In 2015, Walmart initiated the biggest worker pay raise in the history of any corporation. The day they announced the wage hike, Walmart’s stock fell 10%, erasing nearly $22 billion in market value.
Investors were apparently unimpressed with CEO Doug McMillon’s decision to ratchet up investments in the retailer’s stores and staff – a strategy that was designed, in part, to address the high employee turnover and low morale that Walmart executives believed were contributing to a poor customer experience.
McMillon’s plan involved raising the starting wage for store workers to $9/hour (above the then-federal minimum wage of $7.25/hour), giving nearly half a million Walmart employees an immediate pay hike. And efforts to make the staff feel more valued weren’t just limited to additional monetary compensation. The company also introduced a variety of new benefits for store employees, including paid family leave and new training to better prepare workers for promotions. The investments didn’t stop there; McMillon also launched infrastructure improvements to enhance stores’ efficiency and appearance.
For a company that prided itself on being the low-cost provider across a wide selection of goods, these were significant and controversial investments. The salary increases, alone, would have a material impact on Walmart’s operating costs, a line item that the company had always aggressively managed to support its “everyday low price” strategy.
Addressing skeptical shareholders and analysts at a late 2015 investor meeting, McMillon summarized his rationale for these investments by telling those gathered: “You clean up your house before you invite people over.” What a clever way to invoke the spirit of hospitality to defend a strategy that (at least initially) left many outside of Walmart scratching their heads.
“You clean up your house before you invite people over.”
— Walmart CEO Doug McMillon
Fast forward a decade and Walmart’s gamble on improving their employee (and customer) experience has paid off handsomely:
- The company’s staff turnover has fallen by 10%.
- Their sales have grown every year since 2015.
- Their stock has more than doubled in value since 2020 (far outpacing its peers).
- Their employees are happier, with the number viewing Walmart as a great place to work rising by nearly 60% between 2017 and 2023.
- In 2024, for the first time in Walmart’s 60+ year history, they earned a spot on Fortune’s list of the 100 Best Companies To Work For.
It’s such a compelling success story that Harvard Business School recently prepared a case study documenting the company’s approach to workforce management, with the hope of teaching a new generation of executives about the return on investments in workers.
Walmart’s story offers several important lessons for business leaders:
1. Employee turnover is costing you more than you think.
For anyone who has ever questioned if investments in employee experience pay off, look no further than the reduction in hard dollar costs (recruiting, hiring, onboarding, training) associated with declines in staff turnover. Add on top of that the cost of impaired productivity (as newly hired workers take time to get up to speed), and it’s not difficult to quantify the ROI of a better and more turnover-resistant employee experience.
2. Happy employees help create happy customers.
As Watermark has documented via our own client engagements, there is a clear correlation between employee satisfaction and customer satisfaction. Happier employees who stick around longer help to create happier customers who come back more often. A robust CX strategy must focus not just on the experience of customers, but also on the experience of the employees who serve them.
3. It takes courage to invest for the long-term.
The economic calculus behind great customer experiences requires a holistic, long-term view. The investment Walmart made in its stores and staff was not one that would pay dividends in a quarter or two – which is why, particularly for a publicly-held company, it was such a bold and gutsy move. McMillon and his team recognized that they were incurring a significant up-front cost, but one that paved the way for an even more significant long-term benefit.
A few years before Walmart made its strategic shift, Herb Kelleher (co-founder of Southwest Airlines and one of the earliest and most vocal proponents of an employee-focused business strategy) was interviewed by CNBC. Describing his airline’s highly successful and durable strategy, Kelleher explained the company’s prioritization of interests: “Employees first, customers second, shareholders third.”
Let that sink in for a moment: Kelleher at the time was Chairman of publicly-traded Southwest, and he unapologetically asserted that shareholders came third! How’s that for a courageous declaration?
Kelleher went on to explain the mechanics of his philosophy: “If you treated the employees well, if you cared for them, if you value them as people… they would really do a great job for the customers and the customers would come back, which would be good for the shareholders.”
Spanning over half-a-century, from Southwest to Walmart, this is a fundamental business truth that has been proven time and time again: Be good to your employees and they’ll be good to your customers.
It really is that simple.