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Wal-Mart Cuts 450 Jobs from Headquarters to Lower Expenses

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Out of its approximately 18,000 employees, Wal-Mart Stores Inc.WMT laid off 450 workers on Friday at its headquarters in Arkansas. The job cuts are intended to keep its pricing competitive and reduce expenses as it has already invested heavily in its e-commerce business and is paying higher wages. The employees affected include senior and department managers in different domains, from finance to global e-commerce.

The recent job cuts at its headquarters came after 2010 when 300 jobs were eliminated. In 2009 too, the discounter laid off 800 employees as the U.S. emerged from recession. Like Wal-Mart, other retailers are also cutting jobs to keep their pricing competitive. Target Corp. TGT has laid off 1,700 employees this year, largely at its headquarters in Minneapolis, while Whole Foods Market, Inc. WFM announced this week that it would cut 1,500 jobs over the next eight weeks.

We note that Wal-Mart's performance has not been up to the mark for quite some time now. This Bentonville, AR-based company has been posting disappointing results for the past several quarters due to sluggish U.S. sales. Wal-Mart is facing intense competition on all fronts, ranging from dollar stores to the traditional grocery store chains and online business. It is also trying to keep pace with the rapidly changing behavior of shoppers.

Wal-Mart also anticipates huge expenses over the near term. In an effort to compete with the biggest online retailer Amazon.com, Inc. AMZN and to improve customer service, Wal-Mart is aggressively investing in its e-commerce business. Earlier this week, Wal-Mart stated that it is expanding its online grocery service to eight more locations and launching a free pickup service for online grocery orders in select U.S. cities. Wal-Mart is currently offering the service in five other markets, as part of a test that first began in 2011. (Read: Wal-Mart Expands Online Grocery Service; Debuts Free Pickup ).

The company has already pledged to spend $1 billion to raise employees' wages and give them extra training, which has raised the expense burden of the retailer. We note that Wal-Mart had increased its minimum wage to $9 an hour in April, and expects to increase it to $10 per hour in Feb 2016. Higher labor costs along with the company's efforts to overhaul its stores and invest in its online operations have weighed on its earnings.

The company is thus looking to increase margins by cutting down on costs and at the same time making efforts to pass on lower prices to customers. Last month, per Bloomberg, the company slashed workers' hours at some of its store locations in an effort to check its costs. Wal-Mart told its store managers to cut hours of those workers who are working beyond the allocated time.

Reportedly, Wal-Mart even tried to put pressure on more than 10,000 suppliers worldwide for a 2%-6% reduction in the costs of general Chinese goods such as apparels, shoes, beauty products, and electronics. It intends to share the savings generated from currency headwinds in China to provide its customers with lower prices.

Coming back to the job cuts, we believe such a strategy is expected to help the company to reduce expenses. However, the company might face criticism for the job cuts and lose some of its best employees to competitors.

Wal-Mart carries a Zacks Rank #5 (Strong Sell).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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