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Walmart raises wages for 425K employees, but it probably won't outdo Amazon

Monday, February 22, 2021 by Robinhood Snacks | Disclosures

Hair oils are thriving... Walmart posted record sales of $152B last quarter, as we stocked up on groceries and #selfcare goodies. In 2020, Walmart filled 7X more online orders than in 2019 (curbside pickup FTW). But it's projecting slower growth this year, so the stock dipped after last week's earnings. What didn't dip: wages.

  • Walmart is raising wages for 425K workers, bumping its employee average to ~$15/hour (up from $14). But it's keeping its starting wage at $11.
  • Walmart = America's largest private employer. With the raises, about half of its 1.5M US workers will earn at least $15/hour.

Sounds familiar... The Biden admin is trying to raise the federal minimum wage to $15/hour by 2025 (from $7.25/hour). It's questionable whether that'll get through lawmakers. A Congressional study found that a $15 minimum wage would lift 1.3M Americans out of poverty. The same study found it may also leave 1.3M jobless because of higher labor costs. This month, Walmart CEO Doug McMillon met with Biden: McMillon supports raising the federal minimum wage, but hasn't yet endorsed a $15/hour minimum. Still...

  • Walmart has to compete with its peers for essential workers, especially in online-order fulfillment roles. That's why the raises are only for frontline associates.
  • Amazon (aka: Walmart's biggest rival) raised its US starting wage to $15 back in 2018, and has lobbied Congress for a $15 federal minimum. Target made $15 its starting wage for all workers in 2020. Why isn't Walmart doing the same?
THE TAKEAWAY

Profit margin could be a factor... explaining Amazon's and Walmart's different stances on wages. Amazon's biz is mainly online, making it more cost-friendly than Walmart's (which includes 11K+ physical stores). Also: groceries make up more than half of Walmart's sales, and they're harder to profit from than tech. While broccoli has a slim profit margin, Amazon's AWS cloud is its biggest profit puppy. Walmart did more sales in 2020 than Amazon, but its profit was much smaller than Amazon's: on $520B in sales, Walmart made $15.2B in profit — on $386B in sales, Amazon made $21B in profit. Walmart's biz is more sensitive to wage increases, but it needs them to compete with the 'Zon.