COMMITTEE AGENDA OF: NOVEMBER 12, 2013
ITEM NO: III
Human Capital Management at
Wal-Mart Stores, Inc.
Presentation to LACERS Board of Administration
By John Marshall, CFA
UFCW Capital Stewardship Program
November 12, 2013
Human Capital Management at
Wal-Mart Stores, Inc.
35.00%
29.97%
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
2.25%
0.00%
-5.00%
-10.00%
-15.00%
Wal-Mart Stores Inc. (NYSE:WMT) - Share Pricing
S&P 500 Retailing (Industry Group) Index (^RLX) - Index Value
For further information, please contact Aaron Brenner, UFCW Capital Stewardship Program, [email protected], 212-701-9425
* Source: S:&P Capital IQ, 1yr stock performance through 9/23/13
2
Human Capital Management & WMT
• Retail labor is an undervalued resource across the industry
• Wal-Mart has underperformed
• Sales, total return lag peers
• Labor shortage a key driver of underperformance
• Execution failures: stock outs, long lines
• Result in lost sales and deteriorating customer service
• Negative reputation: constraining growth
• New geographic and demographic markets blocked
• Workers organizing to improve work/operations
• Wal-Mart’s response: illegal retaliation
• Legal and regulatory non-compliance increasing risk
• Stakeholders expressing concern
• Wal-Mart response: damage control & minor fixes
• Significant HCM improvement still elusive
3
Retail Human Capital Management
• Retailers chronically underinvest in labor
• Competitive pressure to cut costs
• Labor seen as large, controllable cost
• Store managers evaluated on managing payroll
• Labor has short-term costs vs. indirect long-term benefits
• Managers and investors have poor understanding of
long-term benefits
• Vicious cycle
• Underinvestment in labor -> low quality/quantity of labor ->
operational problems -> low store sales/profits -> low labor
budgets
• Wal-Mart a classic example
4
Retail Labor Optimization
L* = optimal amount of labor
L*
• Retail managers consistently employ too little labor
• Labor seen as cost driver, not a sales driver
• Managers incentivized to cut costs and meet short-term profit targets
• Analysis of 250+ stores over four years shows that 1σ increase in labor  10%
increase in profit margins
• Analysis of 500+ stores over 17 months shows that $1 increase in labor  $4 $28 increase in sales
Source: Zeynep Ton, “The Effect of Labor on Profitability: The Role of Quality,” Harvard Business School Working Paper 09-040 (2009); Fisher et al. “Retail Store Execution: An Empirical Study,”
Wharton School, December 2006.
5
Retail’s Vicious Cycle
Low labor
budgets
Low store sales
and profits
Low quality/
quantity of labor
Operational
problems
• Operational problems related to low quality/quantity of labor
include shrink, stock outs, phantom stock outs, overstock,
inventory inaccuracies, PoS data inaccuracies, long lines at
check-out, merchandising mistakes, poor customer service,
and, in extreme cases, storeroom safety hazards.
Source: Zeynep Ton, “The Effect of Labor on Profitability: The Role of Quality,” Harvard Business School Working Paper 09-040 (2009); Fisher et al. “Retail Store Execution: An Empirical Study,”
Wharton School, December 2006.
6
Retail HCM Role Models
• QuikTrip (convenience store)
•
•
•
•
•
•
Profits: 89% higher than top quartile in industry in 2010
Sales per square foot: 50% higher than industry average
Turns inventory 3X before paying suppliers
Shrink: 0.6% compared to 1.52% industry average
Fortune Top 100 companies to work for 6 years in a row
Ensures stores are not understaffed using relief employees
• Costco (club store)
•
•
•
Wages ~40% > Sam’s Club
Turnover <10% (5.5% for those who stay >year)
Sales per square foot and operating sales per square foot significantly higher
• Trader Joe’s (supermarket)
•
•
•
•
Starting wage: $40-$60K
Turnover <10%
Sales per labor hour 40% > average U.S. supermarket
Sales per square foot 3x average U.S. supermarket
• Mercadona (supermarket)
•
•
•
•
•
Salaried full-timers > 85% of workforce
Cross training
higher wages and 1 or 2 months bonus,
Turnover <4%
Sales per square foot: ~$1,250 v. Carrefour’s $800
Source: Zeynep Ton, “Why ‘Good Jobs’ Are Good for Retailers,” HBR, January-February 2012, http://hbr.org/2012/01/why-good-jobs-are-good-for-retailers/ar/pr, accessed September 24, 2013.
