2:02 PM, Mar 13, 2018 — Retailers might have to absorb rising wage pressures rather than cut staffing levels in a bid to preserve customer service to fight off the rising tide of e-commerce, Barclays said in an equity research note on Tuesday.
“Wage inflation has been an active investor discussion topic in recent months as strong employment trends have resulted in healthy wage growth across the US in general, and the retail sector specifically,” said analyst Chethan Mallela. There have also been “high profile” increases by companies including Target (TGT) and Walmart (WMT), he said.
Of the 19 retailers tracked by Barclays, 13 cited recent or prospective wage pressures in their fourth quarter earnings calls, with the impact most acutely felt among hourly workers, Mallela said.
Retailers have been facing rising pressure from online commerce companies like Amazon.com (AMZN), and Barclays said it might be harder than in the past to offset the wage level issues with staff changes because the median employee per square foot across a broad range of companies has decreased 11% over the last decade.
“Recent industry commentary has highlighted in-store service as a critical defense against share loss to e-commerce,” Mallela said. Companies may opt to absorb the impact “of higher wages going forward rather than sacrifice customer service levels.”
Walmart in January said it was lifting the starting wage for hourly workers to $11, while Target said in September it was boosting its minimum to $11 with a commitment to reach $15 by the end of 2020.
Michael Kors (KORS), Ralph Lauren (RL) and Tapestry (TPR) didn’t cite wage pressures on their earnings calls, Barclays said. While it’s less clear why Gap (GPS) and others “might also not be seeing wage pressure, we would caution that wages are a function of many idiosyncratic factors that can be difficult to externally evaluate,” the analyst said.