Walmart Knows Its Business Better Than Think Tanks

Walmart’s getting free advice. I hope they know better than to take it.

Walmart is being told that if they raise the salaries of their employees, then they will be better off. So the Huffington Post argues:

“In a rigorous new study, Retail’s Hidden Potential: How Raising Wages Would Benefit Workers, the Industry and the Overall Economy, Demos describes the broad benefits that would be gained if the nation’s largest retailers established a voluntary wage floor of $25,000 for full-time, year-round employees. Such a move would lift millions of people out of poverty, bolster the American economy and strengthen the retailers’ own bottom line. This would not be a heavy lift for the industry. Retail is booming and profitability reached a ten-year high in the first half of 2012. The largest retail firm, Walmart, earned nearly $16 billion in the last year alone. While the U.S. economy and millions of American families have been struggling, Walmart has seen its net sales grow by more than $70 billion since the start of the Great Recession in December 2007.”

And in the meantime, what do we find if we travel back to reality? We find a struggling store chain. Walmart has recently “acknowledged that its low-income shoppers continue to struggle in the economy and issued an outlook for the fourth quarter — which encompasses the holiday shopping period — that falls below Wall Street estimates.”

The study and Huffington Post invoke the precedent of Henry Ford, who gave his employees wage increases. But this is an insane way of reasoning. Ford’s generosity is not necessarily unique. For all we know other entrepreneurs have done the same thing before or after Ford, but they may have all gone out of business and been forgotten. What we can know for sure about Ford is that he correctly guessed the future of the economy and his own business. He was able to pay them more and so he did. It was a risky venture and, in his case, it paid off.

Walmart can consider Ford’s actions and decide for themselves if those actions would work the same way. It is entirely risk-free for the Huffington Post blogger to second guess Walmart’s wage rates. It is not at all risk-free for Walmart to follow that advice. If they do it wrong they will go bankrupt.

Let’s be real clear. No matter how strong Walmart may seem, they can end up in the same place as Hostess Brands or Borders Books or Circuit City. National Corporations are not immortal; and retail chains are especially vulnerable.

You can go read the reasoning for yourself. It promises that Walmart shoppers would only have to pay an extra seven cents a shopping trip to support these pay rises. I have my doubts. This sounds like the kind of promises that were made for Obamacare. Besides that, we already have a chain that sells to people who make more income. It is called Target. If Walmart was to raise their employee wages they probably would find it helped their competitors.

And besides, many of Walmart’s prices are already too high. I go to Aldi instead of Walmart because I am trying to make my money last. But I have no ill feelings toward the retail giant, so I hope they will ignore the seductive voices of think tanks that would lure them into bankruptcy.