As Walmart's shareholder meeting approaches, there's a slew of news
on the effect the retail giant has on the American economy-and protests
against how it treats its workers. Walmart is a poster child for low
wages, of course, but an updated report from Demos shows that Walmart's
low wages may actually be undermining its sales. Rather than investing
in good service through adequate staffing, Walmart keeps pouring its
profits into share repurchases-more than $6.6 billion last year.
Repurchases help the company meet earnings targets even when sales
are down by reducing the number of shares on the market and lifting
earnings for those that remain. But when buybacks are poorly timed or
crowd out other investment, they can actually undermine longer term
goals. In a 2012 study, analysts at Credit Suisse showed that just 36
percent of S&P 500 companies performing share buybacks returned
value to shareholders above the basic cost of equity.
Instead, Walmart could be investing that money in more staffing
hours, ensuring shorter lines and shelves that aren't left bare because
there aren't enough workers to restock them. And it could pay its
workers significantly better, ensuring an experienced workforce with low
turnover.
According to a growing body of research on human capital management
in retail, experienced employees with broad knowledge of the company are
better equipped to serve customers, leading to higher sales numbers and
better performance overall. Research from management experts at the
Wharton School of Business shows that stores see an average of $10 in
new revenue for every additional dollar spent on payroll. Better
staffing practices lead to higher sales, since customers can count on
stocked shelves and knowledgeable employees.
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