From yesterday's New York Times:
"Many customers are running out of money at the end of the month," said H. Lee Scott Jr., the chief executive of Wal-Mart...
For the year, Wal-Mart said it would earn $3.05 to $3.13 a share from continuing operations, lower than its original forecast of $3.15 to $3.23.
Mr. Scott said Wal-Mart's shoppers, who generally earn less than $40,000 a household, are "under difficult pressure economically."
He added that "the paycheck cycle is more pronounced now than ever before," meaning that customers are left with little cash by the end of the month.
So people aren't making enough money to shop at Wal-Mart? How could that happen?
To find out, let's take a look at what America's biggest employer pays its workers:
A Substantial Number of Wal-Mart Associates earn far below the poverty line
In 2001, sales associates, the most common job in Wal-Mart, earned on average $8.23 an hour for annual wages of $13,861. The 2001 poverty line for a family of three was $14,630...
A 2003 wage analysis reported that cashiers, the second most common job, earn approximately $7.92 per hour and work 29 hours a week. This brings in annual wages of only $11,948.
The average two-person family (one parent and one child) needed $27,948 to meet basic needs in 2005, well above what Wal-Mart reports that its average full-time associate earns. Wal-Mart claimed that its average associate earned $9.68 an hour in 2005. That would make the average associate's annual wages $17,114.
Could there be a connection between America's largest employer paying its workers poverty-level wages, and retail companies finding fewer and fewer people who can afford to shop? Ya think?
Lee Scott should read up on another business tycoon who was faced with the same dilemma -- Henry Ford:
With the United States in the midst of a depression, the company had had a net income of more than $27 million and paid dividends of over $5 million in the previous year. As the discussion turned to projected expenditures for 1914, Ford began scrawling wage figures on a blackboard. He started with $2.34, the current base pay. The directors all agreed it could be increased. He calculated what $3 a day would cost, then $3.50, then $3.75, and on up to $4.75. Finally, as legend goes, his financial manager, James Couzens, dared him to raise it to $5. He did...
[T]he plan benefited the company in many ways. In addition to motivating his workers, Ford was, by giving his employees more disposable income (or any at all), also creating a consumer base for his product. He later claimed that with the $5 day "we really started our business, for on that day we first created a lot of customers."
(Emphasis mine)
Ford's pay policy informed a whole generation of industrial managers that doing well by their workers would mean doing well by their bottom line too. I wonder when the managers of the 21st century will figure that out?