Sam's layoffs, hiring freeze raise questions in industry - Wal-Mart Stores Inc. Sam's Club

Discount Store News, Nov 4, 1991 by Arthur Markowitz

Sam's Layoffs, Hiring Freeze Raise Questions in Industry

BENTONVILLE, Ark. - Wal-Mart has laid off 1,200 people in its Sam's Club operation and imposed a hiring freeze there, but the discounter's explanation for the moves has failed to answer questions circulating through the retail industry.

Wal-Mart and Sam's Club representatives describe the layoffs as a normal payroll adjustment that wasn't a specific response to the weak economy. The layoffs, they said, were designed to bring the wholesale club's costs in line with expenses. They declined further discussion.

Don Shinkle, corporate affairs spokesman, acknowledged that about two dozen jobs were cut at Sam's Club headquarters, with the other positions spread among the 192 clubs. Also, 12 Sam's managers were fired, reported the Arkansas Democrat, a Little Rock, Ark., daily newspaper.

Other sources said there was a hiring freeze at Sam's Club, but it was expected to be lifted in early November so that the stores could hire temporary seasonal employees.

Wal-Mart, recognizing the layoffs' blow to it's image as the nation's most successful retailer, has played up the 24,000 jobs its added corporatewide since Jan. 1, bringing total employment to 367,000.

But this growth only made the layoffs look worse, observers said. It raised questions about Wal-Mart's reputed controls, and why the job growth couldn't have been moderated so layoffs would not have been necessary.

Wal-Mart, has always made a big point of how important its workers are to its success. But it hasn't indicated whether laid off employees would be offered any outplacement service or jobs at new Sam's or Wal-Mart stores.

Sam's Club has about 35,000 workers and has added 54 clubs so far this year. The layoffs average about six people per club or about 3% of the warehouse club division.

Sam's Club could obtain substantial immediate savings from laying off the workers, but whether the dollars would make a meaningful long-term impact on the wholesale club's expenses is open to question.

The discounter's most recent financial statement indicated that expenses in the Sam's Club operation weren't harming the company.

Wal-Mart's quarterly report says operating, selling and general/administrative expenses as a percent of sales declined 0.64% and 0.48% for the three- and six-month periods ended July 31. It attributed this to decreased payroll and other expenses only partly offset by higher costs in other areas.

The financial statement goes on to note that the expense ratios to sales in the Sam's Club and McLane [food distribution division] are much lower than in Wal-Mart stores. This situation, combined with the higher sales in both businesses has "favorably affected" the company's consolidated expense ratio.

Wal-Mart hasn't laid off large numbers of workers in its 29-year history or in Sam's Club's briefer operation. The 1,200 firings, measured against Wal-Mart's highly successful operation, were a shock to the industry, unlike the situation at other troubled retailers like Sears, which cut 31,000 jobs and was applauded for its cost-cutting.

Wal-Mart's actions weren't in keeping with its image and raised questions the company failed to address, compounding industry bewilderment.