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The Story Behind Walmart’s Bare Shelves

Kolejka

Walmart is starting to look like a Soviet-era retailer. The prices are still low, but shelves are going empty for months while products sit unwrapped in storage, lines are interminable, and no one is around to help.

Bloomberg reports that in-store service problems for the world’s third-largest corporation are so bad that people are willing to pony up the extra cash to shop at stores like Target and Walgreens. Walmart’s problem, says MIT retail researcher Zeynep Ton, is a shortage of cheap labor:

“When you tell retailers they have to invest in people, the typical response is: ‘It’s just too expensive,’” Ton said.  Adding five full-time employees to Wal-Mart’s (WMT) U.S. supercenters and discount stores would add about a half- percentage point to selling, general and administrative expenses, according to an analysis by Poonam Goyal, a Bloomberg Industries senior analyst based in Skillman, New Jersey. […]

Wal-Mart is entangled in what Ton calls the “vicious cycle” of under-staffing. Too few workers leads to operational problems. Those problems lead to poor store sales, which lead to lower labor budgets.

Regulatory policy in the US should be making it easier, not harder to sell cheap goods to the people who depend on them. Unfortunately, current regulations don’t make it easy to pay for the labor force required to provide acceptable service while keeping prices low.

Advocates for policies like raising the minimum wage have good intentions, but they rarely consider the knock-on effects such laws can have. Walmart, which provides about 1.4 million US jobs, has shed 20,000 workers in the past five years even as hundreds of new stores have opened.

Raising the minimum wage would likely aggravate this problem, not improve it. Add onto that the costs of Obamacare and various other requirements coming down the pike, and it’s going to become very difficult for mass marketers to provide affordable goods for low income and working class consumers.

While raising the minimum wage to keep up with inflation seems reasonable and making health care accessible makes sense, looking for ways to make it easier for Walmart and its peers (which include chain restaurants like McDonalds) to hire more workers should be higher up on the policy agenda. Taxing employers to provide health care is, for example, a very good way to make sure that fewer people get hired. We aren’t saying that revenue isn’t needed for some of these purposes, but the tax system should if anything be encouraging employers to take on more workers rather than punishing them.

We’ve said before that shifting payroll taxes over to an otherwise revenue neutral carbon tax would make a lot of sense; we’d like to see health care financed that way as well. Taxing pollution is better than taxing jobs and making it harder for Walmart to provide decent goods at low prices is not the way to make America a better place for the poor.

[Updated]

[Image of queue in People’s Republic of Poland courtesy of Wikipedia.]

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  • Scott Morgan

    As someone who shops at a Walmart at least a couple of times a week for most of my family’s groceries and other basics, I can comfort everyone with a reassurance that the stores, at least in Kansas, are well-stocked and appear to be doing just fine. A statement like the stores are “starting to look like a Soviet-era retailer” sort of smacks of the usual thing I hear from folks who are just a tad too proper to actually go in a Walmart.

    I am sure that in a corporation as large as Wal-Mart (I just wanted to show off that I knew the difference in the spelling between the corporation and the store) there are stores that are poorly managed. However a few anecdotes do not make a trend.

    One trend that does mean something is that Wal-Mart stock was trading at about $61 a share a year ago and today it is at about $75. That’s a 22% increase over the past year. Just a wild guess but some folks seem to think that the company is doing just fine.

  • http://twitter.com/Thirdsyphon Thirdsyphon

    If Walmart’s competitors like Target and Kohls are able to keep items in stock while Walmart can’t, then I think we need to blame Walmart’s bad management for the problem, not Obamacare or the minimum wage. The “Blue Model” can’t be the font of absolutely *all* ills for absolutely *everyone* absolutely *all* the time. The market is signaling that consumers are willing to pay slightly higher prices in exchange for significantly better customer service, and Walmart is stubbornly refusing to heed the message. Granted, this means more money for workers, but that’s not always a bad thing, even by WRM standards, particularly where, as here, there’s not a union within a country mile to point the finger at.

    • ojfl

      If the market indeed wants higher prices, Thirdsyphon, they will get higher prices. But that is not where Wal-Mart wants to compete. Also if the market is willing to pay higher prices to support the “Blue Model”, Wal-Mart will go out of business and someone else will take their place. Consumers however have consistently shown they would like to get the highest quality with the lowest price they can get. That is where Wal-Mart explored so many years. And the “poor” benefitted greatly from that.

      • http://twitter.com/Thirdsyphon Thirdsyphon

        My read of the Bloomberg article wasn’t that people were abandoning Walmart stores out of ideological loyalty to the Blue Social Model or a masochistic desire to pay higher prices for their own sake. They just want decent customer service, and Wal-Mart’s business model won’t let them hire enough people to provide it.

