Retailers with UK-only operations and a strong presence outside London will be most affected by the living wage, predict credit agency Moody’s.
In last week’s Budget, Chancellor George Osborne unveiled plans to hike the minimum wage to £7.20 per hour for over-25s next April, increasing to £9 an hour by 2020.
In a note, analyst Maria Maslovksy said: “Those with operations limited to the UK are likely to require greater adjustments than more internationally diverse players.”
She told Retail Week that international players will, in theory, be able to “offset” higher wage costs in the UK with changes to their businesses abroad.
On the impact for retailers with a high concentration of outlets outside London, Maslovksy added: “Retail outlets located in London will not be as severely affected owing to already high labour costs that exceed the current
minimum wage, regional operations are likely to be more affected.”
But she added: “Ultimately, we expect retailers to pass on higher labour costs to customers.”
However, Moody’s suggested that discount operators may be better off due to their “more efficient business model” as they employ fewer people for the same level of sales as mainstream operators.
Iceland boss Malcom Walker told Retail Week today that the grocery chain will look to reach the living wage level of 7.20 per hour before it becomes law. However, he warned that the £7.85 living wage rate, set by the Living Wage Foundation, would not be sustainable for his business.
In the Budget, Osborne said that cutting corporation tax from 20% to 19% in 2017 and to 18% by 2020 would help employers pay the extra wages and claimed 2.5m people would get a direct pay rise as a result.