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How to live with the living wage?

April 1, 2016

Dave Dalton, Source Tagging Manager, Checkpoint Systems

It’s amazing how quickly it has come around. The living wage is now being enforced across the country and many UK retailers are still battling with falling sales. Its introduction undoubtedly poses a conundrum – retailers will incur additional costs, but could benefit from increased spending by those consumers who find themselves with slightly more money at their disposal.

 

One in 10 people in the UK work within the retail sector – that’s around 6.5m – many of whom receive the minimum wage. From today, each of these employees will receive a minimum of £7.20 per hour, rising to £9 by 2020. According to the Centre for Retail Research, by that point it will cost retailers more than £3bn per year in extra pay, national insurance and pensions.

 

The omnichannel revolution is already squeezing the profits of bricks and mortar retailers, particularly in the grocery sector where prices are regularly cut in order to remain competitive. Clearly the living wage is a complex issue and it is driving retailers, of all sizes, to evaluate the way they operate. So, in my mind, that leaves three options. Either pass on the increased costs to customers, reduce staff hours or look at introducing processes that provide operational efficiencies.

 

Staying with the grocery sector, I highly doubt that many stores will increase prices to offset the additional overheads. It may be difficult for the discounters to maintain their position, as already squeezed margins will be further eroded, but the major multiples simply can’t afford to pass on any costs to customers without damaging brand loyalty.

 

Reducing staff hours may be a safer option to some retailers. However, stores may need to evaluate whether fewer staff would harm their customers’ experience or could potentially lead to an increased risk of theft, due to reduced customer interaction and on floor vigilance.

 

That leaves one area – improving operations so that they become more efficient – which actually links into reducing hours, albeit subtly. I have had numerous conversations with grocery retailers and know that this is their preferred choice. Ultimately, what they are looking for are new processes that will improve the way they operate, and minimise the amount of time staff spend doing a task.

 

One solution is to source tag anti-theft security labels at the point of manufacture. In many UK stores, staff are still expected to apply anti-theft devices to merchandise manually before they are placed on display. This is a vital process, but accumulated over the period of a year, amounts to days if not weeks of manual labour per member of staff. If you could reduce that by just a fraction, multiply by the number of staff and stores in your estate, it would save hours of time, and a significant amount in saved wages per retailer as a result but without impacting staff too heavily.

 

The cost saving benefits are evident, but there is another important issue which is automatically addressed – compliance. Staff not correctly applying anti-theft devices is a pain point that arises frequently among retailers. However, if products are delivered to stores already security protected, staff can concentrate on selling goods, customer service or replenishing shelves. So the retailer is streamlining in store processes, eliminating errors, and improving staff efficiency. Added up this will lead to improved merchandise availability and increased sales.

 

Undoubtedly the wage increase comes at an extremely challenging time for the sector, but, in my opinion, it brings with it an opportunity to introduce changes that deliver improved long term efficiencies. If it is the spark that drives change for a positive impact on the bottom line, it will perhaps bring benefits more widely for both the retailers and the workers.