450 laid off at Wal-Mart headquarters

CEO: Retailer must change

Wal-Mart Stores Inc. employees leave the home office in Bentonville in this October 2015 file photo.
Wal-Mart Stores Inc. employees leave the home office in Bentonville in this October 2015 file photo.

Wal-Mart Stores Inc. laid off 450 home office employees across multiple departments Friday as part of a restructuring effort by the retailer.

CEO Doug McMillon informed employees of the layoffs in a morning email with the subject line "A company positioned for the future." McMillon wrote that "as a leader, these are some of the toughest decisions to make. While difficult, I believe these changes will help us become a more nimble organization that serves customers better."

Company executives have been evaluating the structure of Wal-Mart's Bentonville headquarters for months. McMillon and others within the company spoke throughout the year about needing more efficiency in the way Wal-Mart operates at its home office, where it employs about 18,600.

Wal-Mart trimmed its earnings estimates for the year in August and has been looking for ways to improve its bottom line with modest sales growth and a more than $1 billion investment in employee wages. The retailer, which has also earmarked $1.5 billion for e-commerce expenditures this year, saw profits decline 15 percent in the second quarter.

A steady flow of people walked in and out of the main entrance of Wal-Mart's home office throughout the morning Friday. Occasionally, the traffic included a person carrying a box or rolling belongings on a cart to the parking lot. All declined comment when approached.

Laid-off employees will receive 60 days of pay with benefits. They also will receive severance, earning two weeks of pay for every year of service with Wal-Mart.

All employees laid off were salaried employees. No hourly positions were affected.

Wal-Mart, which employs 1.3 million in the U.S. and more than 2 million worldwide, also is providing job-search assistance. A handful of layoffs began Thursday, but the majority of the 450 affected were informed during Friday morning meetings.

"Please engage your leaders and have the courage to ask questions," McMillon wrote. "We must be transparent with each other so we can begin the process of moving forward."

Potential layoffs at the home office were first reported by the Arkansas Democrat-Gazette in July. McMillon hinted at possible changes coming at a June retail conference in Springdale when he said Wal-Mart had a situation where "lots of PowerPoints get built, lots of pre-meetings are held to socialize things so people aren't surprised during a meeting. That is bureaucracy. That slows us down."

Edward Jones retail analyst Brian Yarbrough said the cuts did not come as a surprise to the investment community. Yarbrough characterized them as part of the normal ebb and flow of the retail industry, noting previous layoffs by Wal-Mart and competitor Target.

These are the largest cuts at Wal-Mart since 2009, when about 800 workers were laid off at the Wal-Mart home office. Sam's Club, the warehouse retail division of Wal-Mart, trimmed 2,500 employees nationwide in January 2014, and Wal-Mart cut 300 jobs in February 2010.

Because the percentage of employees laid off was so low, Yarbrough said the announcement figured to have little impact with Wall Street. Wal-Mart stock closed Friday at $64.98, up 71 cents.

"Wal-Mart management has been talking about becoming more efficient, and they know from previous experience that taking employees out of the stores is not the right avenue," Yarbrough said. "So they had to look at where there might be fat, and it was headquarters. This is not something that is totally surprising. We've seen the same thing at Target with a new CEO who came in talking about removing management layers and improving efficiency."

Target laid off 1,700 employees in March. It also announced then that it wasn't filling another 1,400 jobs.

Layoffs at Target came less than a week after CEO Brian Cornell outlined a restructuring plan aimed at saving $2 billion and helping the retailer move faster. Cornell said the company needed to get more efficient and leaner as it ramped up investments in technology and the supply chain.

Wal-Mart has also talked of becoming more nimble and is in what McMillon has described as a period of investment. Even during that growth, the CEO, who took over the position Feb. 1, 2014, has stressed the importance of evaluating operations at the home office.

Capital investments have largely been centered on improving the customer experience and making store-level employees happier and more engaged.

Wal-Mart's plan to improve operations and boost its bottom line has also included changes to supplier agreements in an effort to control costs. The retailer is looking for multiple ways to regain its footing and is working to improve foot traffic and sales in stores, plus increasing its online reach and launching new services such as grocery pickup.

During its second-quarter earnings report in August, Wal-Mart downgraded its outlook for the 2016 fiscal year to between $4.40 and $4.70 per share. Previously the retailer issued guidance of between $4.70 and $5.05 per share.

"Our customers are changing, retail is changing and we must change," McMillon wrote in Friday's memo to employees. "We need to become a more agile company that can easily adapt to shifting customer demand. After months of evaluation, we've concluded there is an opportunity to better position our Home Office teams to move with speed and purpose. This results in 450 associates being displaced today."

Layoffs at the home office are expected to have minimal impact on the Northwest Arkansas economy. Kathy Deck, director of the Center for Business and Economic Research at the University of Arkansas at Fayetteville, said a region should expect to handle these types of job losses when it is home to a large company.

Deck said it is possible that the Bentonville area's residential real estate market could take a hit, but noted that the overall economic impact will be minimal. Northwest Arkansas' unemployment rate was 3.6 percent when numbers were released in August. Unemployment for the state of Arkansas is 5.4 percent.

"Wal-Mart's restructuring does absolutely nothing to weaken the potential of Northwest Arkansas as a job-creating machine," said Deck, speaking Friday at the State of the Northwest Arkansas Region Quarterly Business Analysis luncheon. "In fact, we want Wal-Mart to run right, to pursue its strategic missions and have the right resources in place to be a successful company over the long term."

Deck said laid-off workers will likely find jobs in the local vendor community or start their own companies, and some will move out of the area.

Supplier recruiting firm Cameron Smith & Associates first alerted its employees to the possibility of layoffs with a July memo. Smith said his firm had been receiving inquiries and requests for help during the months leading up to the official announcement.

Smith, as part of the June memo to his employees, urged empathy from his employees in dealing with laid-off workers. After official word that the layoffs had been carried out, Smith delivered the same message.

"It's not about business. It's not about us. It's not about placements," Smith said. "It's about empathy. We have a skill. We use it to make money and close deals every day, but that skill also entails counseling people when we know what they're going through and what they're going to go through. These are candidates, but they're friends. They're people who need us."

Information for this article was contributed by Christie Swanson of the Northwest Arkansas Democrat-Gazette and Robbie Neiswanger of the Arkansas Democrat-Gazette.

Business on 10/03/2015

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