Retail Pay is Rising at Record Levels – Something's Got to Give!

Retail pay has been rising at record levels and for many of the major players now sits well above the National Minimum Wage. Barring John Lewis-Waitrose and Morrisons, all of the retailers listed have increased pay far beyond the newly mandated £11.44 per hour. With margins struggling to recover, the obvious question is why?

In a tight labour market attracting and retaining quality store staff has never been harder. Obviously, Brexit has been a factor as has Covid; there are now over 9m adults not in work or full time education. And recent well documented increases in retail crime and colleague abuse have exacerbated the problem. But another factor is that being seen to be a good employer has never been so important. Customers are now far more socially aware and retailers need to be seen to be doing the right thing. The CPO from one of the ‘big four’ said, ‘supermarkets don’t want to be bumping along on the minimum; that’s not what we want to be known for’.

Since the end of lockdown, retailers have been attempting to revitalise stores, most importantly giving customers a reason to return to physical shopping, which has higher margins than online. Better paid colleagues are more motivated and can enhance the in-store experience. As Jayne Wall, incoming Director - Central Store Operations at M&S says, ‘Service always matters and it’s even more important if you’re not offering the lowest price in the market. The key is, providing customers with options. You have to let them make the choice, rather than forcing the choice upon them.’

Concurrent with uplifts in hourly pay, we’ve seen significant head count reductions elsewhere, notably in Support Centres and DCs. Sainsburys has announced 1500 job cuts over 3 years. JLP is cutting 11,000 jobs as part of its turnaround plan and Morrisons shed 8,800 heads last year when losses came in over £1bn for the second year running. Are uplifts in store colleague pay forcing retailers to cut back-end operations? One Retail CEO insisted that there is no correlation between pay rises and headcount reduction, but did admit that big hikes in minimum wage will depress hiring; (as will increased regulation). Some cuts come down to simplifying the business and removing non value-add processes which have crept in, but increasingly they are fuelled by technology, which is becoming more sophisticated – and affordable - as people costs rise. For example, Lidl is leading the way on digital shelf edge pricing and it’s estimated that this is saving up to 15 hours per store per week.

Using Microsoft and Copilot to manage scheduling and technology/robotics to carry out volume and repetitive tasks frees up people to serve customers, but to get the most value out of colleagues, more than ever they need to be well trained and multi skilled.

As a labour saving initiative self checkout has been well established (and accepted by customers) for many years. Counter intuitively some supermarkets are now rowing back on this, including Walmart and Target in the US. This is a knee jerk reaction to the rise in shrinkage, but a more nuanced approach is required.

In more affluent towns and villages, customers seem to prefer personal service at the till, while in busy cities most often served by convenience stores with a smaller basket size, self checkout rules. The increased efficiency and through put will in part offset the higher rate of shrink, but again technology can help, with AI monitoring of behaviour, cameras and more precise weight measurement, plus the need to show a receipt in order to exit the area; as one leader retailer said, ‘ the technology is now so good, self checkout area is like a prison!’

Despite some scaling back on self check out, 70% of transactions are now non assisted and Scan and Go is increasing in popularity. Interestingly, this appears to be driven by the ability to monitor spend as you shop and is being used as a budgeting tool by cash strapped households.

Whilst the big supermarkets have been able to pay store colleagues over and above the new NMW, increased labour costs could prove fatal to independent retailers. They will be forced to cut opening hours or lay off staff; neither of these are attractive options for already squeezed independent business owners. Independents cannot solve their problems by investing vast sums in technology like the bigger players.

For the large retailers as least, the investment case for technology now stands up as people become more expensive and will continue to offer opportunities to reduce/remove labour intensive tasks, freeing up colleagues to do what they like best – serving customers – which is a win/win all round.