Shares of Wal-Mart Stores, Inc. (NYSE: WMT) continue to struggle in 2015, down more than -33% year to date. The big box retailer continues to push through new corporate initiatives that have eaten up resources and earnings. Wal-Mart has over 11,500 stores in 28 countries worldwide and employs over 2.2 million people; 1.4 million of those workers are located in the United States. Earlier in 2015, Wal-Mart announced it would raise the minimum wage for its workers in 2015 and again in 2016.
Furthermore, Wal-Mart has been frantically trying to beef up its online presence to take on one of its largest competitors, Amazon.com. To do this, Wal-Mart has invested more resources into its e-commerce platform, testing faster shipping services and even the use of drones in its deliveries. While Wal-Mart’s new initiatives could prove to be successful and help the retailer close the gap with Amazon, it may take some time to reach those results.
Minimum Wage Hike to Cost Wal-Mart Big Bucks
In February 2015, Wal-Mart made the shocking announcement that it planned to hike the minimum wage for its U.S. workforce. The retailer increased its minimum wage to $9 an hour for 2015 and announced it would increase it again to $10 an hour in 2016. While this certainly should help solve Wal-Mart’s high employee turnover rate, it comes at a steep cost. The company estimates the wage hike will cost an additional $1.2 billion in 2015 and $1.5 billion in 2016. Additionally, Wal-Mart has pledged to continue providing employees with new training that can help promote career growth. This wage hike comes after Wal-Mart employees went on strike during Black Friday 2014 in hopes of achieving higher pay.
Wal-Mart Eyes Online Grocery Service Dominance Over Amazon and Target
There is no denying the power of change the Internet has brought into people's lives. Having to leave home to shop for electronics, cars, clothing and accessories continues to be replaced by the convenience of online shopping. Wal-Mart has been investing in this area more and more over the past several years as online sales, as a whole, continues to show massive growth. Wal-Mart continues to experiment with an online service to take on Amazon Prime, but cost remains a big issue.
Additionally, it has been well documented that Wal-Mart and Amazon are in talks with the Federal Aviation Administration (FAA) to allow the commercial use of drones for their operations. However, the latest and costliest online initiative has been to become the leader in online grocery shopping. Target, Amazon and Wal-Mart are the main companies attempting to control online grocery shopping. Target is testing its online grocery initiative around Minneapolis, San Francisco and New Jersey. Amazon has been testing its AmazonFresh grocery service in areas such as Seattle, Philadelphia, Brooklyn and some cities in California. Wal-Mart had been testing its service in San Jose, Denver, Alabama and Northwest Arkansas. However, the company announced it would begin testing the service in Atlanta, Nashville, Tucson, Charlotte, Fayetteville and Colorado Springs.
Wal-Mart is seeing profits and its stock price struggle. New areas of growth have caused it to invest in expanding operations to meet the changing landscape, which has proven to be quite costly. For years and years, Wal-Mart was constantly heckled over its low pay for its workers. In 2015, Wal-Mart took a big step in showing its appreciation for its workforce. While the move has been largely applauded, it will take some time for Wal-Mart to work with the new costs. Additionally, online shopping continues to be a massive area of growth, and Amazon dominates the space. Wal-Mart is attempting to take some of that share away from its competitor, but this move requires time and resources. Investors must remain patient with Wal-Mart Stores, Inc.