Walmart says wage hikes are killing its profits

Walmart Says Wage Hikes are Killing Its Profits

Any time someone mentions the wage gap issue in the United States, sooner or later someone invokes Walmart. The biggest Big Box retailer is almost always the easiest target to attack when complaining about low wages and corporate profits.

But now it’s Walmart doing the complaining. When announcing a less than stellar stock projection, Walmart blamed a strong dollar and higher wages for eating into its profits.

Following this minor tantrum, stock dropped ten percent, falling to a three-year low.

Walmart CFO Charles Holley admitted raising wages in 2016, announced with much fanfare and a glut of PR content, would carve about $1.5 billion off operating profits. The silver lining for investors? Profits could begin to grow again by 2019.

While this announcement might play well for investors, on Main Street, this sort of quibbling goes over like a lead balloon. Walmart has been under intense public relations pressure to raise employee salaries for several years now. Finally, earlier this year, they relented, promising to raise wages across the board starting next year.

The news was greeted with a communal shrug. By most accounts, the spike won’t do much to raise the quality of living for Walmart’s 600,000 employees. Particularly after the other shoe dropped. After announcing the wage increase, Walmart also announced that it would be cutting many employee’s hours in conjunction with the raises. Nearly 500 employees saw their wages cut down to zero as they were shown the door.

But, instead of complaining about that, wage increase advocates chose a very specific — and very shrewd — PR response. They pointed to Walmart’s (very) sluggish sales and made the claim that Walmart officials are blaming their “hard workers” for the company’s marketing problems.

That message landed well with consumers already predisposed frustration with what they view as Walmart’s apparent disregard for their workers.

And then there’s the biggest elephant in the room. Walmart supercenters are not doing well, particularly head to head against popular grocers such as Kroger and Publix. The company invested huge in giving their customers absolutely no reason to shop anywhere else. Now the costs of that attempted cross-market takeover have come due, and Walmart appears to be struggling to make it work.

Jonah Engler is a financial expert from NYC.