Why Should Wal-Mart Pay More?
Jul 11th 2013 10:58AM
Updated Jul 11th 2013 11:00AM
Wal-Mart's plans for expansion in Washington, D.C., took a hit yesterday.
The world's largest retailer abandoned its proposal to open three stores and is weighing its options for three other sites that are currently in construction after the D.C. City Council passed the Large Retailer Accountability Act of 2013 last night.
Under the new act, any chain with at least $1 billion in sales and stores greater than 75,000 square feet must pay 50% more than the minimum wage for D.C. locations.
Wal-Mart was the target all along. Unionized businesses are exempted from the new requirement, and non-unionized chains that already have a presence in D.C. -- including Macy's and Wal-Mart rival Target -- have four years to comply.
Asking Wal-Mart to shell out at least $12.50 an hour while the competition can get away with the minimum of $8.25 an hour is controversial. Your political bent probably dictates how you feel about the measure.
However, could this have flown if any other retailer than Wal-Mart was being targeted? Let's face it: The public generally has a poor opinion of the mammoth superstore chain. The retailer may claim that 60% of the country shops at Wal-Mart in any given month, but it's a popular target for union-backed protests. Wal-Mart also isn't cool, unlike Target -- or Tar-jay -- with its "cheap chic" appeal.
Wal-Mart rolled out a new ad campaign two months ago. "The Real Walmart" series of ads showcasing shoppers, employees, and suppliers was done to help spruce up the discounter's image.
Can you imagine any other retailer having to put out commercials pointing out how 75% of store management began as hourly associates or that quarterly bonuses are paid out at well-performing stores?
Wal-Mart is held to a different standard, even though the retailer is one of the more generous chains when it comes to passing on savings to customers. The company's gross profit margin over the past four quarters is 24.8%, well below Target's 31.1% take. Traditional department store chains go for ever larger markups above what they pay for goods, hence Macy's clocking in at 39.9%.
We don't know how the dynamics would have played out if Wal-Mart had bit its lip and decided to play along. Would entry-level workers have flocked to apply at Wal-Mart, forcing smaller chains to boost their wages to stay in business? How high would product prices go to offset the increases in labor costs? Would the benefit of having more minimum-wage workers with 40-hour workweeks making $26,000 a year instead of $17,160 be enough to offset the higher standard of living?
These are questions for the political talk shows to tackle. For now, Wal-Mart's plans to expand in an attempt to accelerate sales growth from last year's modest 5% uptick have hit a roadblock -- and nobody wins that way.
The article Why Should Wal-Mart Pay More? originally appeared on Fool.com.Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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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