On Wednesday, TJX, parent company of the TJ Maxx, Marshalls and Home Goods retail chains, announced it was joining a growing list of retailers by increasing base pay for hourly employees to $9 an hour. The company follows Walmart,
This is no small thing, and it's the tip of a very large iceberg. The retail business model has been built on the model of a transient, low-paid, mostly part-time in-store workforce for the past hundred years.
That model is changing irrevocably, driven by the growing threat of online retailers like
Because it is so frequently cited in the media, I’ve used Walmart as the “poster child” for these issues, but there’s no doubt other retailers also feel the pain. On the flip side, retailers like
First, let’s take a look at the threat from online retailers. Overall, according to the American Consumer Satisfaction Index (ACSI) the retail trade sector trails many other sectors, with an overall satisfaction index of 76.8 (down 1.4% from 2013). The eCommerce industry is rated much higher, at 81.7, and the index actually rose 4.6% over 2013.
According to consultancy PwC’s annual global consumer survey, 52% of respondents cited Amazon.com as one of their three favorite retailers, vs. Walmart, cited by 41% of respondents. Certainly Amazon has enjoyed far greater revenue growth that the Arkansas behemoth over the past several years. Walmart has trimmed expenses and in-store payroll to get an acceptable bottom line, but the lack of sales growth is hard to ignore.
With almost anything she wants available at a click of the mouse or the swipe of a finger on a tablet screen, today’s shopper is running out of patience with store-based retailers. She comes into stores knowing more about the products she wants to buy than the associate expected to help her, and low employee morale at stores like Walmart is just another disincentive to buy there.
Store-based retailers MUST create incentives for store employees to engage with both their customers and complete their non-revenue generating tasks quickly and efficiently. The baseline for that employee engagement is a living wage.
Next, let’s look at worker advocacy groups. Bloggers like me receive almost daily emails from OUR Walmart (Organization United for Respect at Walmart). The group has organized annual Black Friday strikes and highlights the stark choices Walmart workers must make because their wages are so low. A recent such email reported the following:
“Anthony Rodriguez, a Walmart worker from California, is forced to choose between diapers and groceries on weeks when he is scheduled for as few as 18 hours. Kelly Sallee, who works at a Walmart in Dayton, Ohio, is putting off plans for a wedding and a family because of the low pay and schedules that include as few as 21 hours a week. Both are also battling debt.”
The data raised in these emails have found their way onto the Op-ed pages. The New York Times Editorial Board suggested,
“A hugely profitable corporation like Walmart can readily afford to do better than those measly increases. But it is very unlikely to do that voluntarily, without governmental action.”
The last thing retailers want is government mandated pay increases. And so we will see continued pressure for higher in-store employee pay.
And that brings us to the last factor driving change: public sentiment from adverse publicity. Gradually the public is being made aware that because many of these part-time workers are below the poverty level, they are also on public assistance programs. So while prices appear to be low, taxpayers ask themselves “Why am I subsidizing mammoth corporations? They seem to pay lower taxes than I do, but I’m helping support the people who work for them?”
Public sentiment translates into lack of store visits. So, for example, while Wall Street may excoriate companies like Costco for paying far higher wages than Walmart but consumers take notice. As reported in the Huffington Post:
“The company's starting pay is $11.50 per hour, and the average employee wage is $21 per hour, not including overtime. Most other big box retailers start their employees at minimum wage.”
Many people shop at Costco who would not even consider stepping through Walmart’s doors. On the one hand, it could be argued that the customer demographics of the two chains are very different. You don’t see a lot of Mercedes in Walmart’s parking lot. But on the other hand, the retailer needs to find revenue growth from new customers.
The last few years have taught Walmart and other low-price retailers that small shifts in the payroll tax or gas prices have dramatic impacts on their low-income customer base. Higher income customers are generally less volatile. But the middle class generally prefers to “feel good” about where they shop.
Anyone who has shopped at a Trader Joe’s knows how cheerful and helpful its employees are. The average crew member there earns $13.20 an hour, with frequent opportunities for raises. The employees feel empowered, knowledgeable, and appreciated.
Retailers know this. In a recent benchmark survey conducted by my company, RSR Research, 47% of respondents cited “more personalized attention from employees” as a top-three opportunity for improving the in-store experience to drive their another top-three opportunity, “Focus on a more convenient customer experience” (cited by 51% of respondents).
And so we are left with only one conclusion: To return to a period of growth in terrestrial retailing, retailers will find a way to pay their in-store associates more money, and shift a model that has existed for more than a century. None of the forces cited above are going away any time soon, and in fact, public pressure may accelerate. 2015 is the year of the in-store employee. And once again, retail will never be the same.
