Wal-Mart Job Cuts: Signs of Apocalypse or Just Job Shuffling

Jan.25.10 | About: Wal-Mart Stores, (WMT)

Job cuts are hardly ever good news, but are we reading too much into Wal-Mart’s (NYSE:WMT)decision to cut 11,000 or so workers at Sam’s Club?

It’s true that Wal-Mart is shedding 10,000 Sam’s Club workers (many of them part-time) that handle in-store promotions. But Shopper Events, the firm to which the task is being outsourced, says it will hire about the same number of people, many of them likely to be the people already doing that work, in Wal-Mart’s employ. Essentially it is mainly a shuffling of people off WalMart’s books and onto somebody else’s.

Brian Cornell, president and chief executive of Sam’s Club, said the move was aimed at boosting sales and customer loyalty, not cutting costs. ”

Operationally, we see this as a net neutral. – Sam’s Club

There’s a lot of PR bluster in the company’s announcement (”It will give us the opportunity to highlight our value and selection to our members in food and beverage products, personal wellness and electronics,”) but the net effect is that it makes the company look like it is cutting more than it is, thereby impressing the markets.

Wal-Mart announced 1,200 other job cuts at Sam’s Club, but those may be less of an indicator of overall weakness in the warehouse club sector, than it is the result of Sam’s Club’s underperformance relative to industry leader Costco Wholesale (NASDAQ:COST).

Burt P. Flickinger III, managing director of Strategic Resource Group, a retail consulting firm in New York, says Costco’s highest-performing stores can bring in $150 million to $250 million each in annual revenue, about five times that of Sam’s Clubs in the same market.

Excluding the effects of currencies and oil prices, Costco’s comparable store sales in the office weeks ended Jan 3 were up 4%, with 2% growth in the U.S. and 10% growth in the International markets. Not too shabby given the economy.

(Disclosure: a little bit long Costco.)