        • Philopoemen

          I agree. I think that customers in this case are looking for “cheap enough”, not “too cheap”.

  • Cameron Fulbright

    I don’t know what state the author lives in, but I have lived in Alabama, Texas, and Oklahoma the last two years, and have seen no issues with Walmart being blatantly understaffed. Given that they are known for hiring the elderly to do nothing other than to greet shoppers at the front of the store, I’m skeptic that this is a serious problem.

    If any readers have had experiences similar to the article, I would be curious to hear where you live.

    • http://www.facebook.com/profile.php?id=100003107257282 Abby Coffey

      I live in Ohio and have not seen bare shelves in any of our Walmart stores. Maybe if the article had actually been written by someone that has gone into a Walmart, it would be more factual. But do actual investigative reporting?! Never!

      • bannedforselfcensorship

        Actually, I have seen some bare shelves in some areas. But not enough to be worried, though the retailer should be.

  • neshobanakni

    Have shopped there for many years; that’s all that’s available to rural folks. Has gone to h*ll in the last year, exactly as described. As much as I’d like to blame the Blue social model and interfering gubm’t, it’s caused by p*ss-poor management.

  • http://www.facebook.com/people/Luke-Lea/579129865 Luke Lea

    The biggest problem in Walmart is finding what you want. I read about a new app for iphone today that maps the inside of buildings (malls, stores, etc.) the same way Google maps the outside world. If Walmart installed a wi-fy system to enable this app that might solve the problem. Like where is the toothpaste?

    • bannedforselfcensorship

      No, instead, wander around and buy more stuff.

  • tobiastook

    “We’ve said before that shifting payroll taxes over to an otherwise revenue neutral carbon tax would make a lot of sense”

    Carbon=Energy=All products and services. Making everything more expensive across the board just means we would get a burst of inflation, and then be right back where we are now.

    A head-tax makes more economic sense than this idea.

    • http://www.facebook.com/profile.php?id=1432466619 Joseph D’Agostino

      Our first question should be, “Why does the government need all that money?”

  • Sweet_Lew

    I realize they compete primarily on the basis of low prices, but it seems like if people are willing to spend several per cent more at the competition WalMart could get away with a half-point bump. A $217 TV is nice but I can live with paying $218 if that means I can get someone to help me. And WalMart isn’t as wed to prices that end in a 9 like other stores, so it won’t be as noticable.

  • bannedforselfcensorship

    That line also looks like the line at my Wal-Mart when the government checks are delivered. Especially the check cashing line. Why work when SSI can be finagled?

  • Kavanna

    I’ve seen this pattern with other retailers. Poor staffing turns off customers, and declining revenue leads to still less staff. It’s a sign of an obsolete business model and big trouble coming, unless major changes to the business are made in response or to offset.

    Businesses now are doing little in the way of organic expansion (cap-ex or net hiring). In the developed world (mainly b/c of demographic and uncertain macro trends), businesses are doing those other things they do when there’s no growth: M&A, dividends, and share buybacks.

    Wal-Mart’s recent stock performance is mainly a result of share buybacks and its expanding operations in Latin America and elsewhere outside the developed world. In the US, it’s a flat to declining business.

  • Gary Ballard

    Perhaps if Wal-Mart would cut into their profits a bit, they might actually be able to hire more people instead of trying to squeeze the workers they already don’t pay enough to do more work for less. Maybe if they hired people full-time instead of part-time (so as to avoid providing benefits), they might have people to service those shelves.

    Minimum wage has nothing to do with it. Current minimum wage is not enough money to live on. Period. If you can’t even afford rent with minimum wage, however will you shop for groceries?

    • http://www.facebook.com/TarasikB Taras Balderdash

      Hey, why not have the government set the prices, force the company to make no profits at all, and only have companies that exist to give work to the employees. We can install socialized medicine and everyone can officially work a 40 hour week while they actually spend half their time in lines for deficit items caused by the price controls and centralized planning, or making a buck on the black market. Oh, wait, that’s been done already. But if you really think repeating the great experiment of Lenin/Stalin/Mao/Pol Pot, etc. is the way to go, keep on voting for the Democrats. They have a a moral imperative to stick it to society and destroy American prosperity “for the workers”.

      • Gary Ballard

        You do not have any idea what socialism means if you think the Democratic Party practices or even believes in socialism.

        • http://www.facebook.com/TarasikB Taras Balderdash

          Goodness no, studying the Soviet Union my whole career leaves me totally unequipped to see history repeating itself. First come the Kerenskys, then the Lenins, the Stalins, the Hitlers, etc. Socialism is a kind of fungus that grows in a dead or dying social structure, completing the rot.

