Wal-Mart Boosts Self-Checkout, But Its Claimed Cost Savings Don't Add Up

At a New York conference Wednesday (March 7), Wal-Mart CFO Charles Holley mentioned that Wal-Mart—and its Sam's Club division—will be sharply increasing how many self-checkout lanes it offers. On the same slide and in practically the same breath, he said that Wal-Mart saves $12 million in cashier wages for every second it reduces in checkout. That's really interesting, but mostly because of what Holley did not say.

The implication of the comment was to associate such savings with self-checkout, but the Wal-Mart CFO was careful to not go there. One of the many reasons is that the savings being hinted at are almost impossible to prove, assuming they exist at all.

The expansion referenced for Sam's Club would see a self-checkout increase from the 80 stores that currently have it to 300 by December. The savings, though, are much more amorphous. Let's drill into Holley's comments.

First, the keynote remarks he made at the Bank of America Merrill Lynch Consumer & Retail Conference differed slightly—but materially—from the slide he was working from.

The slide (which presumably went through legal eight or nine times) said: "For every 1 second in average transaction time, we spend ~$12M in cashier wages." What the CFO said, though, was: "For every second we can save, that's $12 million in savings we can pass along."

That's a key difference, and it speaks to the ongoing self-checkout debate. Let's assume that the math is correct and that a second spent by all of Wal-Mart's cashiers costs the chain about $12 million a year.

How would self-checkout lanes change that? Its value is that self-checkout enables the store to process more transactions with fewer people. But it's not a clean reduction, because an associate has to manage a handful of self-checkout lanes to deal with exception items, glitches, training customers and watching for thefts.

Self-checkout systems are supposed to only handle 10 or fewer items, so self-checkout lanes will either remove only smaller baskets or will radically slow down from the weight of many large shopping efforts.

Self-checkout is certainly a boost for store efficiency—which ultimately saves money—but associating with a time reduction seems a reach.A Reuters story said Holley pledged that the chain "will not eliminate cashiers." Potentially, the argument goes, they could be redeployed elsewhere in the store. That would only happen, though, if self-checkout was siphoning off enough traffic that a staffed lane could be shut down.

Redeployed talent is certainly efficient and helpful. But it doesn't mesh with the $12-million one-second savings line, because Wal-Mart would still be paying those salaries. (It was the promise to not use self-checkout to fuel layoffs that pretty much kills the association.)

When the CFO moved from the slide language—that this is what a second of cashier salary costs Wal-Mart—to his phrasing that this amounts to those same dollars in savings, is when things got dicey.

Again, this doesn't mean that self-checkout is not a great investment. If those redeployed associates are going to be helping customers and doing other high-impact functions, that could be a huge help. It could boost revenue and improve the experience, without—as suggested—reducing the payroll by $12 million. And that was only if it saved just a second.

Further nitpicks: Did the CFO calculate the other costs of self-checkout? Such as sharp reductions in that lane's impulse item revenue? Or the perceived reduction in customer service that has pushed other chains to ditch self-checkout? Potentially increased theft? The infamous legal complications unique to self-checkout? And even the periodic emotional breakdowns of Wal-Mart shoppers who freak out over self-checkout? One Finnish chain is even arguing that slower staffed lanes can boost revenue.

One of the trends in self-checkout is that it tends to be very community-oriented. Some places have shoppers who crave the cashier interactions while in other areas shoppers dread such interactions, which explains why "improving customer service" is used as an argument both for and against self-checkout.

Granted, those interactions are two-way. Is the explanation behind the interaction opposers that the customers want to just get the shopping done and get out—think a rushed businessperson or college student—or is it that the cashiers are grouchy?

To be fair, it's not usually as much a community issue as it is an expectation issue. The same shopper who might love a self-checkout lane at the local Wal-Mart or Kroger might find it the height of horribleness if discovered at Trader Joe's, Nordstrom or Whole Foods.