7
Wal-Mart Shares Underperform
Source: S&P Research Insight
8
Wal-Mart Stores Underperform
Source: Company Reports
9
Wal-Mart’s Labor Shortage
Change in number of stores, square footage, sales and
employees
FY 2008 to 2013
20.0%
16.8%
15.0%
11.7%
12.2%
10.0%
5.0%
0.0%
-5.0%
-5.8%
-10.0%
WMT US & Sam's Club Stores
Source: Company Reports
WMT US & Sam's Club Sq. Ft.
WMT US & Sam's Club Sales
US employees
10
Wal-Mart’s Inventory Problems
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13
Sales Growth
Inventory Growth
• Inventory growing faster than sales
Source: Goldman Sachs
11
Wal-Mart’s Execution Problems 1
12
Wal-Mart’s Execution Problems 2
“Additionally, we believe one of the key issues leading to heavy inventory is the
lack of labor in the stores to get the inventory out of the back rooms and onto
the sales floor.” – Cleveland Research
“… Walmart is also facing some tough press
when it comes to the store-level experience.
Forbes, Time, and Grocery.com are among
the many media sources piling on. In fact,
Walmart suppliers are also expressing some
frustration with out of stocks and in-store
execution. – 8th & Walton Blog
Source: http://www.thecitywire.com/node/29686#.UkGJRNJ02So, accessed September 24, 2013; http://blog.8thandwalton.com/, accessed September 24, 2013. Emphasis added.
13
Wal-Mart’s Execution Problems 3
• Not only does Costco have an advantage over Sam’s
Club, the advantage is growing
• Costco’s sales-per-square-foot advantage grew to
$462 from $369 between 2010 and 2012
• Costco’s operating profit-per-square-foot advantage
grew to $9.05 from $5.58 in the same period
Source: Company reports.
14
Wal-Mart Customer Dissatisfaction
“Among all retailers ASCI rated, none received a worse score than
Wal-Mart Stores (WMT) in its department and discount store rating.
When graded for customer satisfaction as a supermarket, Walmart's
ACSI score was not much better at 72. This was by far the worst in that
category.” – USA Today, March 16, 2013
Source: http://www.marketforce.com/press-releases/item/trader-joes-is-consumers-favorite-grocery-chain-according-to-market-force-study-/, accessed September 24, 2103
15
Wal-Mart Customer Dissatisfaction
University of Michigan Customer Satisfaction Survey
Target
Dollar General
Average
Wal-Mart
Source: http://www.theacsi.org/index.php?option=com_content&view=article&id=147&catid=&Itemid=212&i=Department+and+Discount+Stores, accessed September 24, 2013
16
Wal-Mart Expansion Blocked
• Untapped U.S. urban markets = $80 - $100
billion in sales
• Consumer, environmental, labor, and
community coalitions oppose Wal-Mart’s
expansion in many cities
• Expansion blocked or slowed:
• Summer 2012: Wal-Mart abandons two
•
•
•
•
•
•
stores in Boston area
September 2012: Wal-Mart loses bid to
open Brooklyn supercenter
October 2012: Wal-Mart abandons Denver
Neighborhood Market
Summer 2013: D.C. City Council passes
big box wage act requiring $12.50 per hour
– mayor vetoes
March 2013: Wal-Mart pulls out of
Hawthorne, NJ Neighborhood Market
September 2013: Wal-Mart withdraws
Holyoke, MA super center
September 2013: Judge blocks permits for
Burbank Wal-Mart
Source: Eduardo Castro Wright (former Vice Chairman), from Wal-Mart Stores, Inc. 16th Annual Meeting for the Investment Community, Transcript of Day 2, Session 6, p. 19; Press reports
17
OUR Walmart
18
Wal-Mart Retaliation vs. OUR Walmart
• Thousands of OUR Walmart members publicly calling on Wal-
•
•
•
•
Mart to improve wages, hours, standards, and respect labor
rights
Early June 2013: 100+ OUR Walmart members strike and
travel to Bentonville, AR, for protests at annual meeting –
