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The Living Wage: Retail sector

“It’s a double-edged sword for retailers. While retailers will incur additional costs, they should also benefit from additional spending by those consumers who find themselves with more money in their pockets.”

Ben Perkins, head of Consumer Business Insight

The retail industry is one of the largest employers in the UK, with one in ten people working in retail. Due to the size of the sector and the large proportion of employees on minimum wage, the implementation of the Living Wage from 2016 has the potential to clear the path for distinct winners and losers. Without the Living Wage, retailers are already facing tough competition, price wars and the growth of Omnichannel, which challenges the traditional model of retail and has already led retailers to focus on different staff levels and real estate requirements. The latest retail sales data from the Office for National Statistics showed that shop prices fell by 2.9% in June 2015, the 12th consecutive month of decline – a sign of the intense competition for shoppers. The Living Wage further challenges retailers to consider how to absorb or pass on the higher labour costs.

The large supermarket chains will be one of the hardest hit retail groups as a result of the Living Wage as they are already operating at competitively low prices and trying to remain profitable in a market where the price agenda is being driven by the discount chains. On the other end of the spectrum, independent and small retailers will likely also suffer from the Living Wage as they already have limited resources to invest in staff and will have to consider either cutting working hours or spending more time in stores themselves. They will also have to contend with increased competition if Sunday trading regulations are relaxed for big stores. Finally we anticipate that the discount retailers will find the higher labour costs difficult as their low price, low margin USP provides little room to manoeuvre around the higher wage costs leaving concern that their profits will be impacted.

The Living Wage poses a very real challenge to an already difficult retail industry but the hope that the additional revenue earned by the minimum wage workers will provide some relief as these workers have more to spend

“George Osborne's living wage boost could cost '80,000 jobs' warns retail body”
International Business Times 21 July 2015

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