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Preparing for Increased Wages Due to Legislation in the UK?

by Jineshwar Kochar, WFM Sales Analyst on Oct 24

The retail landscape is shifting rapidly, with the divide between physical retail and online retail increasing very fast, but in-store retail experience is as important as ever. Without happy employees, it becomes difficult to keep your customers happy. And announcements of increased minimum wages earlier this year make this less easier as many British retailers already face low margins in a tough market environment. 

 

The facts

Perhaps you have already started feeling the pinch thanks to the 4.9% increase in the National Living Wage (NLW) which began from April 1, 2019. The NLW was increased from £7.83. to £8.21. Every retail worker over the age of 25 now has to earn a minimum of £8.21 per hour. Keeping up with this recent rise might increase employee salaries company-wide, instead of just for low-paid workers. 

 

With plans of the rise in NLW from the current rate of £8.21 per hour in 2019 for over 25s to £10.50 by 2024, the retail sector is more at risk with many high street retailers struggling to cope with a rapidly-shifting retail landscape. UK retail companies now are still figuring out how to meet the extra costs of the higher wage bill while maintaining a high level of employee happiness and satisfaction.

 

Higher labour costs and lower profits

Let’s say today in 2019, your store has an average of 20 FTE. Considering they are paid the minimum NLW, the new wage rates imply an additional labour cost of £111k per store by the year 2024. It keeps increasing by approximately 5% every year starting from 2019 (as shown below).

 

 

If you have 100 such stores, that can be an extra cost of £11.1million. And for 500 stores, that can be an extra cost of £55.5 million by 2024!

As you navigate through the change this has on your operational expenses and profitability margins, it can be quite significant. Even more as the number of employees increase. 

 

Two obvious ways to go about this problem seem either increasing the product prices or cutting down labour costs.

In a highly competitive environment, it becomes very difficult to increase product prices easily and pass these on to the ultimate consumer, who might have many other alternatives. Cutting labour costs of the business directly might also seem to be a daunting task, especially since you need people to deliver exceptional value for your customers. In that case, ensuring a higher revenue per employee through workforce optimisation simply becomes more crucial. 


What if you want to open a new store? What if you invest in new technology that changes your labour standards? How would you save on these increasing staffing costs with rising minimum wages? And still ensure higher customer satisfaction throughput?


The answer is Workforce Optimisation.

 

Determining staffing hours and related associated costs in all potential future scenarios requires timely insight into what the optimal staffing mix should be, and what recruitment efforts may be needed to accommodate for these realistic changes in the business. Using specific algorithms, you can answer all these questions – in just a few seconds. By optimising your current workforce, you can align business KPIs, such as sales and service levels with staffing in a much better fashion. This allows you to generate a higher output per employee, which in turn can generate higher sales per business unit, leading to an overall increase in revenues. 

 

But this is just the edge of the sword. There is a lot more AI can do for you

 

Are you prepared?

It is no surprise that the first half of 2019 saw a net decline of over 1,200 chain stores on Britain’s top 500 high streets, as reported by PwC.

With pressures being faced from growing competition online and a lot of restructuring taking place, are you preparing well for the 28% increase in labour costs over the next 5 years?