Rising Pay Signals Tough Times Ahead for Retailers
Updated to include information about fast-food worker strikes on Tuesday.
Retail workers in the U.S. are scoring fatter paychecks due to a tightening labor market, and this may end up crimping profits for their employers during the all-important holiday season and beyond.
Employment in retail rose by 44,000 in October as companies staffed up in the weeks before the holiday shopping season unofficially kicks off on Black Friday, according to the Bureau of Labor Statistics. Hourly earnings for retail workers rose 3.1% year over year to $17.66, outpacing the 2.5% rise in overall wages for the month.
The solid gain in hourly wages for retail workers last month underscores what has become a tightening labor market for their low skill services, which are also being sought after by the construction and restaurant industries. Hourly wages for construction and leisure/hospitality workers rose by 2.6% and 2.5% in October, respectively.
And the pressure to raise wages continues, particularly in the fast-food industry. On Tuesday, the Fight for $15 campaign launched one-day worker strikes of fast-food companies in 270 cities, its largest demonstration yet. The labor union-backed campaign is calling for an immediate increase in the wages of fast-food workers to $15 an hour, continuing their mantra from demonstrations held this past spring.
"Some retailers are having to provide more incentives this season to get talent," said Jack Kleinhenz, chief economist at the National Retail Federation (NRF).
According to TheStreet's Jim Cramer, rising wages and a whole host of other factors, including warmer than usual weather, are combining to hammer the stocks of retailers recently.
Toy retailer Toys R' Us is one of those retailers experiencing the effects of a more competitive market for labor this holiday season. "This year we will be offering seasonal employees the opportunity to take on significantly more hours than in previous years, while also continuing to provide extra hours to our current employees," said Toys R' Us spokeswoman Cheryl O'Brien via email.
O'Brien added, "We are definitely seeing a more competitive environment for the total applicant pool as the job market improves and more individuals obtain permanent work."
In spite of the higher pay, though, workers are still shunning retail jobs during non-seasonal times, which will likely have the effect of keeping wage pressures in the sector elevated.
According to job posting site Indeed, retail job openings posted on its website increased 26% to 530,477 in the 12 months ending in September. But interest in those jobs, as measured by the number of clicks on the postings, declined by 9% overall.
The most recent Job Openings and Labor Turnover (JOLTS) survey from the Bureau of Labor of Statistics showed that job openings in retail trade spiked 20.1% year over year in August, while hiring only rose 10.2%. Separations, also referred to as turnover, which takes into account people quitting, being laid off or discharged, increased by 39,000 in August, marking the highest rate of turnover among sectors measured.
So far this year, wage pressures in retail have been more a necessary evil to retain and attract talent in order to meet demand, rather than a driver of stronger profits. Part of the problem, according to the NRF's Kleinhenz, is that there is price deflation in retail due to the rise of online shopping, as well as cautious U.S. consumers. "It's very likely there will be pressure on profits this holiday season as a result of [retailers having] little pricing power," says Kleinhenz, pointing specifically to larger retailers.
The world's largest retailer Wal-Mart (WMT) - Get Report has already felt the shock to profits stemming from labor cost pressures and competitive product pricing. On Oct. 16, Wal-Mart's stock price tumbled 11% as the company said at its annual investor day that higher wages for associates will dent profits by about $1.2 billion this year, and by another $1.5 billion next year.
The wage hikes taken earlier in the year lifted the minimum hourly wage at Wal-Mart to $9 an hour. Wal-Mart is planning to hire 60,000 seasonal workers this year, about on par with 2014.
Wal-Mart also highlighted sluggish spending on the part of low-income consumers, which may cause the retailer to be more aggressive with its discounts this holiday season in order to drive sales.
Wage pressures are unlikely to abate in 2016, either, as retailers look to fill openings. The bottom line, said Kleinhenz, is that hiring more workers will likely require paying out higher wages.