The past couple of years haven't been easy for Wal-Mart.
As a discount store whose financial results ebb and flow largely in tandem with the low-income consumer's health, stagnant wage growth and a recovery skewed toward affluent Americans have weighed on the mass merchant's U.S. sales.
On Thursday, however, Wal-Mart took a step toward putting more money into low-wage workers' pockets, when it promised to boost the hourly pay for 500,000 of its employees to $9 in the first half of the year. That number, which is $1.75 higher than the federal minimum wage, will increase to at least $10 an hour by February 2016—ensuring that none of its current employees make less than that hourly rate.
As the country's largest private employer—accounting for 1.2 million jobs at its Walmart U.S. unit, and another 110,000 at its U.S. and Puerto Rico Sam's Club locations—the move is expected to pump more cash into the economy, including at its own stores. And given Wal-Mart's influence over other large retailers, experts said some could mimic its move.
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But while the change will provide some much-needed financial relief for Wal-Mart workers, analysts said it will benefit the company even more over the long term, in the form of a hard-working and more loyal workforce—and therefore, better-run stores.
"What will be more important for them is better customer service, better store experience [and] quicker turnaround times on buy online, pick up in store," said Ken Perkins, president of Retail Metrics.
The employee effect
An added bonus: Much of the extra pay is expected to find its way right back into Wal-Mart stores, said Belus Capital Advisors analyst Brian Sozzi. "If you're a Wal-Mart worker, where do you spend almost every moment of your waking life?" he said. "Where do you buy groceries, where do you buy everything for your family? In a Wal-Mart store."
All that could translate to improved sales and profits for Wal-Mart, and—potentially—better returns for shareholders.
That said, this increase in spending probably won't make up for the 20-cent earnings per share hit the retailer expects to take during the current fiscal year, a result of the wage hikes, training and educational programs.
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That's especially true since many of its workers already make more than $9 or $10 an hour, said Craig Johnson, president of Customer Growth Partners. According to the retailer's website, its average full-time hourly wage in the U.S. stores is $12.94—though that also includes higher-paying managerial positions.
What it does do, however, is boost employees' loyalty to the retailer, lowering its turnover costs and helping it better retain trained employees longer, Johnson said.
"I think to the extent that they can provide more opportunities for their employees to advance … it's going to be a boon for them," Perkins said.
Frequently the subject of debate over fair pay practices, Wal-Mart has also been criticized for its slow checkout lines, out-of stock food and consumables departments and poor customer service. A survey released by the American Customer Satisfaction Index on Wednesday found that Wal-Mart ranked last among department and discount stores for customer satisfaction.
This is something that new CEO Doug McMillon has been working to correct. During the holiday season, for example, the retailer rolled out its "checkout promise" that all of its cash registers were open during peak shopping hours each weekend.
"We want to provide a great customer experience and we want our associates to know how much we value them," McMillon told CNBC. "We can't win if we don't create a situation where digital and physical come together in a way that customers are well-served."
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Along with boosting employees' pay, Wal-Mart said it will provide additional training, offer free or low-cost college credit and give workers more control over their scheduling. That includes providing some workers fixed weekly schedules, which would give them a steadier income flow.
In a note to employees published on Wal-Mart's website, McMillon—whose first job at Wal-Mart was loading trucks at a distribution center—said: "As important as a starting wage is, what's even more important is opportunity, and we'll continue to provide that ladder that any of you can climb. If you work hard, develop new skills and care for others, there should be no limit to what you can do here."
For its part, OUR Walmart, a group that frequently criticizes Wal-Mart over its pay practices, said that while it is "proud" of the raises it won for 500,000 workers, "this announcement still falls short of what American workers need to support our families."
Trends are improving, but challenges remain
Wal-Mart's news was rolled out with its fourth-quarter earnings results, which showed improving trends in the struggling domestic unit. The retailer's same-store sales results, which logged a 1.5 percent gain, were its strongest quarterly performance since third quarter 2012, Perkins said. Likewise, traffic was positive for the first time in nine quarters, Sozzi said.
Though the results were partly boosted by lower gas prices, food inflation and a stabilizing economy, Perkins said improvements to its online operations, fewer out-of-stock situations and strong sales at its smaller-format Neighborhood Market stores also played a role.
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The retailer opened more than 200 Neighborhood Market stores over the past year, and plans to open another 180 to 200 this year. Same-store sales at those locations outpaced Wal-Mart's supercenters, and posted 7.7 percent growth.
"Wal-Mart's coming back a little bit," Sozzi said.
Still, the retailer faces a number of headwinds. They include pressure on its international locations from a stronger dollar; e-commerce operations that are growing, albeit not quickly enough for some; and flatlining marketshare in the U.S.
"The other big kahuna, if you look back over the last decade, ... a ton of their growth was on the back of the consumer electronics category," Johnson said. "They really haven't found a growth engine to replace that."
In the fourth quarter, Wal-Mart posted adjusted earnings of $1.61 per share, topping analysts' expectations, though revenue fell short.