return to work starting June 8
Starting June 21: Wal-Mart illegally fires more than a dozen
strikers and disciplines more than 50 for taking part in legally
protected strikes
OUR Walmart has filed more than 100 allegations pending
before the National Labor Relations Board, charging Wal-Mart
with unlawful retaliation
August 2013: NLRB finds 11 violations of labor law by WalMart
• Illegal threats against OUR Walmart members
Source: United Food and Commercial Workers, Investor Fact Sheet on Wal-Mart’s Illegal Retaliation against Protesting Workers, September 2013, available from [email protected]
19
Legal & Regulatory Non-Compliance
• In 2005, institutional investors voiced concern to Wal-Mart’s
•
•
•
•
•
•
•
Board about an apparent “culture of non-compliance and
disregard for ethical standards within the ranks of Wal-Mart’s
management.”
Yet non-compliance has persisted:
$1.18 billion paid in wage and hour violations since 2008
$418,600 paid in health & safety violations in 2012
$13.4 million paid in EEOC settlements 2006-2012
$19.5 million paid in discrimination lawsuits in 2009
$1.3 million paid by Wal-Mart-controlled warehouse for safety
violations and wage theft
Department of Justice and SEC investigations into Foreign
Corrupt Practices Act violations
Source: NYC Comptroller et al. to Wal-Mart Stores Audit Committee, May 25, 2005; UFCW, Wal-Mart’s Labor Problem: The Limits to the Low-Road Business Model, September 2012, available
from [email protected]
20
Mexico Bribery Scandal
• FCPA investigations have expanded from Mexico to India,
Brazil, China, and “other countries.”
• Through July 2013, Wal-Mart has spent more than $310
million on its FCPA investigations
Source: Company reports.
21
Wal-Mart’s Reputation Damaged
22
Wal-Mart’s Response:
• Wal-Mart attempting to
rehabilitate its reputation
• Stakeholder critique
leading to minor changes
• Retaliation continues
• Labor model persists
Investor Fact Sheet on Wal-Mart’s Illegal Retaliation against Protesting Workers
National Labor Relations Board Finds 11 Violations at Walmart;
Walmart Unlawfully Threatened Workers & Stifled Free Speech;
Dozens of Associates Illegally Terminated or Disciplined for Speaking Out;
NLRB Still Investigating Scores of Charges
•
Since June 2011, thousands of Walmart store workers in the U.S. have joined together in the Organization
United for Respect at Walmart (OUR Walmart) to call on Walmart to publicly commit to improving wages
and labor standards and to respect Associates’ labor rights.
•
In late May and early June, more than a hundred OUR Walmart members went on strike nationwide and
traveled to Bentonville, Arkansas for protests during the week leading to Wal-Mart’s annual shareholder
meeting on June 7.
•
The workers went on strike to protest the harassment, threats, changes to their jobs, and retaliatory discipline
they and their colleagues had suffered after speaking out about their wages, benefits, and working conditions.
•
Starting June 8, strikers began returning to work. Some of them had been on strike for as long as two weeks.
•
Starting June 21, two weeks after workers ended their strike, and continuing until today, Walmart has illegally
fired more than a dozen workers and disciplined 39 more workers for taking part in legally protected strikes.
See Appendix A1 for a list of terminated and disciplined workers, with their store numbers and locations.
•
Walmart told the workers and the press that the discipline and terminations were due to unexcused absences
during the strike. See Appendix B for examples of discipline/termination notices.
