Strategies for Retailers in Light of Rising Wages and Turnover

April 02, 2015

Recently improving economic conditions have increased consumer spending and created demand for more employees in the retail sector, resulting in increased wages and employee turnover.

Since July 2009, the federal minimum wage has been $7.25 an hour. During the worst of the economic recession, consumer spending decreased lessening demand for goods and putting a brake on hiring and compensation in the retail industry. However, recently improving economic conditions have increased consumer spending and created demand for more employees in the sector, resulting in increased wages and employee turnover.

Average hourly wages in the private sector increased by 2.7 percent in 2014, according to the ADP Workforce Vitality Index, twice the rate of inflation. In the trade/transportation/utilities sector, including retail, growth was higher at 4.4 percent, largely because retail has a high concentration of low-wage jobs, so small increases have an outsized percentage impact.

In addition, the ADP Workforce Vitality Index shows that turnover in the retail sector is high, particularly for younger workers who often are a primary source of labor at retail. Among trade sector workers under 25, turnover was 48 percent. For those 25 to 35 it was more than 22 percent. Increased turnover means retailers need additional employees, not just to match the demands of the economic recovery, but to replace workers who leave.

The pressure on employers large and small has become obvious. Wal-Mart announced that it would bring all of its U.S. employees to a minimum of $9 an hour by April 2015. Shortly after, TJX Companies, parent of T.J. Maxx, Marshalls, and HomeGoods, announced that it, too, would create a $9 pay floor by June and in 2016 increase pay for all workers employed at least six months to $10 an hour.

In a February 2015 statement, TJX CEO Carol Meyrowitz said, "This pay initiative is an important part of our strategies to continue attracting and retaining the best talent in order to deliver a great shopping experience for our customers, remain competitive on wages in our U.S. markets, and stay focused on our value mission."

Smaller retailers feel the pressure as well. Michael Stajer owns 14 franchised value hair salons in California. "Wages are my number one expense," he says. "I don't get to raise prices in lock step with state minimum wage increases." Stajer depends on employees selling add-on services and additional products for commissions.

But higher minimum wages won't necessarily be enough to keep many employees from looking elsewhere because of inadequate hours, thereby putting more pressure on wages. "It's not [just] how much they pay per hour," says Caitlin Kelly journalist and author of Malled: My Unintentional Career in Retail. "It matters how many hours they give you.” So long as employees feel squeezed, they will look for better pay.

Consider these strategies that retailers may employ as a result of the combined impact of wage and turnover increases:

  • Manage Hiring Costs — as employees leave, a retailer must replace them. That may mean increased recruiting and hiring costs, including advertising, screening candidates, onboarding and training them. Reducing those costs through more efficient hiring and onboarding, or offsetting them with tax credits for hiring and training could help reduce the impact.
  • Business Expansion — a growing economy typically translates into more opportunity for everyone, spurring increased consumer activity and retail growth. As retailers expand, they may move into new geographies. This could lead to increased cost and complexity to comply with laws and requirements of new jurisdictions. Automation of manual tasks often associated with compliance may help reduce the cost and complexity in multiple jurisdictions.
  • Increase HR efficiency — whether hiring, retaining, or managing employees and talent, efficiency and cost-effectiveness of processes will become critical in establishing and maintaining competitiveness. Disparate systems and manual tasks could be replaced with unified solutions and increased automation to help improve efficiency as processes are burdened with more hiring and turnover.
  • Make better decisions — increasing wages and increasing hiring would typically add cost directly to the bottom line, thus reducing profit margins. Organizations that mine internal and external data and turn it into actionable insights may be able to reduce these costs by making better and faster decisions about when, where and who to hire.

Given the outsized impact of wages and turnover in retail, companies will have to become more vigilant in the management of their most valuable asset – their people, while minimizing the potential dilution on financial performance.

About the Report: The ADP Workforce Vitality Index is a comprehensive, quarterly measure of U.S. workforce dynamics that looks at key labor market indicators, such as employment growth, job turnover, wage growth and hours worked. This report yields deeper insights into workforce dynamics and trends than previously available.

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For media inquiries about the ADP Workforce Vitality Report, please call 201-400-4583 or email Allyce Hackmann.