The First Step to Recovery?

For at least four years WMT workers have pointed to reduced staffing levels and connected those reductions to operational problems including out-of-stocks, long lines at checkout and deteriorating customer service. In response, WMT officials repeatedly denied that problems existed: company spokespeople said having store greeters “wasn’t necessary”; that in-stock levels were “up significantly”; and that the stores were “fully staffed.” But a recent shift in tone by the company has marked an apparent break from the denial of the past, and executives have now come clean: understaffing has had a significant impact on customer service and store operations.

With this morning’s earnings release WMT CEO Doug McMillon said the company was committed to investing in wages to improve customer service. This new approach first became clear during the 2Q15 earnings release call on Aug. 14, 2014 when CEO Doug McMillon said, “We’ll keep working during the back half of this year to get the combination of price investments and store associate hours right to deliver improved comp sales and serve our customers in a way that exceeds their expectations.”

On the same 2Q15 pre-recorded call US CEO Greg Foran elaborated further: “During the quarter, we also allocated additional associate hours to specific areas of the store, such as front end, deli, bakery, and overnight stocking to improve overall customer service.”

At the October 15 analyst meeting CEO Doug McMillon, in his prepared remarks, added out-of-stocks and check-out lines to the list of problems associated with lack of labor hours in the store:

“[T]here are places where we need to put more hours in the store and there are places where we need to make price investments… we have room to improve on in-stock on the shelf. We have room to improve on our check-outs.”

During the Q&A period at the same meeting, in response to a question about whether or not analysts should expect further “leverage” from WMT’s brick and mortar stores (a euphemism for cost cutting) McMillon made the break from the past even more explicit: “And Wal-Mart US in particular, my focus is not on leverage. I think we’ve got to make sure that we make investments necessary in wages, in other areas to get it right, that’ll enable us to be successful over time.”

These comments were greeted positively by analysts, some of whom had raised concerns about staffing levels numerous times over the past several years. Citing the low labor levels among other challenges, Wolfe Research’s Scott Mushkin wrotewe believe it is generally a positive that the company realizes it needs to alter its current course.”

What do you think?