The Real Reason Wal-Mart Hired All Those People

Bloomberg View , September 24, 2013

Preparing for the holiday season, Wal-Mart Stores Inc. has announced plans to increase store staffing levels by moving 35,000 part-time workers to full-time status and another 35,000 temporary workers to part-time. The retailer says these workers will retain their new positions after the new year. (It will also add 55,000 seasonal employees.)

It’s a calculated risk that spending more -- in aggregate and, for new full-time workers, per employee -- to keep shelves accurately stocked will pay off in higher sales. Wal-Mart’s legendary logistics system is only as good as the items customers can actually find. As a Delaware customer told Bloomberg News reporter Renee Dudley back in March, “If it’s not on the shelf, I can’t buy it. You hate to see a company self-destruct, but there are other places to go.”

Political pundits love to talk about Wal-Mart, but the staffing announcement is a reminder that the fundamental realities of running a huge retailing operation aren’t about politics. Wal-Mart isn’t increasing staff to placate union critics or enter urban markets. The move also bucks the story, popular among Obamacare critics, employers slashing workers’ hours to dodge health-insurance mandates.

Wal-Mart is adding staff to please its customers, not its employees, its critics, or the government. It’s worried about losing individual item sales and, ultimately, alienating its customers altogether. In the long run, the only way a brick-and-mortar store can survive is by having the things people want to buy at the moment they want to buy them. Amazon, with its endless ambition and relentless customer focus, is Wal-Mart’s long-term competition.

In February, Bloomberg’s Dudley broke the story that chief executive officer Bill Simon had told executives that stock outs were worsening and identified them as one of the company’s “self-inflicted wounds.” In subsequent reporting, she documented a flood of complaints from Wal-Mart customers. At the company’s June annual meeting, shareholders approved a new management incentive program whose performance measures included “on-shelf availability.”

Wal-Mart’s brand promise to maintain a comprehensive selection of merchandise requires a great deal of labor to monitor and stock its shelves. That’s why, as Megan McArdle noted in her series of posts comparing it to Costco, the retailer can’t simply adopt a high-wage, low-staffing model. It’s also why, as much as it might have tried, it can only cut staffing costs so much.