Tae's Blog

Is it possible for a firm to increase its profits by increasing employee wages?

“Save money. Live better.” The slogan of Walmart’s main homepage reflects the firm’s primary characteristic and aim. Known for offering products at competitive price points, Walmart’s success was about saving consumer dollars, not providing customer service, resulting in an employee base of underpaid and low skilled workers that jeopardize quality service for falling prices.

Nayoung’s blog, “How Walmart increased its profits by paying its workers more” discusses several interesting perspectives towards the company’s recent decision to increase wage. As a result of declining profits due to customer dissatisfaction with service, Walmart raised their employer earnings to instigate them greater experience while shopping.  This investment is largely counterintuitive to the company’s traditional approach and equation for mass earnings; however, despite shareholders expressing opposition to the move, their sales went up by 1.6 percent.

I agree with Nayoung’s argument that the investment in human capital may be an effective way for Walmart to address strong online competitors, like Amazon. Furthermore, Nayoung suggests that increased wages encourage workers illustrate motivation and loyalty, which will maximize labour efficiency and effectiveness. Additionally, it’s possible that Walmart can alter their image from hiring individuals on their last resort in seeking employment towards being a socially responsible company that supports fair practices. It’s possible this could shift hiring those who hesitantly accept the bare minimum wage for increased workloads and the stripping of autonomy to appreciating employees who are willing to invest charisma and initiative for collective success.

Although increasing wages may temporarily demonstrate a positive effect in terms of revenue, I personally believe paying workers more is not a perfect solution, as fundamentally, high-quality service has not, and likely won’t be the reason that consumers choose Walmart; they are there for cheap prices, not premium services. Perhaps the same can be said for store aesthetics, as it may be argued that shoppers would prefer the environment of Whole Foods, but given Walmart’s financial success, it can be assumed that many people are willing to endure a bland environment and indifferent employees for savings.

To eliminate or reduce Walmart’s generally negative reputation as a big box store who negates employee well-being and their subsequent efforts to increase customer satisfaction, I agree that an increase in wages was an inevitable step to remain in a competitive online retailer market. Walmart, and other stores that rely on in-person shopping have to allocate resources to advantages they have over online markets; face to face customer service. To appease the informed modern customer and encourage them to return, companies should offer appealing conditions, which includes positive and helpful interactions with employees and low prices.

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Resources:

https://blogs.ubc.ca/nayoungim/

http://www.nytimes.com/2016/10/16/upshot/how-did%20-walmart-get-cleaner-stores-and-higher-sales-it-paid-its-people-more.html?rref=collection%2Ftimestopic%2FWal-Mart%20Stores%20Inc.&action=click&contentCollection=business&region=stream&module=stream_unit&version=latest&contentPlacement=2&pgtype=collection

Image:

http://www.walmart.ca/en