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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. Economic pressures on employers

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business strategies and employment practices of wal mart and other mass retailers

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
Backdrop
  • Economic pressures on employers
      • Globalization of capital markets and production
      • Advances in information technology
      • Changes in financial markets
  • 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
retail trade
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
Upheaval in the industry
  • Strong increase in competitionhas 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
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:
    • buying products from manufacturers
    • distributing them to the retail stores
    • selling them to customers
three keys to success
Three keys to success
  • Technology: Integrated inventory management
      • Barcode at cash register
      • Real time inventory updates
      • Linked back to warehouses and suppliers
      • Automatic replenishment
  • 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
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
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
lack of career ladders
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% Managers and professionals
      • 6% Front-line supervisors
      • 52% Sales workers
      • 22% 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
Can quality service help?
  • High quality customer service requires skilled workers (Nordstrom’s, Home Depot)
  • But there is also growing demand for fast, no-frills 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
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
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 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
Need two-pronged approach
  • 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.
  • 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.

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