Over the last few months, there have been a flurry of legal issues among retailers. We thought we’d take a moment and reflect on the fallout from them.
First, we witnessed the Supreme Court ruling that Abercrombie (ANF) discriminated in their hiring practices over religious garb of an applicant. While terrible publicity among investors, with the fast-news cycle this was hardly a blip on the radar of consumers. What it does show is continued pressure on management to get their brand story right and project a more inclusive image. We noted improvements to the store experience showing more diversity and less sexual-charged images in early Spring, but despite better product mix and on-trend apparel, they failed to woo their customers back. And in a bigger picture, they can ill-afford to alienate developing countries where the brand may still be strong.
Next we saw increased talk of legislation around the minimum wage. At first blush, we’d expect pressure on earnings at a time when retailers struggle with less-than-stellar growth. This conversation scooped by Target, Walmart, Gap and others voluntarily raising wages to $9 to 10/hour. What is perhaps more interesting is that Ikea has raised wages 2 years in a row using a sliding scale based on regional cost-of-living. The brand claims that the increases have helped retention, worker morale and reduced management costs, not to mention positive sentiment with consumers. Given this data, retailers will need to understand and balance savings with labor costs. With more progressive lawmakers in big retail-heavy cities such as New York and Los Angeles calling for a $15/hour minimum wage, we expect this conversation to continue and become part of the political theater leading into 2016. While it is an exciting time for a person working a below-minimum-wage hourly job, we question how the retailers plan to achieve their projected numbers, since they were not accounting for the salary increases among thousands of employees. Does this mean a cut in other services or will they tack on the expense to their vendors?
Finally, 2015 is looking to be the year of the FTC, with fresh scrutiny of retailers discounting claims. JCPenney (JCP) was caught up in a class-action complaint that centered around misleading sale prices. The suit alleges that stated discounts are fraudulent if the product was never sold at the stated full price. While high/low pricing strategies are a proven tactic among retailers it is surprising that there appear not to be safeguards in place to make sure all sale products were sold at full-price for the appropriate amount of time. This motion has put retailers on notice to track their pricing very carefully.
We’ll keep our eye on updates as these issues continue to develop.
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