Photos: Starbucks; Home Depot
Big chains are raising pay and more retailers are likely to follow
Home Depot and Starbucks announced plans to increase regular wages for associates. A potential hike in the federal minimum wage, recruiting benefits and hazard-pay reparation for working during the pandemic were cited as possible underlying factors driving the increases.
Home Depot said last week it planned to invest $1 billion annually on increased worker benefits while reporting third-quarter comps surged 24 percent amid a housing boom.
“We continue to lean into these investments because we believe they are critical in enabling market share growth in any economic environment,” CEO Craig Menear said in a statement.
Starbucks plans to give nearly all U.S. employees raises of at least 10 percent in mid-December. The hikes were revealed in an internal memo sent Nov. 2, the day before the presidential election, according to Business Insider.
“This announcement is the next phase of our commitment to ensuring the well-being of partners [employees] with one of the most significant investments to hourly pay in the U.S. in the history of the company,” Starbucks said in an emailed statement.
Multiple petitions have circulated online demanding Starbucks raise starting pay to $15 per hour as employees have been forced to adapt to the outbreak of the novel coronavirus. Many retailers have faced criticism for ending the temporary wage hikes and bonuses paid out early in the pandemic.
Target and Best Buy also increased their minimum hourly pay to at least $15 an hour this summer amid overall calls to raise minimum wage rates.
Florida recently voted to increase its wage floor over the next six years until it reaches $15 an hour. President-elect Joe Biden has proposed increasing the federal minimum wage to $15 by 2026, up from the current $7.25, although a Republican-controlled Senate, if it becomes a reality, is likely to fight an increase.
A Pew Research Center survey from last year found two-thirds of Americans support raising the minimum wage to $15 an hour, although many more Democrats (86 percent), than Republicans (43 percent), favored the hike.
A report from the Congressional Budget Office last year found raising the minimum wage to $15 an hour could cost 1.3 million Americans their jobs while raising the pay of 17 million others.
- The Home Depot Announces Third Quarter Results; Plans to Invest Approximately $1 Billion in Annualized Permanent Compensation Enhancements for Frontline, Hourly Associates – The Home Depot
- Starbucks is giving every barista in the US a raise, but some workers demand more as $15 minimum wage looms – Business Insider
- Starbucks raises wages for baristas as restaurant industry braces for minimum wage hike – CNBC
- Raise Starbucks Pay to $15 an Hour- coworker.org
- How Target’s Continuing to Invest in Team Members with $15 Starting Minimum Wage—And Much More – Target Corporation
- Best Buy Provides Updates on Evolution of Employee Pay and Sales Performance – Best Buy
- Should grocers keep paying their associates like heroes? – RetailWire
- Two-thirds of Americans favor raising federal minimum wage to $15 an hour – Pew Research
- CFOs Watch for a Possible Minimum Wage Hike Under Biden – The Wall Street Journal
- The Effects on Employment and Family Income of Increasing the Federal Minimum Wage – Congressional Budget Office
Discussion Questions
DISCUSSION QUESTIONS: What do you think is motivating Home Depot, Starbucks, Target and Best Buy to increase their wages for store associates? Do you see a potential $15 federal minimum wage as a positive or negative development for the retail industry overall, and how should retailers prepare for its potential arrival?
Poll
BrainTrust
If there’s one thing the pandemic did, it was raise the importance of frontline retail workers. Many of these retailers were already moving toward increasing wages, and the pandemic accelerated this as hazard pay has become a real consideration. The retail pay announcements are part of a larger movement to increase minimum wages and I think this is a positive development for retail workers and society in general — people need the ability to earn a living wage.
This is not just a North American phenomenon – anecdotal evidence in certain areas of U.K. retail are showing the same behavior. Retailers seek to retain staff – this is happening in areas associated with omnichannel distribution as well – in some places Amazon is attempting to poach experienced picking staff. In addition there have been instances of raised wages and retention bonuses in U.K. grocery.
In-store, the expectations placed on staff will rise over time – they will need to be multi-skilled in order to facilitate picking of online orders as well as advanced customer services. We are seeing this as evidenced by investment in things like task management, process management and learning systems for use by in-store employees.
There are (at least) two reasons behind the raises. First is pressure to do so with the minimum wage initiative. Second falls into the area of “conscious capitalism.” Some of these retailers are known for contributing to causes and their community. As some of them are having banner years in spite of the pandemic, they are going to continue to “give back,” and this time it is to their own people.
Regarding the $15 federal minimum wage, in general this will be a struggle for many businesses. The small retailer struggling to stay open during the pandemic can’t be thinking of raises, but instead of simple survival. If a raise becomes mandatory, that may come at the cost of reducing the number of employees. For some retailers, this will be a balancing act (higher wages versus number of employees) that may not have the result the federal government is hoping for.
Sure, the pandemic put the spotlight on frontline workers, but this move is years past due. It should never have taken a pandemic to make this happen. So it’s great that we are catching up, but we are still in the early stages of living through a shake out of how we shop and acquire products of all kinds. And the competition for skilled, nimble frontline workers is not over by a long shot.
