Moving Beyond the Minimum: Retailers Decide to Boost Employee Wages

The biggest line item on retailers’ budgets may be getting bigger. As unemployment rates decline and external pressures shift workforce dynamics, simply meeting minimum wage requirements for entry-level salaries may no longer be enough. With Wal-Mart announcing plans to boost pay for U.S. employees well above minimum wage, and other category killers like TJ Maxx and Target following suit, it’s clear that this is not a passing fad.

What’s driving retailers’ decisions to increase wages? Motivation is likely coming from a number of directions. Between regulatory changes, union pressures and overall economic health, retailers are realizing that the competition for attracting and retaining quality talent is becoming increasingly fierce.

The improving economy and notably low unemployment levels means that workers feel more freedom to find new jobs. According to the Bureau of Labor Statistics, the average hourly wage for retail salespeople in the U.S. is $12.38, so companies offering the current federal minimum hourly wage of $7.25 could be at a greater risk for higher turnover rates spurred by pay dissatisfaction.

For Wal-Mart specifically, plans to expand into urban markets may have played a role in their decision to increase pay. As my colleague Doug Hart and I discussed in a recent blog post, Wal-Mart is focused on ramping up the expansion of their smaller store formats, including amplifying its footprint in cities like Boston, Seattle and New York City. Without increasing pay for workers, it’s possible that Wal-Mart’s penetration in these markets would have been met with resistance, as opposition to big box retailers tends to be higher in major urban areas.

When thinking about their workforces, retailers must consider the level of talent needed both in-store, and for other positions throughout supply chain and distribution operations – from associates at fulfillment centers to shelf-stockers in stores. Meanwhile, new technologies used for production, distribution and in-store customer service may require talent with more technical experience.

As major players announce plans to increase wages, retailers across the industry are pushed to think more strategically about how to compensate and incentivize all employees in order to compete. A key challenge lies in determining how to effectively balance competitive compensation packages while maintaining costs and preserving or improving margins. For some retailers, investment in labor may not mean increasing wages. For instance, Dollar General plans to offer schedule flexibility and more hours so employees can have the opportunity to receive higher paychecks. Other retailers may offer subsidies for education costs, or focus on providing attractive health and wellness benefits.

Regardless of the approach, retailers are addressing external pressures by turning turn their attention inward and making decisions that will help attract and retain workers – an investment that can only benefit their operations in the long run.