The Retailer SUMMER 16_v7

retail news

Dealing with the cost of the National Living Wage

Sundeep Khanna Client Partner Change Management Group

COSTS ARE RISING FASTER THAN CUSTOMER SPENDING

2) WAGE SQUEEZING Higher performing, higher paid workers now see their wages are in some cases equal to that of employees who have received an increase via NLW. They would reasonably expect to see their wages rise in an equal manner to recognise their responsibilities or skills. 3) MOTIVATION Businesses will naturally try to offset the increased costs of the above factors by reducing staff benefits. Some staff will accept these changes easily and others will not. “Simply making low-paid labour more expensive is not the answer, and the Government shouldn’t be surprised if some employers choose easier options, such as reducing hours, chipping away at other benefits or making a less generous pay award the next time pay is reviewed.” What can we do to mitigate the effects? Understanding and adapting to the changing retail landscape is always a high priority. We have identified four main areas that retailers can focus on in order to meet the challenges raised by the NLW. 1) CALCULATE THE EFFECT ON YOUR BUSINESS Reports compiled by the Centre for Retail Research suggest that in the first year, retailers can expect to pay over £1million more in wages for low-paid workers over 25. However these calculations recognise that figures will vary widely based on hours worked and percentage of employees working part time. Because of the varying factors in retail operating costs, it will be important to conduct a thorough review of your wage-structures moving forward. 2) REVIEW ORGANISATIONAL STRUCTURES, PARTICULARLY FOCUSING ON CROSS-CHANNEL INTEGRATION The increased cost from the NLW will prompt retailers to fast-track omni-channel projects to ensure the talent at their disposal is used efficiently. This is not a surprise as we have known for some time that there are significant productivity gains to be made in breaking down inter-department silos. Chief Economist for the Chartered Institute of Personnel, Mark Beatson, has this to say on the above challenges:

The National Living Wage that was introduced in the UK on 1st April constituted a seismic shift in the retail landscape. Amongst other industries that employ low-wage workers, retail stands out because of its highly competitive nature and often tight profit margins.

In this article, we will cover two areas:

1) ways in which we will be challenged by the National Living Wage (hereafter NLW), 2) What we as retailers can do to mitigate the negative effects these challenges might introduce. Before we look in more detail at what can be done, let’s establish exactly what has changed. The Department for Business Innovation & Skills lists the following description of NLW : “From 1 April 2016, the Government introduced a new mandatory National Living Wage (NLW) for workers aged 25 and above, initially set at £7.20 - a rise of 50p relative to the current National Minimum Wage (NMW) rate...The adult NMW rate is currently £6.70. This will continue to apply for those aged 21 to 24.” How will this challenge us? The challenges we will face will vary a great deal based on individual circumstances. However, there are some common factors that most retailers will experience: 1) PAY DIFFERENTIALS 1/3 of low-wage workers employed in UK retail are below the age of 25. However, the NLW does not apply to these employees. Thus, we will need to act to mitigate the effects of the pay differential amongst low-wage employees. The government has set a target of incrementally increasing the NLW to £9.00 an hour by 2020. Additionally, the government has set a target of incrementally increasing the NLW to £9.00 an hour by 2020.

36 | summer 2016 |

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