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Walmart’s Mass Layoffs Could Be the Canary in the Coal Mine

Last Updated September 23, 2020 2:10 PM
Laura Hoy
Last Updated September 23, 2020 2:10 PM
  • Walmart is laying off hundreds of workers despite posting record sales during the pandemic.
  • The news proves no one is immune to the effects of Covid-19, not even Walmart.
  • Walmart’s decision is a red flag for the stock market and economy given the retailer’s strong performance during the pandemic.

Mass layoffs have become somewhat of the norm these days as the coronavirus pandemic causes businesses to cut costs dramatically.

This week, discount retailer Walmart (NYSE:WMT) conducted a series of layoffs, the scale of which is still unknown. You could forgive investors for glossing over the news as just another corporate belt-tightening, but considering Walmart has been one of the biggest beneficiaries of the pandemic, it’s a terrible sign for the future.

Walmart, Walmart stock, WMT
Walmart has been one of the best pandemic plays in the market so far. | Source: Yahoo Finance

According to a Bloomberg report , sources close to the company claim the retailer is laying off hundreds of its staff and reorganizing its stores to save. The firm declined to outline the specifics of its plans, saying the changes were an effort to drive productivity. 

We are continuing on our journey to create an omni-channel organization within our Walmart U.S. business and we’re making some additional changes this week.

Before the pandemic struck, Walmart was creating a successful omni-channel experience by merging its brick-and-mortar stores with its online presence, so the move isn’t totally out of the blue.

The decision raises a red flag about how the firm sees the pandemic evolving. Anecdotal evidence suggests the company is laying off personnel in divisions like transportation and product design—a questionable move if things are seen returning to normal in the months ahead.

WMT, Walmart, Pandemic
Walmart saw a surge in sales amid pandemic-related panic shopping. | Source: Team Blind 

It could be that Walmart is battening down the hatches for a potential second wave of infections in the autumn  and the economic aftermath of another outbreak. Walmart has been delivering impressive results throughout the pandemic and is usually considered a defensive play in times of economic hardship.

Employee Lawsuits

One potential reason Walmart may be keen to save a bit of cash is the potential for coronavirus-related lawsuits that could come crashing down on the retailer. Families of coronavirus victims that worked at Walmart and other grocery stores have begun to file gross negligence suits  against their employers, claiming they didn’t adequately protect their workers.

The families are requesting compensation, but the legal troubles don’t end there. Employees who contracted the virus and survived are also suing for everything from medical bills to future earnings. 

As the cases pile up, companies like Walmart are likely wondering how they’ll get through the second wave of infections without racking up more lawsuits.

Worker Protection Expense

Essential workers, layoffs, Walmart job cuts
Walmart’s employees were asked to work in the thick of the pandemic. | Source: Instagram 

Whether the precautions Walmart has taken were adequate or not—they were expensive. For many businesses, the cost to outfit staff in protective equipment and restructure offices and warehouses is enormous. 

Walmart spent $900 million on coronavirus-related expenses  in the first quarter, and a similar spend is expected in Q2. While some of that is due to protective equipment and changes to stores and warehouses, much of it was employee bonus payments.

With the pandemic still in full swing in the U.S., additional pandemic pay is unlikely to go anywhere, leaving Walmart in a precarious position.

In the first, and likely second, quarter, Walmart’s surging sales were able to offset the jump in spending. As people adjust to life with coronavirus and shops remain open, it’s unclear whether or not the rush of new shoppers will continue.

Walmart News Should Worry You

Walmart, WMT stock, Walmart layoff
Walmart’s surging sales may not continue now that panic buying has subsided, but its pandemic expenses will likely continue. | Source: Instagram 

Walmart’s layoffs should give investors reason to question where the economy, and the stock market, are headed.

To see one of the pandemic’s biggest winners cut hundreds of workers is a warning sign not only about WMT stock but for some of the more vulnerable players on the market as well. Airlines, apparel retailers, restaurants, and any other businesses that have been hurt by the pandemic have an even rockier road ahead. 

Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. Unless otherwise noted, the author has no position in any of the stocks mentioned.