Amazon just intensified the war against Walmart

Jesus Gutierrez puts a low price dollar sign together at a Walmart store. Joe Raedle/Getty Images

Amazon is raising minimum wage to $US15. And, Walmart should be scared of the repercussions.

On Tuesday, Amazon announced plans to raise the company’s minimum wage in the US to $US15 per hour. The company also said it will work to gain Congressional support to increase the federal minimum wage.

While workers are celebrating the move, it comes as a blow to retail rival Walmart. Amazon and Walmart have been locked in combat for years, as the two battle for dominance in e-commerce, grocery, and more.

The news that Amazon is raising minimum wage gives the e-commerce giant the edge over Walmart in more ways than one.

The battle for workers

The most straightforward way that the $US15 minimum wage helps Amazon is when it comes to hiring and retaining employees.

“Attracting, and then retaining, quality employees is critical for the ultimate success of any retailer, with benefits ranging from reduced hiring and training costs to improved production and employee morale, both of which trickle down to the consumer in the form of better service and an improved overall experience for shoppers,” Charlie Shea, Moody’s Lead Retail Analyst, said in a comment on Tuesday.

In January, Walmart made headlines when it raised its minimum wage to $US11 per hour. Analysts saw the decision as a positive, with Shea saying in his Tuesday comment that Walmart’s results show that “returns will ultimately outweigh the costs” when it comes to raising minimum wages.

Currently, competition for retail employees is especially fierce.

There were 757,000 retail-job openings across the United States in July, which is about 100,000 more than a year ago, The Wall Street Journal reported, citing the Bureau of Labour Statistics. The influx of jobs is coming at a time when unemployment is low, at 3.9% in August.

JCPenney is offering workers paid time off and even making some eligible for 401(k) benefits. Kohl’s announced seasonal workers will receive an “unprecedented” 35% discount during certain shopping periods. Walmart even reportedly sent out a survey to employees, asking them which benefits would be most “meaningful to new hires.”

New benefits and an $US11 minimum wage might be nice, but Amazon’s $US15 minimum wage is a trump card that Walmart can’t match. With unemployment low and retailers anxious to fill positions prior to the holidays, it is a shrewd strategy on Amazon’s part to win over workers.

The reputation factor

Jeff Bezos
Jeff Bezos. Mark Wilson / Getty Images

At the same time, the majority of Walmart workers work in stores, while Amazon’s minimal number of stores means that most entry-level workers are employed in warehouses. The two companies compete for labour, but it is not necessarily a direct competition.

However, both companies are common targets of criticism regarding workers’ treatment.

On September 5, Sen. Bernie Sanders introduced the Stop Bad Employers by Zeroing Out Subsidies (BEZOS) Act. The bill, a clear reference to Amazon founder and CEO Jeff Bezos, would create a welfare tax for large employers with workers who receive federal benefits such as food stamps.

Amazon warehouse workers have protested long hours and poor working conditions. Employees told Business Insider earlier this year that they were constantly under surveillance while working in Amazon warehouses, with intense targets that don’t even allow for bathroom breaks.

“The metrics are brutally aggressive, and most of my colleagues are in a state of constant anxiety that we could be fired at any moment for not meeting metrics,” one US employee said. “Jeff Bezos has become the richest man in the world off the backs of people so desperate for work that we tolerate the abuse.”

Amazon has strenuously defended its working conditions, with a spokesperson telling Business Insider earlier this year that the company encourages “anyone to compare our pay and benefits to other retailers.”

By raising the minimum wage, Amazon hopes to go from defending itself to being seen as a force for good. Walmart has made similar attempts to improve people’s perception of the company, with changes such as raising the minimum wage and announcing new sustainability initiatives.

According to CEO Doug McMillon, Walmart made a concentrated effort to change its reputation. The company’s strategy, he said, became: “Let’s find the people who dislike us the most and go figure out why, and see if there’s some good in what they’re saying – and then implement it.”

However, Walmart has never gone so far as working to pressure Congress to raise the federal minimum wage, as Amazon said it would do on Tuesday. Basically, Amazon is taking a page out of Walmart’s playbook – and then taking things a huge step further.

The attempt at a reputation overhaul is already producing results.

“What Mr. Bezos today has done is not only enormously important for Amazon’s hundreds of thousands of employees, it could well be, and I think it will be, a shot heard around the world,” Sen. Sanders said in a press conference on Tuesday. “Mr. Bezos and Amazon are now leading the way.”