These big chains — which have been on the front lines of digital and omnichannel – understand that experienced and enthusiastic associates are EVERYTHING.This is no time to skimp on wages. Engage associates, celebrate them, and win.
Before the pandemic hit, the labor market was tight and retailers were finding they had to pay to attract and retain talent. On top of this, I think a lot of chains are realizing the importance of frontline workers in terms of driving customer service and undertaking so many more tasks that are necessitated by the shift to omnichannel. Frontline retail is very hard work and I hope that chains continue to reward their associates accordingly.
One of the key competitive differentiators has been the frontline store associates, who are a critical part of driving outstanding customer experiences. While the federal $15 minimum wage increase is a very welcome development, retail store associates have been significantly underpaid in relation to the revenues they help to drive for the companies they serve.
Unfortunately, it has taken a worldwide pandemic to recognize the importance of the frontline store associates. Customers are taking notice of this, and have recognized the positive moves that Home Depot, Best Buy, Target, Starbucks, and others have done in increasing store associates’ hourly rates. This good will not only is a very positive public relations development but also provides a more livable wage for those seeking retail store based jobs as a feasible career route.
We should expect many other companies to follow suit.
Finding good, dedicated frontline employees is getting harder and harder. Add the pandemic and recruitment and retention is even harder. Retailers must realize that they need to pay their associates “at market rates” whether it is a $15 minimum wage or being competitive with wages in the marketplace. The pandemic has helped to make the general public aware of the critical roles these associates play in day-to-day business. This trend will continue long after the pandemic is gone.
Competition for retail staff among retailers is nothing new, especially during peak selling times. Higher wages are the most effective enticement for prospective employees as well as existing staff who are considering jumping ship. However, whether large or small, retailers must keep in mind that labor expense is the largest controllable expense beyond the cost of goods sold. That is no small issue. Increasing wages, say, from $10 to $15/hour is a 50 percent increase in store labor expense that shareholders for the big retailers and owners for the indies will not easily absorb. The real fear is automation will and is already taking over staff positions due to the much lower long-term expense versus raising wages 50 percent or more. Noticing more robots and kiosks in-store lately? I ain’t making this stuff up.
The retailer does not have to absorb the labor increase. The retailer can raise the prices. The price increase for a 50 percent increase in labor is not likely more than 5 percent and more likely 2 percent to 3 percent.
Ok, Gene, that is definitely a tactic that can be taken. I’m just concerned that reality may eventually show an increase in prices that drives up costs (whatever the percentage may be) for the very consumers we’re trying to help.
I completely agree, Gene. Most national retail chains could look to actually increase their prices a little, and explain that to customers by letting them know it is so that they can afford to pay their frontline employees more. The vast majority of customers would understand and applaud the initiative, and appreciate the efforts of often low-paid staff who brave the virus every day without the same protections as those in the healthcare industry.
The race to the bottom on price is not the only way to win market share.
Increases in discretionary, street-level spending brought about by putting dollars in hourly workers’ pockets has a massive effect — even Walmart acknowledged as such when the stimulus spending dried up this summer. Per Gene’s note, will shareholders panic when demand goes up 6-10% and labor goes up 2-3%? No, they’ll reward those businesses with better access to capital. As Paul Wellstone said, “We all do better when we all do better.”
The big chains are supporting their workforce and building stronger associate-customer relationships. After all, the highest costs for most retail is labor and the highest turnover rates are also in retail – edging over 60 percent. The larger, more successful chains are looking to take a page out of Costco’s playbook and offer ways to keep their best talent and ensure that the omnichannel experience shines. Retailers now need their associates to handle curbside deliveries, customer service, new pick and pack, new ways of store safety, and cover the challenge of having a potentially more dangerous work environment. The experience with the associate in-store has become a real differentiator and competitive pressures online without the store are pulling a frayed and challenged market.
As for minimum wage, the smart retailers will set these wages locally for their own stores to be competitive. I doubt a $15 minimum wage would pass muster in Congress or that it matters for retail.
In times of pressure of rising costs to retailers, the only solutions are margin escalations and/or creating new marketing strategies to bring in new customers. It is a daunting and potentially risky task. Certainly training programs for staff in customer service, product knowledge and sales strategies are critical.
I think this is definitely a trend whose time has come. Frontline workers are important and will continue to be so. I just hope the raises are not justified through raising pricing on products.
There is a realization that store associates are there to provide a service not a cost. For decades, retailers have seen them as no more than a cost and have moved to increase profits by getting rid of the most important people in the company. HUBRIS.
Walmart has led the way in seeing store associates as an asset, not a liability. They make the company hum considerably more than the people in the HQ offices.
Unfortunately, much of our citizenship also demeans the job of those folks who help them in the store and work behind the scenes, saying “they are just burger flippers.”
There was a study that showed that if McDonald’s were to increase the wages of their workers from $9/hour to $15/hour, they would have to raise the price of a Big Mac by 10 cents. Sound like a pretty good trade off to me.
Dear Mr. Retailer, the more money you put into the hands of your employees, the more money you put into the community. The more money you put into the community, the better you do overall.
