Minimum Wage increases - what it could mean for your retail business
Tips to help combat wage increases
There's a lot of concern amongst employers with the announcement that the Labour Government will aim to increase minimum wage to $20 an hour by 2021. The latest increase pushes the adult minimum wage to $17.70, an increase of $1.20 from the current rate (see the details here).
Whilst the latest change is not taking effect until 1 April 2019, it is important that retailers are equipped with the right tools to accommodate these changes and the challenges that may come with them.
A significant issue is that the increase in the minimum wage will also put pressure on other wages. Suddenly, the gap in pay rates between junior and more experienced team members may evaporate - and your more experienced team members are likely to demand higher wages in recognition of their experience and the comparative value they add.
Wages are a substantial cost for retail businesses - often close to a quarter or a third of operating costs. An increase in the minimum wage will therefore have a major impact on your business strategy, and you will need to drive productivity growth in order to afford the changes.
Your suppliers will also be facing the same challenges, and this is likely to lead to wholesale price increases. This will add further pressure to margins in the retail sector.
It is important to plan ahead and gather ideas now of how you will keep your business thriving. There is a number of ways to try and manage rising wage costs, including
- absorbing costs;
- increasing prices; and
- cutting staff hours or reducing staff numbers.
Initially - you may be able to absorb costs. You may also be able to cope with a reduction in your profit margins for a period. However, this is unlikely to be sustainable in the long term, and will be especially hard for those small businesses whose owners are sometimes struggling to pay themselves the equivalent of the minimum wage now.
Of course you can directly pass on the increased operating costs directly to customers, but this runs a risk that you will lose business. In thinking about price increases, it is important to keep an eye on what your competitors' prices are, and assess whether this impacts your sales and profitability.
Cutting staff hours
Reducing the hours your staff work equals a lower cost to your business. If you cut opening hours strategically it will reduce staff labour costs, but the trick is doing so in a way that has minimal impact on sales.
Questions to ask include:
- when are you are busy in-store, when are you making sales?
- are there times when you can reduce opening hours?
- are there some days when you can close completely?
- can you introduce automation, such as self-checkout to help minimise the need for people on the floor;
- can you drive customers to shop online rather than in-store;
- do you need to introduce split shifts or move from full-time to part-time workers?
Cutting staff numbers
You may decide that you need to reduce the number of staff you have, either because you want to take on more hours yourself, or because you need to reduce service levels to customers.
If you need to do this, you need to follow due process. Start by writing out your current structure. Try to take names and people out of the equation and just use titles. Are all of these positions necessary?
- Can roles be amalgamated?
- Do you need to move people around?
- Does the management structure work?
Reducing employee numbers can be done through natural attrition - that is, not replacing employees when they leave
If you are going to force a change in staff hours, restructure or downsize, you will need to go through a formal change process. This involves meeting staff to advise your ideas and what it mean for them. You need to consult them formally, and ask for feedback on your proposals. Remember to offer employees the chance to bring a support person, and give them reasonable time to offer feedback. You need to consider feedback genuinely without having a pre-determined outcome. Once you have considered feedback you can make a decision and advise employees of the outcome.
Retail NZ's Advice Service has templates and guides to help with this process. Email us for more specific advice on email@example.com
If you can afford the new minimum wage, but can't pay more experienced people more, what should you do?
Retail NZ is here to help you bridge the wage gap and keep your employees productively up and your business successful. There are viable alternatives to mitigating the wage issue, you do not necessarily have to increase everyone's pay in order to keep all happy - money isn't everything to some employees.
Great employees are critical to delivering great customer experiences, and you don't want to lose people who add real value to your business. Stand-out employees often have the X-factor - you as the employer should recognise this, harness it and use it to your advantage. If you have to make hard choices, promote staff who add real value or show a lot of promise. Spend your wage bill on the staff you want to keep, they may well be the competitive edge your business needs. Offer development opportunities, additional training courses and incentive-based programmes within your business.
You may wish to consider things that have a benefit for your employees outside of the work they are currently doing; things such as Health and Safety, first aid and management courses all have mutual benefit in and outside of the employment relationship. Even things you may not otherwise consider can be a substitution to a wage increase. Free-parking close to your business, extra staff discounts or restaurant and entertainment deals can often go a long way also.
In a sales-driven environment you may wish to capitalise on incentive-based compensation options. A bonus or commission-based payment scheme can often work here. It adds value and competition to your business as well as fuelling you and your employees' expectations to perform. It is important to note that keeping employees motivated helps to improve employee performance as well as business productivity. Incentives that motivate employees to perform, especially commission, can really drive results.
Thinking outside of the square is encouraged. Does your business offer a family-friendly atmosphere? Is it an enjoyable place to work? All of these intrinsic factors lend themselves beyond wages and pay, but also aid customer demand and satisfaction.
It is important to think about what your business offers staff other than a wage, for recruitment and retention purposes.
If you need more information or want to discuss any ideas, call us on 0800 472 472 (1800 128 086 from Australia).
Published in the 29th January 2019 edition of Talking Shop