Walmart Boosts Wages, But Also Closes Sam's Club Locations

Walmart (NYSE: WMT) sent some mixed messages last week.

The good news is that Walmart said it would hike pay for full-time and hourly staff to $11 from $9 starting February 17, 2018, and would give bonuses of up to $1,000 to certain employees who have worked at the company for 20 years or more. They will also now grant 10 weeks maternity leave and six weeks of paid parental leave for full-time hourly associates. The retail giant, America's largest private employer, credited the raise to the Republican tax plan. The wage lift may also reflect a generally tight labor market, with competitors like Target (NYSE: TGT) also raising wages to attract workers.

The same day it announced the raises, though, Walmart also announced some bad news: it plans to close 63 Sam's Club locations nationwide, and has already begun the shutdown process for some locations, in some cases without first notifying employees.

Sam's Club is a membership-only wholesale club store. Owned and operated by Walmart since 1983, Sam's Club has experienced decline in business in the past few years (3).

Since 2013, Walmart has closed a total of 5. Analysts have pointed to several strategic failures on the part of Sam's Club to explain its recent decline in business. For instance, Sam's Club appears relatively upscale, based on merchandise and selection compared to Walmart, yet its target demographic is not as explicitly upscale as that of its direct competitor, Costco (NASDAQ: COST). Sam's Club has publicly acknowledged that it needs to improve its ability to target households with incomes between $75,000 and $125,000.

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Unable to distinguish itself, Sam's Club has been losing customers to Costco, Amazon (NASDAQ: AMZN), due to the parallel business structure of the Prime membership, and even Walmart itself, due to an overlap in the products the two offer. Competitors like Boxed, the so-called "Costco of millennials," have also drawn consumers away from Sam's Club.

Walmart plans to turn 12 of the 63 closed stores into e-commerce facilities, with the first conversion taking place in Memphis, Tennessee. This move is part of Walmart's broader plan to invest more resources into its online capabilities. Walmart is aggressively moving into the realm of e-commerce, and recently acquired Amazon competitor Jet.com.

The simultaneous shuttering of Sam's Club locations and the boost in wages reflect two different sides of the same tax plan coin. While the new and lower corporate tax rate and an overall low unemployment rate has prompted companies to boost benefits for workers, it also means that companies may save more money from laying people off than before. The tax bill also brings increased incentives to automate and increased incentives to buy new equipment sooner rather than later - both of which might lead to increased layoffs.

Walmart isn't the only company to do this. AT&T (NYSE: T) came under fire for laying off employees just days after it announced raises, as did Comcast (NASDAQ: CMCSA).