Pondering Wal-mart's 11,200 Sam's Club Job Cuts

Today, we learn that discount retail giant Wal-mart intends to cut 11,200 jobs at its Sam's Club warehouse outlets over the next month. The job cuts are targeted: Sam's Club has decided to outsource its in-store product demonstration to U.S. marketing firm Shopper Events LLC. The move is an interesting one. What's driving the decision?Not cost-cutting, according to Sam's Club CEO Brian Cornell. Instead, Bloomberg/BusinessWeek reports he says:

We view it as an investment in building membership loyalty and attracting new members and ultimately fueling growth for Sam's Club.


And yet the article also notes that Cornell says that he will use savings from labor costs to improve the sampling of their products. This sounds like semantics to me.

If there are labor costs being saved, then how is that not cost-cutting? If you're reallocating funds from one part of the company to another, you're still cutting costs in the first. Certainly, Sam's Club/Wal-mart must believe that it will save money by outsourcing these jobs, and consequently, can spend that money better elsewhere. But make no mistake: it wouldn't be cutting jobs if it didn't want to save money.

But Bloomberg/BusinessWeek notes that the memo explaining the job cuts from the CEO reassures employees losing their jobs:

Shopper Events, based in Rogers, Arkansas, a town next to Walmart's Bentonville headquarters, plans to hire about the same number of workers that Sam's Club is cutting, the memo said. The fired employees can apply for Shopper Events jobs.


I suspect "about the same number" means fewer, but some. And I would hardly expect these fired customers aren't jolted at the prospect of being laid off soon and competing for what is likely to be fewer less-desirable job openings at the consulting firm. After all, if Shopper Events really planned on having the same number of employees, same pay and same benefits as Sam's Club, then how would there be any cost savings by using an outside firm: the price the firm would need to charge Sam's Club would be precisely the cost that wholesaler paid before the layoffs.

In a broader context, this is a little bit discouraging for the jobs picture. Although Sam's Club hasn't done as well as Wal-mart over the past few years, its parent company has been one of the few resilient retailers during the recession. If it's still willing to engage in major new initiatives involving layoffs and labor cost savings, that could make for a pessimistic spin on the supposed job recovery that so many economists hope is underway.