Business Strategies and Employment
Practices of Wal-Mart and other
Mass Retailers
Annette Bernhardt
Brennan Center for Justice at NYU School of Law
Prepared for the 56th Annual Meetings of the Industrial Relations Research
Association, 2004
Backdrop
1. Economic pressures on employers
•
•
•
Globalization of capital markets and production
Advances in information technology
Changes in financial markets
2. Institutional changes
•
•
•
Deregulation of industries
Decline in unions
Decline in minimum wage
Have resulted in:


Reorganization of work and production
On net, deterioration of front-line jobs
Growing wage inequality
Change in wage percentiles for U.S. men, 1973-2002
1.30
90th percentile
1.25
1.15
70th percentile
1.10
1.05
50th percentile
10th percentile
30th percentile
1.00
0.95
0.90
0.85
2002
2000
1995
1990
1985
1980
1975
0.80
1973
Index (1973=1)
1.20
Retail trade
• 18% of workforce (23.3 million workers)
• Low wages, few hours, few benefits, little
training
• Major segments are:
 Hard
goods: department stores, specialty stores,
mass discounters
 Food:
supermarkets, upscale grocers, mass
discounters
Upheaval in the industry
• Strong increase in competition has led to an
intense focus on cost-reduction

Industry maturation: “the overstoring of
America”

Two new market entrants: “category killers”
(Toys-R-US) and mass discounters (Wal-Mart)

Rapid consolidation of the industry – no more
mom-and-pop stores

Increased power of shareholders in the stock
market
The Wal-Mart model
• Immense coordination problem:
• Tens of thousands of products
• Shipped to more than 3,000 stores via 103 distribution
centers
• Stores manned by a million workers serving more
than 100 million customers weekly (domestic)
• The answer: “Just-in-time” linking of:
1.
buying products from manufacturers
2.
distributing them to the retail stores
3.
selling them to customers
Three keys to success
1) Technology: Integrated inventory management
•
•
•
•
Barcode at cash register
Real time inventory updates
Linked back to warehouses and suppliers
Automatic replenishment
2) Relationship with suppliers
•
•
•
•
•
Focus on core set of manufacturers
Cut out middle men
Relentless pressure for bigger discounts
Require help in delivery and stocking products
Require integration into Wal-Mart’s IT systems
Keys to success, continued….
3) No investment in front-line workers
• Starting wages $6-$7 per hour; yearly raises 25 to 30 cents an
hour
• Even department heads start at only $8/$9 an hour
• Chronic understaffing
• Full-time is defined as 28 hours/week: allows Wal-Mart to
increase the hours without hitting up against the mandatory
over-time limit
• Health benefits: workers must contribute 40%
• There is no pension plan; stock options plan hollow
• Virulently anti-union: growing evidence of wage & hour and
labor law violations
Upshot
• Wal-Mart emphasizes reengineering process,
not the workplace
• The model is extremely efficient, productive,
profitable




Wal-Mart outperforms other retailers on almost every
measure of productivity, sales, and profits
Has had profound impact on industry practice,
throughout the supplier chain
Now the biggest private employer in the country
Near monopoly status in hard goods
Wages graph
Hourly wages of non-managerial retail workers (in 2002 dollars)
$18
95%
$16
Hourly wages
90%
$14
$12
85%
$10
Wages as percent
of private sector
average
$8
$6
80%
$4
75%
$2
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974
70%
1973
$0
Lack of career ladders
• Lean hierarchy:

Typical Wal-Mart store: one store manager, four
assistant managers, 200 hourly workers

In 2002, general merchandise stores had:
•
•
•
•
6%
6%
52%
22%
Managers and professionals
Front-line supervisors
Sales workers
Office and administrative support
• Increasing external hiring of managers
• Retailers train workers an average of seven hours,
putting the industry last among 14 business sectors
Can quality service help?
• High quality customer service requires skilled
workers (Nordstrom’s, Home Depot)
• But there is also growing demand for fast, nofrills service and cheap products
(McDonald’s, Wal-Mart)
• These two definitions of “good service” have
led to segmentation of industry and job
quality – and this is unlikely to change
Can new technology help?
• Technology has had a major impact on
industry
• But effect has primarily been on back-end of
retail operation
• Has not affected the actual work that sales
workers do, has not increased demand for
skill
 Store
workers still ring up sales, stock and neaten
shelves, and handle lay-aways
Top ten occupations,
job growth 2000-2010
Job
growth
Quartile
rank of
wages
Skill requirements
Food preparation and serving
workers, including fast food
673,000
4
Short-term on-the-job training
Customer service
representatives
631,000
3
Moderate-term on-the-job
training
Registered nurses
561,000
1
Associate degree
Retail salespersons
510,000
4
Short-term on-the-job training
Computer support specialists
490,000
2
Associate degree
Cashiers, except gaming
474,000
4
Short-term on-the-job training
Office clerks, general
430,000
3
Short-term on-the-job training
Security guards
391,000
4
Short-term on-the-job training
Computer software engineers,
applications
380,000
1
Bachelor’s degree
Waiters and waitresses
364,000
4
Short-term on-the-job training
The lesson
• The absence of “high-performance” does not
mean lack of performance
• Alternative strategies have emerged, which do
not emphasize human resources but which are
nevertheless highly efficient and profitable
• Non-market intervention will be needed to
shift retailers and other service firms away
from the Wal-Mart model
Need two-pronged approach
1. Policies to shut off the low road:

(Re)create the legal structures that set the ground rules for
what employers can and cannot do – i.e. wage floors, right to
organize, “pay or play” health insurance, etc.
2. Policies to pave the high road:

At industry level, create intermediary institutions that
simultaneously address issues of productivity and workforce
training
Different industries need different mixes of these
strategies. Retail in particular will need an
emphasis on #1.