Gene, said another way, for many retailers they would not even have to look at this as raising prices by 2 to 3% as much as they would simply stop discounting their sales by 30% and use 25% instead. In other words, many ways to absorb the cost delta!
Spot on!
Can’t disagree with the concept Gene, but a price increase usually also comes at the cost of demand. It could very well be that the 10 cent increase in price drops demand enough to translate into substantially less revenue. This means the company needs to believe the investment in its employees are worth enough to warrant the drop in income and profit. Especially holds true of the market when it’s highly price sensitive and where retail margins are razor thin.
During the COVID-19 pandemic retailers have seen how important store staff are to their operations. They have also seen the difficulty of high staff turnover in tough times. It makes sense to invest in your staff and keep the best as it will pay off big time in the long run. What you do need to do is to make sure you are getting the best out of the staff, make sure their performance is good and they are effectively scheduled to serve customers, and then you can identify the keepers from the rest. This is not news but retailers have gotten away with low pay for a long time and it has not been critical. Recent events have changed that and the realization is that cheap labor is not really cost effective.
The two corporate statements cited here give opposing reasons for the increase. I think Home Depot is more transparent in saying that it’s a business investment. From a cold-hearted business perspective, with woes befalling many small businesses that compete with HD in many product areas, improving employee retention and morale better positions them to compete for more market share. If that’s not what’s driving businesses to raise wages and it’s truly about staff wellbeing, the raises would be more generous and roll out faster. So the future profitability of these corporations is surely the answer, not employee beneficence.
Regarding state and federal $15/hour initiatives, I get why it can’t be an overnight doubling, but for people that need those wage increases, six years is an eternity and can be the make or break for their survival. Businesses need to try harder to do the right thing without governmental mandates.
The fundamental change that retail is going through has been accelerated by COVID-19. The larger retailers, particularly those who have some portion of their business with essential products, are cleaning up. Smaller retailers are being driven out of business, which accelerates the sales increases for the bigger guys due to a concentration effect. These bigger retailers can now pay more. Secondly the acceleration of online business and the associated “free” shipping costs puts pressure on margins. In the end both of these factors are going to create an environment that will impact pricing, which will have to go up to allow for both higher wages and free shipping. In the end there may be a more rational model where the shopper pays more, commensurate with the increase in service quality and shopping convenience. Reality in pricing/profit needs is a good thing all around and creates a sustainable business model. That said, anyone care to bet on where inflation will be in 18 months?
Large retail and QSR chains will gain strength by improving store associate wages. Independent operators will view this as a threat, however. The pandemic damage has been disproportionately hard on indy shops and restaurants — which makes the prospect of paying a higher minimum wage seem punitive to that sector.
Even if we all agree that workers deserve more of a living wage (I do), the impact of a much higher minimum hourly will be uneven across sectors and geographies. For this reason, I suspect a $15 federal minimum wage will be a hard sell in Washington.
Where influential retailers do raise their pay scales, the payoff comes as workers spend more in their local markets. More money moves. More sales tax revenues are collected. Fewer households need subsidies from the states.
Large chains will offset higher wages by increasing prices, certainly, but also by controlling certain costs with automation and process improvement. These avenues may not be as available for small retailers.
After many years of hearing retailers and industry pundits declare it the “year of the associate,” it took a pandemic for this to come true. Large retailers like Home Depot, Starbucks, Walmart, Target, and others have finally recognized that their store associates are not merely a cost to endure, but a strong asset that can drive sales by directly impacting the customer experience. Investment in associate wages and training have become clear differentiators for large retailers and they now see the benefits of doing so much more clearly than previous years. I fully expect more retailers to follow!
The issue is more with a nationwide wage increase and smaller and independent retail brands. Smaller retailers have fewer means with which to absorb the wage increases. Larger retailers can choose to raise prices of merchandise if necessary, to offset the increased wages, or even choose to discount products less rather than pure increases. The price differences are not going to be that noticeable for most products and if the wage increases are publicized enough, most customers of those brands will gladly pay those increases if they know they are helping to deliver a living wage.
Smaller and independent retailers may have to consider fewer employees as their only means to compensate for the costs. It’s a tradeoff and balance they must strike, and this will vary by retailer. Given that the sheer number of small and independent retailers far outnumber the larger brands, this is likely to be a highly debated topic in Congress for some time to come. We will more likely see this change region by region across the country based on the cost of living in those areas before we see a nationwide change.
While I would like to believe that retailers are increasing wages for either retention or altruistic reasons, I believe that these retailers have seen the writing on the wall of a coming $15/hr mandate and are attempting to circumvent it or gain a PR benefit from moving in advance of such regulation.
A $15 wage is closer to a living wage and will help retailers reduce worker no-shows and retention of best workers.
The pandemic has showed the critical role that retail – and the entire ecosystem that produces good and consumables – plays in our communities. Without “hero pay” many customer-facing associates earn less than the Department of Health and Human Services 2020 federal poverty level.
The retail industry shone during the pandemic, taking positive action to keep their businesses, people, customers and communities operational. And along the way, consumers got a new-found appreciation for the workers who stepped up to keep us stocked with essentials. Let’s hope that permanent pay raises are a rare positive outcome of the pandemic.