a span of years for a new company during its growth period, as it reaches its stride. Or if an established company comes out with a new, revolutionary, useful product/service of some kind that creates new growth. (And I don’t mean a new brand of toothpaste.)

  3. Frederick Smith says:

    This whole idea that Walmart is losing their shirt over these “raises” is crazy.

    First of all, for some reason no one is talking about the fact that annual raises have been reduced. It use to be a flat 40¢ a year for a good performing associate (what almost everyone gets). It’s now based on 2.5% of your current payrate. For me that was 31¢.

    I manage $3 million department with no help, no associates, running a 6% comp increase, and 31¢ was my annual raise.

    I was also told all department managers were going to be pushed up to $13/hr, but last minute they backtracked and “clarified” that only pay grade 7 DMs were getting the raise, and because my department is a grade 6 I get nothing. So even though I’m on track to make nearly $200,000 more for the company this year, I’m getting $11.51/hr.

    I’m so disgusted with this company. I hate that I’ve given so much of my life to this place, and I don’t know what I should do now.

    • Wow, Frederick, you are really getting screwed by Wal-Mart. Unfortunately, you are suffering through a vivid example of how capitalists boost their profits by paying less to their employees for more value. A very different way of organizing enterprises that I like to advocate is the concept of “economic democracy,” whereby the workers of the enterprise manage it and run it themselves, with no bosses or financiers skimming off the profits.

      Such cooperatives do exist but of course the vast majority of companies operate on traditional capitalist lines. Wal-Mart is particularly ruthless at doing that, and once local competition is run out of business it’s tough to find a job, or to shop, somewhere else if you live in a small town. I hope somebody like yourself with experience as a retail manager could find another department managerial job at another retailer that would at least treat you like a valuable human being.

    • Sally G says:

      That is horrible. I would hope that you could consider finding employment for a company that would treat you better and pay better as well (having no idea of what your personal/geographical situation is). I certainly understand that it would be walking away from a long-term job, if you are middle-aged or older it can be very hard, but even investigating the possibilities might help you to see alternatives. (I wonder whether that sort of backward “clarification” is legal, though if [almost surely] the first statements were not put in writing, there is probably no recourse.) Good luck; I am sure that we would love to hear some positive experiences going forward.

  4. I think WalMart should go under, owing to the ruthless way it has destroyed hundreds of small retailers and local economies.

    • It certainly should. If only people would stop shopping there …

      • Sally G says:

        I am one of the first to call for a boycott by those of us who can afford it—me included; and in fact, other than driving one Sandy client there for a prescription that he could not afford elsewhere, I have not shopped in a Wal-Mart. I do realize that folks on SSI, living in a Section 8 apartment, etc., have a harder time with that. Lots for us to work on in this society!

  5. Karl Stout says:

    Should one shop at Amazon instead, who’s work environment is arguably no better than Wallyworld? There are few corps in retail that people would work at if they had a choice. Walmart just happens to be one of the biggest.

    If you want a chuckle( we need more levity in life), check out the Walmart fight song:

    • I’d definitely ask for time-and-a-half to have sing that …

      • Karl Stout says:

        Beats digging ditches…but not by much.

        • Yes, but at least the ditch diggers don’t have to sing company songs.

          All together now:

          We are, we are Diggers Consolidated
          We dig all day until we are outsourced

          • Karl Stout says:

            Some time back I dug some ditches ( for drainage pipe from my home’s gutters ) and it was near backbreaking labor with hand tools. Being forced to sing the Walmart song wouldn’t have seemed such a bad trade at that point. A fairly large percentage of modern society has traded physical pain for psychological pain( I would call having to participate in that Walmart drum circle a moderate form of demeaning pain ), some would say that’s progress.

    • Sally G says:

      Actually, I don’t shop at Amazon regularly, either—have closed my account (the difficulty of which made me even more determined to do so), but did reopen to buy something for a credit-card-less friend. I almost never buy clothes outside a thrift store or rummage sale. Generally, I am a conscious shopper—can’t guarantee I always get it right, I don’t investigate every seller and item, but I do try to pay attentention to more than just “how much?” and “do I want this now?”.

      • Karl Stout says:

        I too closed my account recently as well, not only because of some of their business practices but because I was becoming a stealth addict. Not that I was wastefully buying things I didn’t/wouldn’t use at some point, just that it was getting too easy to “justify” marginal purchases. I’m looking to get by with less, ‘addition by subtraction’ and it’s nice to have space vs things. Thrift store shopping, Craigslist, occasional brick and mortar and just doing without have become better options for me.

        • Sally G says:

          Yeah, it is so easy to get sucked in! I shudder hearing people discuss the instant gratification of “Amazon Prime”—what an insidious way of manipulating desire, making things seem normal that not only were luxuries once (express shipping), but are really indulgences.
          Freecycle is a good option, too. And I sometimes think of the old New England saying “use it up, wear it out; make it do or do without”.

          • Karl Stout says:

            Yep, it takes real effort to ignore the siren’s song. Free is good. Reading( library books ), exercise ( walking, hiking in natural settings, etc. ), participating in community groups, sharing what you have with others ( and vice versa ) and much more cost little to nothing. People were actually able to live satisfying lives before ‘shop till you drop’ came into being.

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