Working at Wal-Mart is not the only way for low-income earners to benefit from the retailer's announced wage increase.
Fellow retailers and companies in sectors competing for low-wage earners are likely to feel the effects of Wal-Mart Stores Inc.'s $1 billion commitment to wages and other worker-focused initiatives, according to retail experts.
About 500,000 Wal-Mart employees will be affected as the average wage for part-time workers will increase from $9.48 to $10 under a plan that goes into effect in April. Full-time employees will see an increase from $12.85 to $13. All employees will make at least $9 per hour with an increase to $10 expected in 2016.
TJX Companies, which owns TJ Maxx and Marshalls, has already committed to a wage increase this year with plans for additional raises in 2016. Like their counterparts at Wal-Mart, workers at TJX Companies will see an increase to $9 per hour this year and $10 next year.
"Others are going to have to take notice," said Brian Yarbrough, retail analyst for Edward Jones. "Retail is a competitive industry. If you aren't competitive with wages and other things you offer, the turnover is going to get higher and that leads to higher training costs. I think it's a matter of time before most retailers respond to this.
"Even if they don't do it this year, they'll have to evaluate."
Wal-Mart announced the wage increases for roughly 40 percent of its workforce on Feb. 19. Improving employee morale and cutting down on turnover were among the goals for Wal-Mart as it hopes to improve customer experience.
Prior to the increase, Wal-Mart ranked near the middle of the pack in wages paid by retailers, according to a research note from UBS, the Switzerland-based global investment firm. UBS analyzed 20,000 employee reviews on Glassdoor.com, a database of 6 million company reviews written by workers.
Among the 21 companies reviewed by UBS were general merchandisers and dollar stores, along with stores that specialize in home improvement, sporting goods, auto parts and pet supplies. Retailers that raise wages will see an earnings impact between 2 and 4 percent on their bottom line, according to the research note.
Retailers that pay on the lower end of the wage scale are at the most risk, according to the UBS research note. Earnings for what the analysts call average "hardline retailers" could be suppressed 2 to 4 percent depending on the company.
"Relative to other hardline retailers," ratings of Wal-Mart compensation is about average, according to the UBS note. "We interpret this to mean that some of the other retailers who do not score as well on this metric could be more at risk of having to increase wages."
The report said Target Corp. is the company that most needs to raise wages. UBS estimated that Wal-Mart workers earn about 3.5 percent more than their peers at Target, who earn $8.97 per hour. Dollar General, which UBS said pays $8.06, and Family Dollar, where workers earn $8.25 hourly, would see the greatest potential effects of wage increases.
Target is among Wal-Mart's top competitors, and the company said it will continue to evaluate wages and keep them competitive as it has always done. Chief Executive Officer Brian Cornwell said his company did not expect "to see any material change" to compensation during the current fiscal year.
Carol Spieckerman, president of the Bentonville retail strategy firm newmarketbuilders, said some retailers might take their time in raising wages "to mitigate the perception of being a 'follower.'"
"Much as Wal-Mart's sustainability push under Lee Scott sent ripples throughout retail and called competitors up to a higher standard, its wage increase will put others on notice," Spieckerman said. "There really is nowhere to hide at this point. This is another example of Wal-Mart tackling a perception problem head-on and instantly shifting out of defensive mode in the process."
Wal-Mart's decision to increase pay, which follows similar announcements last year from The Gap Inc. and Ikea, could also affect other low-wage job sectors. Fast-food workers are also among the lowest-wage earners in the country and it isn't usual for the two sectors to see a crossover of workers.
Turnover for workers at Wal-Mart is about 44 percent annually, according to research cited by Adam Cobb, assistant professor of management at the University of Pennsylvania's Wharton School of Business. Each replacement employee costs the company about $2,500, he said.
Wal-Mart is putting pressure on others in the market for low-wage earners. Still, competitors might take a wait-and-see approach because of potential increases to minimum-wage laws.
Cobb pointed to looming increases in state minimum wages, including Arkansas, and ongoing debate about raising the federal minimum wage of $7.25 per hour. Wal-Mart will have about 6,000 employees earning minimum wage until April.
Plus, competitors likely will want to evaluate how the wage commitment affects Wal-Mart's bottom line.
"There has been a sense that whatever Wal-Mart is doing, the rest of retail has to follow," Cobb said. "It's been true on the supply chain side. It's been true in terms of cutting costs and overhead. Could we see similar impact on wages? It's possible. This could have a ripple effect in other sectors, even nonretail sectors."
Business on 03/03/2015