The “low-cost” leader is hurting the American worker.
It has become cliché to say, “Our employees are our most important resources.” This phrase is passed around in every MBA course known to man. In business school, future executives are force-fed this mantra in preparation for life after school. Business school teaches future executives how to value every conceivable aspect of a business, except our most valuable resource—the men and woman who contact our customers, make them feel special, and keep them coming back for more. Without these men and woman, would you even have a business?
The answer is a resounding no! Our brightest ideas, the most well thought out strategic plans, the best products and services require people. Moms, dads, sisters, brothers, cousins, and community leaders who are partners with the organization because they believe in its mission. They get up going to work feeling energized and excited about going to work because in their minds it is more than just work, it is part of their purpose. Sounds foreign, sounds funny, do you think I am out of my mind?
If you do, I would not be surprised. In 2014, Gallup revealed 70 percent of the American workforce is sleepwalking, checked out, lacking passion, and acting out their unhappiness at work. In other words, we tolerate work because it pays the bills—or does it? In the case of Walmart, most employees cannot even afford the essentials. Food, shelter, and transportation represent competing interests that a majority of Walmart employee’s cannot afford at one time. How can I be dedicated when I have to worry about my next meal or how I am going to get gas money so I can drive to work?
Walmart’s recent wage increase announcements shed even greater light on the growing incongruity between corporate values and reality. In April, Walmart’s average wage will increase to $9 an hour and $10 an hour next February. Assuming an employee is full time that equals to $1,440 dollars a month before taxes. While the company says they want to “help people save money and live better,” their employees cannot make ends meat.
Don’t believe me, keep reading and take a look at the facts.
- According to the Americans for Tax Fairness, Walmart cost taxpayers 6.2 billion dollars annually in the form of government subsidies. This might include food stamps as well as government-subsidized health care.
- The announced wage increase will cost Walmart $1 billion. In 2014, Walmart saw net sales of $473 billion and $16 billion in profits.
- Walmart’s core strategy is “Everyday Low Cost” leadership
- Walmart loses 44% of their workforce annually. The cost to replace each worker is $2,500 dollars. Walmart employs 1.4 million people in the U.S and they lose (turnover) approximately 616,000 employees per year. Walmart spends more money on replacing employees than most companies earn in a year.
First of all, I do not believe Walmart is the big bad wolf feeding on the misfortunes of the working class. I do believe the mindset of their leadership is misguided and lacks self-awareness. The core of their business strategy is flawed. Walmart wants to provide goods and services at the absolute lowest possible prices, and that is a laudable goal. The problem is they are focused on being cheap and making money. However, Walmart’s hyper focus on everyday low cost leadership costs approximately $1.5 billion yearly. That is the cost to retrain the estimated 616,000 employees they loose on an annual basis.
Fundamentally, Walmart believes they’re spending money on employees versus investing in their business. They treat employee well being as a capital expenditure that steals from the bottom line. Don’t think mindset matters? Consider rival discounter Costco and their corporate mindset. Not the fancy language contained in corporate value statements, but what they actually practice. Their average employee earns approximately $20 dollars an hour, 82% have health insurance, and over 90% participate in the corporate retirement plan (Costco contributes 56% more to employee retirement accounts and pays 90% percent of employee health premiums. On average, Costco looses only 17% percent of employees in the first year and 6% percent in following years.
Who’s to blame?
Quite honestly, I believe each of us is partially to blame. Many Americans shop at Walmart on a daily basis and help put billions in their pockets. We do this despite the numerous reports of low wages and poor treatment of employees. Each time we shop there, each time we buy groceries at Walmart, we are validating the philosophies and practices of their leaders. Walmart is supplying what the market demands. The mindset of the American consumer demands cheap, and Walmart is providing more for cheap. Sure, Walmart executives are to blame, but they do not exist in a vacuum. Before you point the finger at Walmart executives look in the mirror.
The bottom line
The only way to fix these issues is by altering our mindset individually and corporately. Until we become self-aware, and understand the subtle but profound difference between investing and spending, we will see no change. The status-quo mindset represents a huge barrier to capitalizing upon our true potential. The only way to truly increase the bottom line is to invest.
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