Retailers recognize the need for change regarding minimum wage, but worry about how much and how soon.
With a $15 minimum wage potentially looming on the horizon, retailers worry about what cuts will be needed to maintain sufficient profitability to compete. When will the change come? Will it be phased in over several years? How many years? Will it be indexed by region of the country? How would that be administered if we can’t even handle giving people COVID shots? Here’s what one retailer told us.
In my conversations with people in the industry, everyone believes the $15 minimum wage is going to happen. We just have to hope it is phased in over several years rather than just one or two years. How do we cut back on our distribution costs, our cost of goods, our labor?
BUILDING IN MARGIN
It’s hard to do any of that now since we’re in an inflationary time, with fuel and other expenses going up. What sort of price manipulation can we do to build in some margin without getting killed by Walmart, Aldi and the other big price operators?
We’re looking at requiring full truckloads. That’s not ideal, but you can’t afford to do half truck-loads anymore. This means fewer deliveries per week.
Raising the minimum wage is going to have other predictable effects. Technology has always seemed too expensive for a lot of retailers, but just see what happens when their base rate goes up from, say, $9 to $15 an hour. We’ll see more self-checkout, and fewer workers in service delis and meat/seafood departments. Walmart stopped fresh-cut meat in-store years ago; now everything there is tray-pack. And Walmart just said they’re going to spend $14 billion in the next year to automate and scale fulfillment activities. This is the direction we’re going in.
Shoppers will see more automation everywhere, of course, and they’re also going to be seeing price increases because labor costs will still be higher. And you can be sure the big box stores and major chains will be holding on price as long as they can, to force the smaller guys out of business. Then they’ll be able to do whatever they want.
We’re looking at requiring full truckloads… This means fewer deliveries per week.
Keep in mind that once wages go up for the workers at the bottom of the scale, wages will have to go up for everyone. If you’ve got a skilled worker making $19 an hour and all the people below him just got raises of $8 more per hour, that skilled worker is going to want a raise, too.
We’re looking at cutting back on traditional paper advertising and going to more digital. Frankly, I haven’t seen shoppers walking around stores looking at fliers in their hands anyway. Not in a long time. Paper is expensive, and distributing fliers is expensive. Some retailers get four boxes of fliers in their stores every week, but only half of one box gets used.
I had someone tell me that at his post office, box holders take all the store fliers and put them into recycling bins without even looking at them. Some retailers think it looks good to put out fliers all the time, or they’re afraid to stop because their competitors are doing it. But I know some retailers are considering running only two fliers a month, especially the ones with a strong digital presence. Fliers pretty much have to be all item-price, but you can do a lot more with digital. Everyone is starting to realize that.
WE DON’T HAVE ANSWERS
Store managers are asking us for guidance on what to do when labor costs go up, but we don’t really have a lot of answers. We explain what we are trying to do with cost controls so they can build in higher margins to compete better. Because if you can’t deliver on the topline, then you can’t deliver on the bottom line, either.