Wal-Mart, the nation’s largest retailer and employer, must be having second thoughts about its much-praised hiking of its pay base. It seems that Wal-Mart stock plunged 10 percent yesterday amid bad future projections.
Wal-Mart took the bold step to independently institute its own base pay increase and raise minimum wages to $9 this year and $10 next year in response to growing worker demands for $15 minimum wages.
However, the impact on Wal-Mart’s bottom line has been swift. They cut earnings outlook saying the wage increases and worker training will cost the company an extra $1.2 billion this year and $1.5 billion next year. Overall, earnings are expected to be down between 6 percent and 12 percent from last year, but hopes are that they will grow again by 2019.
No decision about whether to backtrack or slow down on the wage increases. Investors are unlikely to sit idly by though and watch profits erode for very long.
Wal-Mart’s initial decision had a snowball effect prompting other companies to consider minimum wage hikes. However, for those who have been sitting on the sidelines, these early indications may nudge them away from following Wal-Mart’s lead.
CNN Money examines both sides of the argument:
In July, Buffalo Wild Wings (BWLD) CEO Sally Smith, told CNNMoney that she may not want to hire teenagers at $15 an hour.
A $15 minimum wage is "absolutely outrageous," according to Dunkin Donuts (DNKN) CEO Nigel Travis. Execs at McDonald's (MCD) noted earlier this year that its franchisees were concerned about steep wage hikes. And even Starbucks (SBUX) has come out against a $15 minimum wage, arguing for something closer to $12 an hour.
Unions and minimum wage advocates don’t believe that the wage increase is to blame for Wal-Mart’s under performance though:
"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," said Jess Levin, a spokesperson for the United Food & Commercial Workers International Union.
The company disputes those claims. Walmart says its workers have access to more hours than they did a year ago and the company is bettering associates' lives.
It’s plausible that other led to Wal-Mart’s bad performance–after all there is competition from the online juggernaut Amazon–but to ignore the impact of rising wages on the bottom line is akin to sticking your head in the sand.
For unions, politicians, and protesters looking for $15 minimum wages, they only care about their win of higher wages, but if Wal-Mart continues to underperform, they’ll be forced to raise costs – potentially driving away customers in the short-run and eliminating labor in the long run.
Will customers be willing to pay a higher price to offset labor costs? It’s not likely as, according to industry analysts who find agree that while the general public may favor minimum wage increases, they don't like price increases.
Once again, economic actions can trigger unintended consequences that lead to greater harm than the good desired.