The rarefied life of a top model — who can joke about not getting out of bed for less than $10,000 — might be a distant dream for most, but fashion’s rank and file has enjoyed something of a pay hike lately.
While a tighter labor market is good for workers and a sign the economy is improving, higher paychecks are turning into a problem for retailers looking to both maintain profit margins and keep their best workers.
The Labor Department clocked average wages for the retail trade at $551.57 a week in August, up 3.2 percent from a year earlier. That translated into $17.51 per hour and 31.5 hours worked per week, on average. (Retail sales workers make considerably less and according to May 2014 figures earned $10.80 an hour at apparel specialty stores and $10.49 at department stores, on average.)
And higher wages seem here to stay. Many retailers have sought to move their wages up voluntarily, keeping ahead of a growing movement to raise the minimum wage. Los Angeles is moving toward $15 an hour by 2020. Twenty-nine states and the District of Columbia all have minimum wages above the federal floor of $7.25 an hour. And last week, New York governor Andrew Cuomo unveiled a push to make the Empire State the first with a $15 an hour minimum wage.
“If you work full-time, you shouldn’t have to live in poverty — plain and simple,” Cuomo said. “Raising the minimum wage to $15 an hour will add fairness to our economy.”
Paul Sonn, general counsel of the National Employment Law Project, said: “There’s momentum nationally to raise the minimum wage. Even in low-cost parts of the country, there needs to be much, much higher wages…It may well be the case that people are willing to work for $9, $10 dollars an hour at a desirable retailer, but more and more retailers are showing that operating $9-an-hour jobs isn’t the only way to grow.”
Goldman Sachs, & Co. analysts asked a host of retail executives to weigh in on the labor market at the bank’s 22nd Annual Global Retailing Conference in New York last week and most said they were feeling the pressure in one way or another.
David Jaffe, president and chief executive officer of Ascena Retail Group Inc., referred to Cuomo’s push in New York and said, “There are these moves and we’ve seen them in a few cities where they’ve gone to high levels and we certainly try and pay above the minimum and we’re very aware of compression issues and we’re trying to move all of our people up so there isn’t this big bang if there’s a change in the national minimum wage law. But when people like that say, ‘OK, we’re going to move to a $15,’ it’s just not constructive.”
One strategy is to move closer to workers, giving them more hours.
Jeffrey Gennette, president of Macy’s Inc., said there is tightness in the labor market and that the company has more job openings than it has in the past.
“We’re also looking at full-time, part-time ratios and looking at deepening the relationship with our associates through full-time jobs,” Gennette said. “So we’re playing with that right now, but it’s something we’re looking at very carefully.”
John Call, executive vice president of finance and legal at Ross Stores Inc., said the company expects wages to continue to rise.
“Part of that’s driven by some jurisdictions where minimum wage levels have gone up,” Call said. “The other thing is that we’ve also seen, competitively, people have started…to raise their entry-level wages. And we’d expect to see more of that as the economy tightens up over the next couple of years.”
Ross Stores, along with Wal-Mart Stores Inc., Target Corp. and Gap Inc., already increased its minimum wage to $9 an hour.
“There is a silver lining in this,” Call said. “A key driver here is that the economy is picking up. And if it means that low- to moderate-income shoppers have more money in their pockets, then there’s obviously a tailwind…potentially to our top line.”
But changes on the sourcing side of the business could make it hard for many retailers to grab much of that silver lining in the immediate future.
Chris Christopher, director of consumer markets at forecasting firm IHS Global Insight, said that just as wage costs rise, retailers might find themselves losing pricing power with the strong dollar and lower oil energy costs making imports less expensive.
Already, apparel prices have been trending downward, off 1.6 percent in July versus a year earlier, according to the Consumer Price Index.
“The retailers, for the most part, they’re going to have a problem with this,” Christopher said. “What they’re selling versus what they’re going to have to pay to sell — that is going to be in question.”
However, Christopher said costs in China should ease over time, giving retailers some margin breathing room even as they sell even lower-priced goods.
“Eventually, they’ll say, ‘My revenue is not as good as it was,’ but they’ll say, ‘Hey, my margins are pretty good,’” Christopher said of retailers. “That will be the storyline about a year from now.”