Even if CEO Doug McMillon is sincere in his stated goal of adding staffing hours and investing in wages, changing the actual hiring, scheduling and operating practices throughout a chain as large as Wal-Mart will be a significant challenge. That’s why the recent report in the New York Times indicating that the company is still cutting labor costs is so concerning as it appears to show that WMT US managers are still being instructed to find ways to reduce labor hours in the stores, not increase them. If the Times’ report is accurate, the internal WMT memo includes supervisorial directives telling managers to verify that labor intensive tasks (such as rotating milk and eggs as they approach expiration dates) are being done frequently, alongside references to reductions in labor—all without any apparent mention of the need to ensure that wages or labor hours are sufficient to improve customer service. Also a concern, we note that some of the language today suggested company officials may be backing away from last month’s comments on adding hours and labor budgets, and have returned to discussing “wage leverage” as a goal, while seeking to avoid “overextending” it.
As an aside, given the apparently significant problems identified in the internal WMT memo with the apparently large scale spoilage and waste of perishables it is ironic that WMT officials continue to spend a significant amount of time congratulating themselves on the supposed sustainability in the area of food supply chain efficiency, including the touting of the goal to “create zero waste.” If WMT officials including Doug McMillon are sincere about these sustainability goals then embracing a different labor model will help bring the company closer to achieving them.
As investors seek to parse these mixed signals on the labor front, it is important to remember how we got here. For over four years, WMT associates have been pointing to significant reductions in staffing and based on extensive interviews with scores of current and former managers and associates, as well as analysis of company financial data, we published two investor white papers (here and here) directly connecting labor reductions to operational problems including out-of-stocks, inventory lapses, declining customer service scores and weak same store sales.
A core element of this critique is our analysis of the staffing cuts at Wal-Mart over the past several years. This chart updates the headcount reduction data in the white papers through Jan. 31, 2014, the most recent period for which data is available, and indicates just how understaffed the company is:
(Graph Source: company data)