Economy First Look

Why Wal-Mart is cutting office jobs, but sparing stores

Many iconic retail chains are cutting back these days. But one year after raising the wages of its retail staff, Wal-Mart is instead cutting back at the corporate level.

Job postings are shown outside a new Walmart Super Center as the company opens its first store in Compton, California, on January 10, 2017.
REUTERS/Mike Blake
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Even the world’s largest retailer can’t avoid the challenges facing brick-and-mortar stores. Wal-Mart will soon cut hundreds of jobs from its Bentonville, Ark., headquarters and its regional offices, as The Wall Street Journal first reported this week.

The announcement comes amid a downturn for some traditional retail stores. Macy’s and Sears are cutting back, as The Christian Science Monitor reported last week, as more consumers shop online or at discount-rack stores, although some segments, like fast fashion, have bucked the trend. Wal-Mart, which predicts flat earnings growth for its next fiscal year, is also feeling the pinch. “We are always looking for ways to operate more efficiently and effectively,” spokesman Greg Hitt told Fortune, although he did not confirm job cuts.

But unlike other troubled chains, which have closed stores and laid off retail staff, Wal-Mart is cutting costs at the corporate level. Meanwhile, it’s continuing an expensive – and controversial – effort to improve its stores by paying workers more.

For years, labor groups criticized Wal-Mart for its treatment of retail staff, including its wages and a lack of unions. A 2011 study from the University of California, Berkeley found that its employees earned an estimated 12.4 percent less than retail workers as a whole, and 14.5 percent less than workers in large retail in general.

Last year, the chain announced a "two-year, $2.7 billion investment in workers," in which all employees hired before January 1st, 2016 would receive at least $10 per hour; new hires' wages would start at $9 per hour, but increase to $10 after they complete a training program.

Amid rising concerns about inequality and low minimum wages, this pay hike at the world’s largest retailer sparked debate. Some saw the wage hikes as a smart business decision that better motivated workers and reversed years of customer complaints about poor service.

But others saw the wage increase as trouble for Wal-Mart’s bottom line, and dismissed some arguments in favor of it – such as the idea that better-paid employees would spend more in-store, helping to offset the losses of paying higher wages. 

Other critics argued the wage hike didn't go far enough, as the Monitor reported in 2015:

But advocates for low-wage workers, while supporting the wage boost, say the pay increases will have minimal effect on workers' lives without a full workweek.

Companies like Wal-Mart have turned the scheduling of part-time workers into a science, says Tsedeye Gebreselassie, senior staff attorney with the National Employment Law Project. Computer programs used by Wal-Mart and other large retail outlets piece together employee schedules and are frequently programmed to keep employees' hours below the threshold where benefits kick in, she says.

“These are super-sophisticated programs that work in real time calculating to the minute based on customer traffic, calling people in to work and sending them home accordingly,” she says. “Working there makes it nearly impossible to plan a stable budget, have another job, or go to schools.”

This week's job-cutting news comes as the latest of several Wal-Mart cost-cutting measures which have left white-collar employees in Bentonville uneasy. In September, the company announced it would cut 7,000 back-office positions; last October, it eliminated 450 positions at headquarters, a move it said would make Wal-Mart more "nimble."

But unlike their counterparts at Sears or Macy’s, the sales associates at your local Wal-Mart are probably breathing a sigh of relief.