•
Discipline or termination for absence due to striking is illegal under United States law, and the National Labor
Relations Board has upheld this interpretation of the National Labor Relations Act in a number of cases.2
•
OUR Walmart strikers who were disciplined have documentation that proves they were on strike during the
absences for which they were disciplined. This documentation includes signed statements submitted to the
company indicating that the workers were participating in a strike “to protest Wal-Mart’s attempts to silence
Associates who have spoken out against things like Wal-Mart’s low take home pay, unpredictable work
schedules, unaffordable health benefits, and Wal-Mart’s retaliation against those Associates who have spoken
out.” See Appendix C for examples of these statements.
•
Further documentation that the workers were on strike includes signed letters submitted to the company
offering to return to work. See Appendix D for examples of these letters.
•
The retaliatory terminations and discipline were not the first. In May, Vanessa Ferriera, an OUR
Walmart leader in Florida was terminated for speaking out, and Carlton Smith, an OUR Walmart leader in
Southern California, was fired after returning from an OUR Walmart meeting in Birmingham, AL. OUR
•
On July 1, 2013, legal counsel for OUR Walmart wrote to Walmart Executive VP and General Counsel Karen
Roberts, to demand that the illegal terminations and discipline cease and that the company reinstate
terminated employees with back pay and rescind all discipline for those employees who struck. To date,
Walmart has not responded. See Appendix E.
1
For appendices, please contact Aaron Brenner, UFCW, [email protected], 212-701-9425.
Comfort Inc., 152 NLRB 1074 (1965); Kolkka Tables, 335 NLRB 844 (2001); and M&M Backhoe Service, Inc. 345 NLRB
462 (2005).
2
•
In July, OUR Walmart filed an Unfair Labor Practice charge with the National Labor Relations Board,
requesting “expedited investigation and a Section 10(j) injunction directing Walmart to immediately reinstate
all Associates who Walmart has terminated for exercising their section 7 rights to engage in a ULP strike, to
rescind all discipline of Associates for striking, and to prohibit Walmart from terminating or disciplining any
other Associates for striking.” In September, OUR Walmart filed a supplemental ULP charge naming
additional employees who suffered discipline and/or termination. See Appendix F and Appendix G.
•
In total, OUR Walmart has filed over 100 allegations pending before the NLRB, charging Walmart with
unlawfully retaliating against and attempting to silence workers at stores across the country.
•
In late August 2013, the National Labor Relations Board found 11 violations of labor law by Walmart in
California related to OUR Walmart:
o
o
o
Northern California
Placerville:
• 1. A Walmart manager illegally threatened an associate that the store would close
if enough workers joined OUR Wal-Mart.
• 2. A store manager unlawfully videotaped and/or photographed employees who
were rallying outside the store (and not blocking any entrances).
San Leandro:
• 3. Walmart unlawfully told an associate that he could not wear an OUR Walmart
T-shirt because management found it “offensive.”
Richmond:
• 4. Management unlawfully disciplined associates for engaging in an in-store
protest.
• 5. Management unlawfully required an associate to remove his OUR Walmart Tshirt on his break time. The company disparately enforced the dress code policy
regarding logos, allowing other non-OUR Walmart logos while preventing
associates from wearing the OUR Walmart logo.
• 6. Management illegally told associates that Walmart would fire all of those who
walked off the job.
• 7. A manager threatened to kill associates who joined OUR Wal-Mart.
• 8. Management unlawfully told associates not to speak with those who had been
on strike.
• 9. Management unlawfully retaliated against employees who went on strike by
removing them from his crew.
Southern California:
La Quinta:
• 10. Walmart illegally threatened an employee that the store would close and she
would lose her job if workers joined a union.
Statewide:
• 11. Wal-Mart’s California dress code guidelines unlawfully interfere with
associates’ rights to wear OUR Walmart logos.
The next step for each charge is a) the NLRB issues a complaint and holds a hearing; or b) Walmart
agrees to settle the charge, usually with a notice posting its stores. For example, the NLRB has issued
a complaint for the La Quinta violation. See Appendix H.