Retailers have always prided themselves on paying their workers above the minimum wage. But, with the rate racing ahead of inflation, they are struggling to keep pace. Liz Morrell reports
In the past decade, retailers’ wage costs have risen dramatically. In 1996, the total wage bill – including shopfloor staff, management and head office personnel – was£18 billion. This year, the figure will be£39 billion.
The introduction of the National Minimum Wage (NMW) in 1999 has helped wage rates rise 46 per cent in the past eight years. Now, despite a cooling retail market, wage costs have continued to spiral.
The British Retail Consortium says the 2006 increase in the NMW – a 5.9 per cent rise to£5.35 an hour – cost retailers£1.7 billion. Between 2006 and 2007, the wage bill for shopfloor staff rose by 12 per cent to£25.8 billion – and half of the increase was the result of the NMW rise. Last October, the rate rose again – this time by 3.2 per cent to£5.52 an hour.
To get the best staff, however, many retailers pay above the minimum. Incomes Data Service (IDS) says in its latest Pay and Conditions inRetail survey that the NMW is now below many retailers’ thresholds. “The lower increase in 2007 has provided many retailers with an opportunity to pay rates above the statutory level and most no longer use this rate as the minimum,” it states in its report.
IDS says only a third of retailers last year – compared with two thirds in 2006 – set the NMW as their minimum starter rate. Instead, minimum adult start rates rose from£5.52 to£5.95 an hour.
According to IDS, Tesco now pays the highest of those surveyed, with a starting rate of£5.95 an hour. Lois Wiggins, author of the IDS report, says: “Considering two thirds are now paying above the minimum wage, that sets a very good standard – but the lower increase has helped a lot of retailers out.”
Since February, Next has paid£5.57 an hour, which IDS says is the first time the retailer has paid its minimum rate above the NMW since 2003. But Next disputes this: “We have always applied cost-of-living increases every February, which takes rates of pay above the minimum wage,” says a Next spokeswoman.
Many retailers pride themselves on paying well above the minimum wage to attract and keep quality staff. But the increases in the national rate means that this point of difference gap has been eroding.
JJB Sports finance director David Greenwood says: “If we go back five years, our lowest rates of pay were way higher than the minimum wage, but it’s caught up,” he says. “As a result, we pay the minimum wage or slightly above it, depending on the part of the country and the cost of living there,” he says.
Lack of progression
The gap between starter and established rates – the rate to which an employee progresses within 12 months of joining the company – is also diminishing. A Next spokeswoman says: “The above-inflation increases in the NMW has eroded differentials in pay rates between starter staff, qualified staff and supervisors.”
IDS says that, from 2003 to 2006, the gap between starter and established rates narrowed from an average of 4.7 per cent to 2.8 per cent. Last year, the difference increased slightly to 3.3 per cent, but Wiggins warns that retailers must keep a premium between rates because of retention and recruitment.
So how can retailers absorb these increased costs? A common casualty is non-pay terms and conditions, such as discounts or pensions. Premium payments can also fall by the wayside, which has happened at Next. “We constantly review and update our pay and benefits package in line with industry and competitor benchmarking. This has led us to make changes – particularly to premium payments – which has offset some of the cost of the NMW,” says a spokeswoman.
Rising costs also affect the number of jobs and hours available. Outgoing BRC director-general Kevin Hawkins says: “If trading conditions are tight, as they are now, some retailers will reduce the number of hours they give out to staff – and that
will mean unfilled vacancies, which will affect customer service.”
Speaking to Retail Week at the Marks & Spencer interims last November, chief executive Stuart Rose admitted that wage rises had affected costs, but said that the company had worked hard to minimise their impact. Staff hours had been reduced by single-digit figures per person per week. “We’re a business. We’re there to make money and you’ve got to tighten up where necessary. We cut back on the number of hours and our staff respect that. Equally, when times are good we can ask them to do another five hours and they will,” he said.
For smaller chains, the impact is greater. In a British Shop and Stores Association survey in November, almost half of respondents cited wage costs as a top concern and 56 per cent said pay rises had affected profits. As a result, a third said they were forced to cut staff numbers.
Most retailers believe the NMW reflects a fair wage and that any further rises must be more closely aligned with what’s happening in the economy and the sector. “We wouldn’t want the NMW to go up any further – we think it is at the right sort of level now,” says Russell and Bromley HR director Ann Friday.
Greenwood agrees: “I think what the Government set out to achieve a number of years ago – which was to get everyone on a decent wage – has now happened. Increases should now be in line with inflation.”
An Association of Convenience Stores spokesman says changes must be made in the way the figure is set. “There is now a convincing case for ending the uncertainty of the present process – inflation-busting increases are more unsustainable than ever. We would favour some form of indexation,” he says.
Retailers say there also needs to be a greater understanding of the state of the retail sector. Hawkins says: “If retail prices were moving in line with the cost base, there wouldn’t be a problem, but they are moving in opposite directions. It’s not too difficult to cope with those rises when sales and profits are good, but that hasn’t been the situation for two or three years.”
The Low Pay Commission, which advises the Government on the NMW, is giving little away. It says: “The increases we are likely to recommend for 2008 will be around the predicted rise in average earnings, but much will depend on what happens between then and now in the economy and the labour market.” Retailers can only hope the LPC listens to its cries for help.
HOW THE MINIMUM WAGE HAS INCREASED
(for workers aged 22+)
April 1, 1999 £3.60
October 1, 2000 £3.70
October 1, 2001 £4.10
October 1, 2002 £4.20
October 1, 2003 £4.50
October 1, 2004 £4.85
October 1, 2005 £5.05
October 1, 2006 £5.35
October 1, 2007 £5.52
(for workers aged 18-21)
April 1, 1999 £3.00
October 1, 2000 £3.20
October 1, 2001 £3.50
October 1, 2002 £3.60
October 1, 2003 £3.80
October 1, 2004 £4.10
October 1, 2005 £4.25
October 1, 2006 £4.45
October 1, 2007 £4.60
16- 17-year-olds rate
October 1, 2004 £3.00
October 1, 2005 £3.00
October 1, 2006 £3.30
October 1, 2007 £3.40
Source: Low Pay Commission