How Much Are Workers Worth to Walmart and Big Retail Stocks?

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How Much Are Workers Worth to Walmart and Big Retail Stocks?

The Atlantic‘s Derek Thompson recently illustrated the plight of the average retail employee in “The Sad, Slow Death of America’s Retail Workforce.” While consumers and retailer stocks like Walmart (WMT) and Target (TGT) have made out like bandits, those on the front lines have seen their job security slowly erode.

It’s bad enough that retail workers have to put up with rude customers on a daily basis (if you’ve ever worked retail, you know this is true). But when you consider  retail hourly earnings adjusted for inflation have actually declined over the past six years — combined with the fact job growth is all but nonexistent — you can’t help but feel sorry for these people.

The retail industry, which was prodded into action by Jeff Bezos’ brilliant work at Amazon (AMZN), started utilizing e-commerce as a way to increase productivity while lowering overall costs. Since 2000, e-commerce revenues have gone from representing less than 1% of overall revenue for retail stocks to slightly more than 6% by 2013. Retail sales in the U.S. totaled $4.5 trillion in 2013; any company able to boost its e-commerce efforts is going to see a marked improvement on its bottom line.

The number that really catches my attention is sales per employee, which have more than doubled over the past two decades to $25,000.

Using data from five different retail businesses operating in different segments of the industry, here’s just how much workers are worth to big retail.

Walmart

Big-box retail stocks created the most jobs of any retail segment between 2001 and 2013. And as the world’s largest retailer, Walmart (WMT) is responsible for more than 93% of the 535,000 jobs created this century. In terms of productivity, Walmart grew its revenue per employee on an annualized basis over the past five years by 2.5%. At the same time  WMT stock grew by 10.5% annually meaning every 1% increase in revenue per employee was worth a 4.2% bump in its stock price every year.

Meanwhile, over the same five years, its total number of employees on a global basis grew by less than 1% annually to 2.2 million.

Williams-Sonoma

Anyone who follows specialty retailer Williams-Sonoma (WSM) knows it generates almost 50% of its annual revenue via e-commerce. In 2013, its direct-to-customer business (92% e-commerce with direct mail catalogs the rest) generated revenues of $2.1 billion, just $157 million less than its retail stores. However, when it comes to operating profits, direct-to-customer delivered $502 million — double the profits of its bricks and mortar.

As a result of this e-commerce success, Williams-Sonoma grew its revenue per employee by 7.3% annually over the past five years while its stock grew by 40.8% on an annualized basis. That means a 1% increase in revenue per employee was worth a 5.6% bump in the WSM stock price. Meanwhile, total employees at this retail stock declined by 2,000 to 28,000 between 2009 and 2013, highlighting just how important e-commerce can be to big retail.


Article printed from InvestorPlace Media, http://investorplace.com/2014/05/retail-stocks-amazon-amzn-wmt-walmart/.

©2014 InvestorPlace Media, LLC

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