Bill Simon, president and CEO of Walmart U.S., made a big splash yesterday when he announced two new initiatives the firm will launch this year: One focusing on putting returning veterans to work, with a promise to hire 100,000 veterans over the next five years, as well as a push to increase the dollar amount of American-made products the firm purchases by $50 billion over ten years.
The programs received praise from the likes of First Lady Michelle Obama; Jim Knotts, CEO of the veteran-support group Operation Homefront; as well as Scott Paul, president of the Alliance for American Manufacturing. But before we fall over each other to join these luminaries in their praise of the world’s biggest retailer, it’s worth taking a moment to dig deeper into the numbers.
First, though, let it be said that the goal of hiring veterans is a noble one, and one that should in many cases make business sense as well. As Simon said yesterday in his speech announcing the initiative, “Veterans have a record of performance under pressure. They’re quick learners, and they’re team players.” But many veterans have struggled to find work in a tough economy. Though the overall employment rate for veterans is below the national average, the unemployment rate for post-9/11 vets sits at 10.8%, versus 7.9% for the nation as a whole, according to the Department of Veterans Affairs. Especially for this group, Simon’s pledge to, “offer a job to any honorably discharged veteran within his or her first twelve months off active duty” must sound like a good deal.
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But what exactly is Simon promising, and will he be helping veterans in a big way by fulfilling it? Walmart employs 1.3 million sales associates in the U.S. and claims an average annual turnover rate of 37%. At that rate, the company has to hire some 480,000 sales associates in the U.S. per year. If Walmart ends up hiring 100,000 veterans over five years, or 20,000 per year, that would account for only 4.2% of its total hiring. But according to the Veterans Administration and the Labor Department, veterans make up 9.3% of the civilian working population. To actually make a dent in veteran unemployment, Walmart would have to increase its annual hiring of veterans to 65,000, or 325,000 over five years — and hope other employers in the U.S. adopt similar hiring policies.
What about Walmart’s new efforts to “buy American”? Surely the American manufacturing sector could use a boost from the world’s largest retailer making a concerted effort to spend more on its products. And $50 billion over ten years probably sounds pretty concerted to most ears. But in Walmartland, most numbers are large and impressive. And when you compare that $5 billion per year in additional product purchases to what Walmart would likely be doing anyway, it’s reasonable to wonder whether it represents any special effort on behalf of veterans at all.
According to Walmart’s 2012 annual report, the firm increased its cost of sales (an accounting term that basically tells you what it pays its suppliers for products) by more than $21 billion from 2011 to 2012. This figure is more or less in line with annual increases in Walmart’s recent history. In other words, in a typical year of late, Walmart buys $21 billion more products than it did the previous year. Walmart doesn’t break out what percentage of these incremental costs are attributed to Walmart U.S., Walmart International, or Sam’s Club, but if we assume that the proportions mirror those of the firm’s operating profits, that would mean Walmart U.S. spends about $15 billion more each year on products than it did the year before.
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So by promising to buy $5 billion more each year in U.S. sourced products, Walmart is promising to spend one-third of its annual new spending on U.S.-sourced products. Not bad, right? But Simon claimed in his speech yesterday that “items that are made here, sourced here, or grown here account for about two-thirds of what we spend to buy products at Walmart U.S.” If this is true, then shouldn’t Walmart promise — at the very least — to maintain that two-thirds proportion in its new spending?
This is just back-of-the-envelope number crunching, but these calculations suggest that rather than creating new initatives to help solve social problems, Walmart is merely dressing up what it already planned to do. Perhaps that’s why the firm is obviously underestimating itself when it set these goals. In all likelihood, Walmart will end up surpassing these benchmarks by a large margin as the U.S. economy improves and more manufacturing comes back to America due to higher fuel costs and rising labor costs abroad. And then it will be in a position to drive home it’s PR coup by bragging about how the firm greatly exceeded its goals for hiring veterans and increasing its purchases of U.S.-sourced products.
Walmart tried something like this before, in fact — and it didn’t end particularly well. The company launched a “Buy American” campaign in 1985, but ended it after Dateline NBC discovered that some Walmart stores were advertising clothing made in Bangladesh as American-made.
When I presented these figures to Walmart spokesperson Randy Hargrove, he said that these goals of $50 billion in new buying of U.S.-sourced products and 100,000 new veterans are floors, not ceilings, and that in each case the numbers could go higher. But he was unable to say whether $5 billion per year in new spending on U.S.-sourced products represents an increase from what it’s done in previous years because the company “doesn’t break out those numbers.”
In Walmart’s defense, we perhaps should not expect the company to tackle social problems in a meaningful way. Walmart is good at doing a lot of things, but above all else it excels at offering products to the American public at ridiculously low prices, and thereby raising our standard of living. But private corporations aren’t all that great at solving social problems. That’s because curing social problems more often than not involves sacrificing something of value. And what does Walmart value more than anything else? Low prices for its customers. And Walmart won’t give up those low prices for anything, not the American manufacturing sector, the environment, or even veterans employment.