Walmart and Guild Education partner to enable $1 a day college education for over a million U.S. workers. This is a catalytic event that will help “education benefits” become the new standard for low-wage workers.
Walmart recently announced a partnership with Denver startup Guild Education to provide online college degrees to all U.S. associates for an out-of-pocket cost of $1 a day.
The partnership is the second step in Walmart’s strategy of increasing employee wages and benefits. The first step came with a $2.7 billion human capital investment in 2015 and 2016. This investment came of the heels of a dismal performance in 2014, where same store sales barely increased year over year. Walmart’s stock price was pummeled in the months following the announcement of this investment in February, 2015, the start of their 2016 fiscal year.
Walmart’s investment in human capital was rooted in the belief that higher wages would result in “improved customer experience to drive sales growth”. This was part of a two-prong strategy to turn around sales growth and compete against Amazon in the U.S., with the other prong focused on integrating online and in-store shopping experiences for customers.
After one year of higher wages and benefits, Walmart noted in early 2016 that their “fourth quarter of fiscal 2016 marked six consecutive quarters of positive comps and five straight quarters of positive traffic at Walmart U.S.” As of January 2018, the human capital investment is arguably paying off. Same store sales continue to climb, and crossed 2% year over year in late 2017.
The Business Case for Education Benefits:
Education as an employee benefit is having a moment in the sun. Recent LinkedIn employer surveys have seen increases in tuition reimbursement benefits from 39% to 52% from 2017 to 2018. A key focus of many training efforts is targeting soft skills, such as leadership, communication, and collaboration. In addition to improving employee soft skills, there are three clear economic benefits for employers:
- Tax free employee benefits up to $5,250 per year
- Decreased employee turnover
- Increased promotion rates for internal candidates
This is the business case Guild Education has made to Walmart, based on its existing partnerships with Chipotle (2016) and Lyft (2017).
Guild is an education technology startup based in Denver that was founded in 2015 and most recently raised a $21M Series B in the Fall of 2017 to provide employers with tools to offer education as a benefit to employees. Guild has been rapidly expanding its partnership base in 2018, closing four new partnerships including Walmart, Lowes, Discover, and Taco Bell.
Guild’s track record with Chipotle is arguably the reason for its impressive growth today. Chipotle has reported that workers enrolled in educational programs were 100% more likely to be promoted internally, and were also also staying with the company 100% longer compared to employees not participating in education programs. To put this another way, education offerings reduced employee turnover among participating employees by 50% compared to their non-participating peers. That is a huge impact on retention rates if it persists over time.
Whether Chipotles’s success can be replicated remains to be seen. A study by the Lumina Foundation of a similar (non Guild) education benefits offering from Cigna found perhaps more realistic outcomes: a 10% increase in promotion rates, and an 8% increase in retention rates, for program participants.
It is still early days when it comes to assessing the impact of these programs, and obviously the differences between office workers, line cooks, and cashiers will impact the results. However, it is clear that these early examples of employee education benefits are making a difference to key HR metrics when they are offered and tracked.
How it Works:
The Walmart / Guild partnership model highlights the players that are coming together to make a $1 a day college degree possible.
As the graphic above illustrates, Walmart associates receive coaching support from Guild to choose from a variety of online educational offerings, while Guild receives payments from Walmart based on enrollment levels. Online educators save serious marketing dollars, that presumably are shared in the form of cost savings with Guild and Walmart. Very intelligently, Walmart has also ensured that training programs offered internally by Walmart Academy, are given substantial “college credit” that can be used to further reduce the number of credits an associate has to pay for in order to get an online credential.
Back of the Envelope:
Below, I’ve tried to wrap my arms around some of the numbers behind the press release. We know Walmart employs a massive number of associates in the U.S., however, Walmart management expects enrollment to be ~68,000 people initially. I’ve used U.S. Census data to figure out what level of education Walmart associates are likely to have, and estimated the annual costs to Walmart and associates to participate in these programs.
This back of the envelope math shows an annual cost to Walmart of ~$342 million. Given that Walmart has been investing over $1 billion a year for the last three years in human capital, this number is in the ballpark. Given that these costs assume associate are pursuing a full time level of education, the costs are probably lower given that many associates will pursue these education options on a part-time basis.
How these costs may be offset by reductions in employee turnover remains to be seen. Baseline turnover costs for retail employees is estimated at ~14% of annual wages, but for Sam’s Club (a Walmart subsidiary) was estimated at 44% in 2016. Combine this data with an estimate of Walmart’s annual wages, and possible levels of turnover savings based on Cigna and Chipotle’s reductions in turnover, and Walmart can expect to save anywhere from ~$17 to $335 million per year amongst program participants.
These back of the envelope estimates show that there is a wide range of possible outcomes for Walmart, and only time will tell whether these benefits will have a tangible impact on the economic factors that move the needle for Walmart: employee turnover costs or same store sales.
Moving forward, Walmart’s battle with Amazon tends to dominate the narrative when it comes to sales growth and online sales. However, Walmart employs 1.5 million U.S. workers to Amazon’s 0.5 million, and the impact of its decision to support education as a benefit is substantial.
Let’s start with the lede that was totally buried in news coverage of the Walmart / Guild partnership: the fact that dependent family members can obtain the same benefits, including parents, siblings, spouses, and children. Headline you didn’t read anywhere:
Get a job at Walmart, enroll your child in college for $1 / day.
To put this in perspective, with around a million hourly U.S. associates and an average family size of 3 people, there are (again, back of the envelope) 3 million Americans now eligible to obtain an online college degree for $1 a day. That would be around 15% of the number of students that attend college every year. These huge numbers are far beyond the more modest 68,000 students Walmart actually expects to enroll, but are nonetheless a massive expansion of educational opportunity for millions of Americans.
Follow the leader:
Walmart has set new standards before that over time became the industry norm. For example, in 2005 Walmart made substantial commitments to eliminate waste, reduce energy consumption, and purchase energy from renewable sources. Over time, this catalyzed a huge number of companies, especially its major suppliers such as Coca-Cola and Kelloggs, to be more environmentally proactive themselves. Nearly 10 years after this commitment, the Environmental Defense Fund noted that “Walmart is driving supply chains and markets on sustainability in a way that only regulation could accomplish in the past.”
In the final analysis, expect Walmart to look for the ROI of educational benefits in the next 2-3 years. Hope that they materialize so that Walmart will be incentivized to push Guild, and Guild’s educational partners to optimize the degree offerings to associates to make them more relevant, and lower cost than ever.
- Lumina Foundation
- USA Today
- Guild Education
- Bellevue College
- Brandman University
- Penn Foster
- LinkedIn Report
- Center for American Progress Report
- Census household estimate
- College estimates