☰ Menu

Steering retailer toward future

New Wal-Mart Stores CEO must face down Amazon and unions

By Megan McArdle
Bloomberg News

Wal-Mart Stores Inc. surprised everyone last week when it announced that CEO Mike Duke would step down. He’ll be replaced by Doug McMillon, a career insider who has been touted as a possible future CEO for a while — but not the very immediate future.

McMillon is coming into a more challenging environment than the one that faced many of his predecessors. On one side, he’s got pushing on his margins.

Walmart’s prices aren’t 
crazy-good compared with Amazon. They’re still at a very good price point for some of the stuff I buy from Target, such as clothes, and their toy prices seemed good.

But their electronics and kitchen appliances weren’t particularly amazing compared with Amazon or Costco. Walmart still has a competitive advantage among cash customers (a surprisingly high percentage of its customer base), but as Amazon builds warehouses closer and closer to the customer, I suspect Walmart is in for a fight.

On the other hand, McMillon faces renewed interest from unions in forcing wages higher. The group called OUR Walmart says it’s not trying to organize Walmart workers. They’re getting information out about Walmart’s labor practices and encouraging Walmart to raise wages — from the sidelines, not as part of an organizing campaign.

This puzzled me — why not try to organize Walmart? So I asked my father, who used to head a trade association that handled collective bargaining for New York’s heavy-construction industry. He pointed out that once you’re in an organizing campaign, you face legal restrictions: You can’t target suppliers (that might be interpreted as inciting a secondary strike, which is illegal), and you can’t really target customers. If you’re organizing the workers, you have to focus your campaign on the workers.

So far, the United Food and Commercial Workers union hasn’t gotten very far in trying to get the workers to sign on. Retail jobs tend to have a lot of turnover, which makes organizing campaigns tricky: You spend months persuading workers to organize, and 65 percent of them leave before your campaign really matures, and you have to start over with their replacements. And Walmart infamously employs the toughest squad of management-side labor attorneys around.

The informational campaign allows OUR Walmart to pressure the company through its customers, and more broadly through voters rather than its workers. Clearly the union has decided that this is more fertile territory. After all, if Walmart raises wages, the UFCW wins even if those workers aren’t dues-collecting members, because it lessens the competitive pressures on the jobs of the workers they have organized.

Is it going to work? I’m skeptical. Walmart’s core customer base is in rural areas and the South — not fertile political territories for organizations like the UFCW. And its core customers are “extreme-value shoppers” who care a whole lot about price, because at their income level, Walmart’s lower prices mean a substantial increase in their standard of living.

So OUR Walmart is going to have a hard time achieving much more than satisfying political theater.

But that doesn’t mean McMillon can ignore it. He is going to have to steer the company through a more competitive retail environment in which Walmart is no longer necessarily the price leader, in a tougher political environment with fierce pressure to raise wages. And the two problems interact: Amazon’s business model is inherently higher productivity than a big-box retailer, which means that as wages rise, Walmart’s cost advantage shrinks. By all accounts, McMillon is a talented executive. All of those talents will be needed to steer Walmart into the next decade.


Prev Next
  • Main Blog Promo
  • Cavs Blog Promo
  • Browns Blog Promo
  • Indians Blog Promo
  • Beer Blog Promo
  • Fracking Blog Promo
  • High School Blog Promo
  • Zips Blog Promo
  • Akron Dish Food Blog
Prev Next