Good staff costs money, as retailers discovered this holiday season.
A number of major retailers, ranging from Sears (SHLD) to Kohl’s (KSS) to home improvement chain Lowe’s (LOW) pointed to higher wages for store workers as a factor pinching their financial results and 2016 forecasts. It’s hardly surprising, given the tight labor market that give stores associates more choices if they’re not happy somewhere.
U.S. employment fell below 5% in January, meaning retailers have to fight harder for good workers, who in turn will fight hard to help those stores win their share of a stagnating retail pie.
As these stores continue to battle each other and Amazon.com (AMZN), store operations have gotten more complex, meaning they need top notch motivated staff. Working a store is about much more now than greeting customers and running back and forth between the sales floor and the stockroom. Now, staff at many retailers has to be able to help customers navigate mobile apps, assist with the growing proportion of online orders that are filled with store merchandise and be able to check out customers with handheld devices anywhere in the store.
So top stores warned investors to expect margins to continue to be squeezed.
“Store payroll is going to grow. We’re seeing the wage pressure. We’re not immune to it,” Kohl’s Chief Financial Officer Wes McDonald told Wall Street analysts last week on a conference call. Kohl’s expects comparable sales to be flat, or rise 1% at most this year, so it can’t afford to have apathetic workers. Kohl’s is closing a sizable number stores for the first time in its history, shuttering 18 locations this year. McDonald’s said store wages make up one third of its sales, general and administrative (SGA) costs.
Others were more outspoken.
Sears Holdings CEO Eddie Lampert told shareholders in a letter last week to explaining the latest round of disastrous financial results for his company higher minimum wages “can be the straw that breaks the camel’s back, causing stores to close and eliminate jobs.” (But let’s not forget shoppers abandoning Sears and sister chain Kmart in droves as a factor. Annual comparable sales at Sears Holdings have not risen once since 2005, when Lampert, a hedge fund manager, engineered their merger.)
Last year Walmart, (WMT) announced a two-part wage increase for hundreds of thousands of workers aimed at lowering employee turnover and improving customer service, a bête noire for the world’s largest retailer for years. But that has also eaten into Wal-Mart Stores’ profit. But some 70% of Walmart stores now get a passing grade, up a few percentage points from a year ago, and Walmart’s customer service marks are rising.
At the same time, Walmart’s move forced other retailers to follow suit.
TJX Cos (TJX), which last year also raised its minimum wage, and has warned investors it will hit the bottom line. TJX CFO Scott Goldenberg said tlast week wage initiative would lower earnings by 3% in the first quarter. At the some time, it’s probably money well spent: comparable sales at the owner of T.J. Maxx and Marshalls saw one of the highest increases among major retailers during the holiday quarter.
And the list goes on. Lowe’s (LOW) CFO Robert Hull also mentioned wage pressure, saying he expects unusually high wage inflation this year.