Walmart to increase hourly wages, expand parental benefits, close 63 Sam's Club stores

Walmart said earlier this month that it plans to increase its starting wage for all hourly workers in the U.S. to $11 per hour , pay a one-time bonus of up to $1,000 to select employees, and expand benefits for parental leave.

The increased starting rate is scheduled to become effective in February for all Walmart, Sam's Club, supply chain, e-commerce and home office hourly workers. The bonuses, which will range from $200 to $1,000, are for workers who don't benefit from the hourly salary increase.

Walmart President and CEO Doug McMillon said in a blog post that the company is in the "early stages of assessing the opportunities tax reform creates for us to invest in our consumers and associates to further strengthen our business, all of which should benefit our shareholders."

Karen Short, an analyst at Barclays Capital, estimated that tax reform could generate about $4.3 billion in cash flow for Walmart. With the salary hike and increased benefits costing about $700 million plus the incremental cost for expanded parental leave and adoption benefits, Short thinks that about $3 billion per year will be available for the company to invest in lower prices, technology and shareholder returns.

In related news, Walmart said the company plans to close 63 Sam's Club warehouse stores in the next several weeks, with about 10 of the locations to be converted to e-commerce fulfillment centers.

Aldi reacting to Walmart's efforts to become low price leader

Recent reports say that Aldi is responding to Walmart's aggressive pricing in an effort to remain the nation's overall grocery price leader. Aldi's adoption of a more flexible pricing strategy comes as the company plans to spend $1.6 billion on store remodels (see "Aldi remodeling stores ahead of Lidl openings") and open about 400 new stores by the end of next year.

Aldi says that its remodeling strategy will expand its ability to merchandise more private-label products in certain fast-growing categories, including perishables.

Analysts believe that Aldi's strategy, combined with Walmart's price cuts and Lidl's entrance into the market, will put pressure on traditional food retailers. These analysts suggest that traditional supermarket operators should examine their own lowest tier private label assortments.

According to Jon Hauptman, an analyst with Willard Bishop, having a wide range of economy private labels throughout the store could help retailers enhance their price image.

"It is incredibly important to have a robust assortment of economy or second-tier private label items through the store, so that in those categories in which customers are willing to make a trade-off in order to save some money, that trade-off item is available," Hauptman said.

Walmart is reinvesting in its own Great Value line, according to CEO Doug McMillon. McMillon said in March that the increasing availability of name-brand products online will compress their margins over time, which highlights the need for a strong private label offering.

Aldi's sales in 2016 were about $12.8 billion, up 9.4% from the previous year.