Walmart (WMT) sent a shiver down the spine of retail executives when management announced a package of employee compensation enhancements anchored by a pay raise to $9/hour in April and to $10/hour in February 2016. TJ Maxx (TJX) quickly followed suit, raising wages to $9 in June and to $10 next year. We now wait to hear the response from JCP, Macy’s and others as the trickle-down effect of wage increases inevitably roll through the retail industry.
The challenge for retail executives is that retaining the best sales force will become an even harder task as workers seek higher wages elsewhere. While we expect to see an increase in employee churn, the absolute effects on retail operations is a little less clear. Certainly, there are some options to reduce already sparse sales forces, but there is a limit to how far retailers are willing to inconvenience shoppers, and we expect more consolidation in operations as omnichannel strategies start paying off—such as the recent reorganization at Macy’s (M).
In the short term, we expect a hit on earnings as higher wages directly hits the bottom line—with TJ Maxx estimating that the wage hike will contribute to a decrease of 4% in 2016 earnings. But farther out, the increases in discretionary spending that higher wages empower may offset the increased expenses.
What is also intriguing is the impact that Walmart’s move will make on the conversation around the national minimum wage. Meanwhile, we’ll be checking in at stores to see if the increase in wages equates to an improvement in customer service and the overall shopping experience and how shoppers are responding.
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