LOS ANGELES — A question mark now hangs over Los Angeles-area apparel companies.
Tuesday afternoon’s vote by the Los Angeles County Board of Supervisors to approve a wage hike to $15 an hour — phased in over the next five years — constructs a hodgepodge of policies throughout the area less than a month after the city of Los Angeles signed its own similar increase into law. It’s left some apparel executives considering moves across city boundary lines or cuts in hours as they mull how they’ll go about complying with the law.
In both instances, the wage increases will be phased in over a five-year period. Small businesses will have one extra year to roll out the increases. The vote is not a prescription for the entire county, but rather the unincorporated parts of which the board of supervisors has jurisdiction.
Some companies unwilling to deal with the increased labor costs and with the means to move will make the exodus to areas not impacted by the board’s decision.
“You still have incorporated cities that are not bound by this,” said California Fashion Association president Ilse Metchek. “[The cities of] Commerce, Long Beach, Burbank, Pacoima, the entire Inland Empire [consisting of parts of Riverside and San Bernardino counties]…they’re going to have a field day with this. A field day, because you just move across the street.”
Los Angeles-based Beacon Economics issued a study in March in which it found the accommodations and food services along with the retail trade industries could be impacted the most in terms of lost jobs and hours from the increases.
In a worst-case scenario, the retail sector could lose as many as 7,965 jobs over the next five years, according to the report.
Beacon competed to conduct research for the city of Los Angeles when it was considering its wage hikes, but lost out to University of California, Berkeley’s Institute for Research on Labor and Employment.
Metchek is doubtful major retailers will open new stores within the city boundaries moving forward, although it’s hard to say what big boxes, such as Target Corp. or Wal-Mart Stores Inc., might ultimately do. Neither company responded to a request for comment, along with fast-fashion retailer Forever 21.
“One-third of all businesses in L.A. are within two miles of a border and all those companies have to compete with people on the other side of the border,” said Beacon founding partner Christopher Thornberg. “And, as a result, when they jack up their prices, people are price-sensitive. What are they going to do? Well, gee, I can drive an extra mile and shop over there.”
That was a sentiment echoed during Tuesday’s Board of Supervisors meeting when Ken Wiseman, chief executive officer of fulfillment company AMS Fulfillment, located in an unincorporated part of Valencia, asked the supervisors to not pass the wage hikes.
“Your decision will affect me,” Wiseman said, adding he’s looking to move operations out of the unincorporated area, possibly to Santa Clarita, where the city council is not considering an increase.
“I ship for 40 companies, international and national,” Wiseman said. “They really don’t care about just our minimum wage here.”
What’s drawn the ire of many in the apparel industry isn’t so much the increase to the minimum wage itself, but the domino effect on other labor costs the hikes will incur. There are implications for workers’ compensation costs. Additionally, exempt employees under California law — executives who don’t punch a clock and have at least two people reporting to them — must make twice as much as the minimum wage.
“You’re going to see a lot of robotics, a lot of investment in new machinery that takes away from that level of employee,” Metchek said. “But beyond the sewing floor in a manufacturing facility, [the law] really doesn’t matter. There’s nobody really making minimum wage. The effects of it are on the next level of management.”
Metchek, along with a handful of other industry executives, were called to Los Angeles Mayor Eric Garcetti’s office last week to discuss their issues with the new law, during which the exempt/non-exempt employee issue was pointed out. The executives were told the office is working on getting a special dispensation from the state labor department for exempt employees.
Metchek doesn’t appear optimistic about the outcome: “We [all] said that is not going to happen [at the state level].”
A spokesperson for the mayor could not be reached for comment.
Another minimum-wage hike made progress across the country on the East Coast as a panel appointed by New York Gov. Andrew M. Cuomo recommended on Wednesday that the minimum wage be raised for employees of fast-food chain restaurants throughout the state to $15 an hour over the next few years. Wages would be raised faster in New York City.
Employers in California a year ago already had to adapt to the state minimum-wage increase to $9 and have an idea of what happens when wages rise.
“We deal with a lot of local contractors who employ a lot of minimum-wage employees, so when the first hike came a while back, we immediately had to deal with increased pricing from [contractors] in order to accommodate their increased wages,” said Michael Rosen, chief financial officer at Culver City, Calif.-based Velvet by Graham & Spencer.
“Unfortunately, what it does, it forces you to source your products externally,” said Henry Hirschowitz, ceo of Velvet. “To manufacture domestically is becoming more and more expensive and forces someone to look offshore and certainly move some of the production from the domestic market. I think it inevitably will lead to higher prices. People will protect their margins and certainly margins are shrinking so the only way to do that, if forced to pay a higher minimum wage, is to increase prices.”
Velvet’s in the process of ramping brick-and-mortar growth, although the new wage law won’t alter the company’s plans for that in L.A.
“Obviously, for smaller business operators, it may have a big impact, but from our perspective, being a wholesaler opening up retail doors, we’ve just got to build that into our costs,” Hirschowitz said. “It’s not going to prevent us from opening doors.”
Many of the member businesses of the Valley Industry & Commerce Association are likely to reduce hours or eliminate certain benefits, according to president Stuart Waldman. The association represents businesses in the San Fernando Valley region of the county. Calls to raise wages to pump money back into local economies don’t add up, Waldman said.
“What makes me very curious about that [argument] is, where is this money coming from?” Waldman asked the board. “The money’s already there. It’s just going from one place to another place.”
The real question is what the Los Angeles area’s apparel industry landscape will look like a few years from now, pointed out Brian Weitman, ceo of Los Angeles-based STC-QST, which supplies pocket linings, waistband materials and other inner garment materials to brands globally. Weitman also recently met with Garcetti to discuss his pain points with the law and is expected to meet with an assistant to the mayor next week. He’s hopeful perhaps tax credits or other incentives for businesses could be worked out.
With both laws phased in over the next five years, and now other cities in Los Angeles County — such as Santa Monica and West Hollywood considering their own minimum-wage hikes — only time will tell what the real impact will be on the local apparel and retail industries.
“Part of what makes the L.A. county apparel industry work is it’s an ecosystem in balance,” Weitman said. “It’s the infrastructure we have here. We have the talent. We have the know-how. We have the washhouses. If there’s not enough volume of business going on in this city or in this region, then all the other components die off. We really do have something special here. It’s different from New York. I’ve traveled to Mexico, Central America, Asia, Europe and there’s nothing like what we have here.”