          History will have its way. There is really nothing one can do about it. People will vote for Marxist ‘organizers’ and blithely spend a decade blaming someone else for the economy. Sad, but the world is sad, after all. Also stupid, for the most part.

          • Gary Ballard

            Those words… they do not mean what you think they mean.

            Also, if you really think that there are any politicians or activists of any note in the US that are truly “Marxist” or that Pres. Obama (the aforementioned “Marxist organizer” I’m sure you are referred to) is a Marxist, then you are seriously deranged and have no idea what Marxism stands for.

            The economy didn’t crash from “Marxism” or “Socialism.” It crashed because of insipid, systemic greed and rampant fraud from capitalists who have been let loose from any sort of accountability. See all the fraud that went on from top to bottom of the mortgage and CDO industry and then notice that none of the major players were prosecuted for the fraud.

            Real socialism and anything remotely resembling Marxism has been dead in this country since the 1930’s except for the paranoid delusions of tiny little men like Joseph McCarthy.

          • http://www.facebook.com/TarasikB Taras Balderdash

            Enjoyed your ramblings. Thanks. I’m used to the accusation that the collapse of the economy, which was a combination of a housing bubble which was largely produced by the government forcing banks to issue loans they knew were bad for decades, individual greed, and fighting two wars. Your standard screed that capitalism is the culprit is rather boring.

            Labeling McCarthy a Marxist though? Now that is really a new level in liberal delusion. As someone once said: You are entitled to your own opinion, but you are not entitled to your own facts.

            By the way, can you prove that anyone McCarthy accused was NOT actually a Communist Party member and/or active agent of the USSR? No. You can’t. But McCarthy is a standard term used by leftists, and even some dupes on the right, to describe all that is bad about the anti-communist movement of the 1940s and 50s. So don’t let the facts get in the way of your propaganda.

          • Gary Ballard

            I didn’t label McCarthy a Marxist. He was a paranoid authoritarian afraid of his own shadow… but not a Marxist.

            As for the housing bubble, that was caused by the repeal of Glass-Stegall, which allowed banks to use depositor money to invest. Then those banks made loans without any credible sort of income verification, and mortgage brokers with no skin in the game sold more dodgy mortgages. Then the banks with all those mortgages bundled them up into CDO’s full of dodgy mortgages and sold those as AAA Investments. Note the absence of the government forcing ANY of that on the banks. You are trying to blame the CRA for the housing bubble but that doesn’t force banks to give loans, it just keeps banks from discriminating against working people who don’t make high incomes or are minorities. What happened was pure greed and the government NOT enforcing sanity on the banks – so the banks leveraged themselves at 30 to 1 ratios, then insured all that dodgy debt with the same companies everyone else was insuring their dodgy loans with. When all those dodgy loans went up in smoke, the insurer (AIG) couldn’t pay back all the insurance they had gladly taken fees for.

            And you know who rescued all of them? The government. A Marxist/Socialist government would have nationalized every single one of those banks. Instead, they floated them zero interest loans (and still do) to make sure they have enough capital to balance their books every night – and didn’t jail anyone for fraud, even when they did things like robosigned THOUSANDS of foreclosure documents without even a shred of legal justification for the foreclosures. All those rich bankers who got huge bonuses for tanking their companies and almost toppling the economy? They still have jobs, they are still rich and the government didn’t seize their assets and their companies. THAT’S what a Marxist would do.

            As for facts, the fact is your definition of Marxism is utterly wrong. You aren’t entitled to make up definitions for political systems you don’t happen to like. That’s what is wrong with political discourse in this country. You can’t even agree with me on the same definitions. Marxism is not the same as Stalinism, or Bolshevism or Maoism. The latter 3? They all had more in common with right wing authoritarianism than liberalism or even socialism. There is nothing inherently authoritarian or dictatorial in Marxist doctrine. In fact, Marxist doctrine is built on a foundation of a democracy of the proletariat not the perversion of a cult of personality like Stalin built.

            Apes can read political science, they just can’t understand it.

  • Kavanna

    BTW, I don’t mean to belittle Obamacare as a source of Wal-Mart’s woes. They supported the absurdly misnamed ACA (no matter what they say in public) as a way to shift healthcare costs elsewhere. Now, it’s come to back to bite them in the tush, in karmic irony. Wal-Mart discovers that *they* are the “elsewhere.”

    There are real corporate winners in an Obamacare world — insurance companies, as well as hospitals and other medical service providers, are big winners — and Wal-Mart imagined it too would be among the winners. Alas, they discovered a harsh truth of a politicized and cronyistic economic system: if you’re not part of the core coalition trying to force others to pay, you and your employees will get screwed.

    There’s little doubt of the endgame of the ACA. If it’s not repealed outright, much of it will be dead letter by the time The One leaves office.

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