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Walmart's Path to Increased Sales: Raising Wages

Amy Traub

When Walmart broke the bad news to shareholders last week about declining same-store sales and cuts to their profit and sales projections, the company offered a glib explanation. "The retail environment was challenging," asserted Walmart Stores President and CEO Michael Duke. Company executives pointed to weather conditions and the January payroll tax increase to justify the disappointing sales, but larger questions about why consumers weren't buying were never addressed.

The unspoken reality is that America's low-income consumers have little money to spare. Average weekly earnings for all private-sector workers fell $3.09 in the last month. Yet Walmart itself, the nation's largest employer, could play a leading role in boosting consumer spending and bolstering the nation's slow economic recovery. Rather than lamenting the "challenging" and "disappointing" retail environment, Walmart could boldly move to reshape it.

The key step? Raising the company's notoriously low wages.

Substantially increasing pay for front-line workers would be an unexpected step for a company known for its laser-like focus on reducing operating costs. Yet by putting more money into the pockets of more than a million low-paid Walmart employees in the U.S., a raise would increase the buying power of the people most likely to spend their additional funds immediately -- and more likely than not, to spend it in Walmart's own stores.

When my organization, Demos, analyzed the retail industry last year, we projected the economic impact if all retailers employing 1,000 workers or more were to raise wages for their full-time, year-round employees to at least $25,000 a year. An annual income of $25,000 isn't much, but that wage is still higher than the $21,000 a typical retail sales person earned in 2012, and is far more than the $15,500 that analysts calculate the average Walmart associate earns annually.

A raise of that magnitude, we forecast, would increase GDP between $11.8 and $15.2 billion over the next year and would create 100,000 or more net new jobs. What's more, the increased purchasing power of low-wage employees would generate $4 to $5 billion additional annual sales for the retail sector itself. The additional payroll costs would represent just a small fraction of total sales, and the potential cost to consumers would be only a few cents more per shopping trip. If Walmart specifically were to raise its wages to $12 an hour, the average Walmart shopper would pay just $12.49 more in an entire year even if the company passed 100 percent of its costs on to shoppers, according to a separate analysis by the University of California Berkeley Labor Center.

And for Walmart, the benefits would go beyond increased sales and an improving retail environment. At a time when the retail giant has come under increased criticism for its disorganized stores and empty shelves, an investment in the frontline workforce could improve customer experience. While an end to the company's chronic understaffing would also be beneficial, higher pay would likely boost worker productivity and encourage employees to stay on the job long enough to become more experienced and helpful to customers.

A raise would also provide a public relations lift to a company battered by criticism of its poor job quality. Walmart's detractors come from increasingly high places: this year U.S. House of Representatives committee staff released a study singling out the corporation. According to the federal study, each Walmart store costs taxpayers approximately $1 million annually because of its employees' greater need for public assistance programs to support their families. By raising wages Walmart could shut down this criticism and smooth its entry into the urban markets the company needs for domestic expansion. Proposals like Washington DC's Large Retailer Accountability Act - designed to force Walmart and other big stores to pay living wages - would be deprived of their rationale.

Any retailer can bemoan the poor shopping climate. But Walmart has the size and industry clout to begin changing the weather, setting the retail industry and other employers on a higher wage, higher sales path.