Drapers examines how the latest “landmark” rise in the National Living Wage will impact the fashion industry.
Thousands of employees across the UK were given one of the greatest gifts of all this Christmas.
At the start of the new year it was announced that the National Living Wage is set to rise by 6.2% – more than four times the rate of inflation – in April, in what the government has called “the biggest cash increase ever” to the legal pay floor. The rise takes hourly pay for those aged over 25 to £8.72, while the national minimum wage for 21-to-24-year-olds will increase by 6.5% to £8.20.
“Hard work should always pay, but for too long people haven’t seen the pay rises they deserve,” said prime minister Boris Johnson when announcing the change.
Experts agreed the rise was long overdue, as traditionally low-paid retail workers would benefit and, with increased spending power, stimulate the high street economy.
“The announcement of an increase to the National Living Wage will be a welcome boost for many workers in retail and fashion,” said Katherine Chapman, director of the Living Wage Foundation.
The increase to the National Living Wage will be a welcome boost for many workers in retail and fashion
Katherine Chapman, director of the Living Wage Foundation
“It’s an industry that has suffered from low wages for years, not just in the supply chain but also here in the UK, where thousands of retail workers and their families are struggling to keep their heads above water.
“Businesses such as Burberry have already committed to pay the real Living Wage [the foundation’s recommended minimum rate based on the cost of living, which is £9.30/hour across the UK and £10.75 in London] and report business benefits, so we know higher wages are not just possible, but also beneficial in the industry.”
Pam Batty, vice-president corporate responsibility at Burberry, said: “At Burberry, we believe everyone has the right to fulfilling and productive employment where they are fairly rewarded. We are also exploring how we can amplify our efforts to address in-work poverty across many more sectors and geographies in the near future.”
If staff are all being paid more, then there is a bit more money going in the till at the other end
Mark Neale, founder and CEO of Mountain Warehouse
Mark Neale, founder and CEO of Mountain Warehouse, believes the move will create a fairer landscape for retailers: “I’m a big supporter of the living wage going up. If staff are all being paid more, then there is a bit more money going in the till at the other end.
“It will definitely have a positive effect on businesses. Competitors will be made to pay their employees the same wages, which makes it a better and more equal playing field for retailers [to] compete against.”
Helen Masters, retail lingerie consultant and former Pudding Lingerie owner, described the increase as a “landmark moment” for the retail industry: “As tough as it may be, our job as those leading the retail industry is to champion better wages and to pay for it through better productivity – staff who are more fired up to wow customers and to sell are happy to stick around for longer, reducing long-term costs and increasing ROI [return on investment] overall.”
Meanwhile, general secretary of the TUC (Trades Union Congress) Frances O’Grady, said she would like the proposed increases to be “sped up”: “It could take another four years for the minimum wage to reach £10 on the current timetable. That’s too long.”
However, some retailers believe the increase is a threat to the sector.
“This increase in the living wage really is not something that is going to help retail,” said one footwear supplier. “This is just another cost being forced on to business by whatever government is in power.
“Nothing makes you want to start a business in this country – there is far too much red tape. It will end up being the death of many sole traders.”
Martin Ingram, managing director of Josef Seibel footwear, believes the minimum wage increase will further destabilise the sector.
“While this is beneficial to employees on the lowest wage, it of course increases the costs to business, particularly to the high street retail industry, which at the moment is under immense pressure from increasing costs from all directions while turnover is declining.
It is likely that this rise will put pressure on an already distressed retail environment
Footwear retailer managing director
“Profit margins are already extremely tight and this large increase in the National Living Wage at a particularly difficult and uncertain trading period will only leave more retailers struggling to stay in business.”
The managing director of one footwear retailer agreed: “It is likely that this rise will put pressure on an already distressed retail environment.
“We must remember that this increase is across all industry, but I do feel others will be able to weather the rise better than the fashion industry and bricks-and mortar-fashion retail specifically.”
Some fear the rise will lead to further retail redundancies in 2020.
“[This] will require retailers to find more money and one of the ways they will do that will inevitably be cutting jobs,” said retail analyst Richard Hyman.
“So, this is all about giving with one hand and taking away with the other. Retail lost lots of jobs in 2019 and that is certain to continue in 2020. We will see lots of distress. I’m afraid that means job losses.”
One former womenswear CEO agreed: “Increasing wages does not increase productivity, so hard decisions will need to be taken. With the last rise in minimum wage I had to cut staff numbers.”
This increase is four times inflation, so this affects big and small businesses alike
Former womenswear CEO
She argued that it also pushes up the wages of other employees: “The other issue that then arises is the closing of the pay differential between the people getting the rise and the grade above. To ensure this parity is retained – and it’s important to retain, as these people have more responsibility – you need to award these people pay rises.”
She predicted that small businesses will be worst affected: “This increase is four times inflation, so this affects big and small businesses alike. However, the staff costs for a small business as a percentage of overall costs is higher in small businesses [than multiple retailers] so they will be affected adversely even more. It’s the last thing retail and hospitality need right now.”
Craig Beaumont, director of external affairs and advocacy for the Federation of Small Businesses, warned: “We can only push on with substantial increases to minimum wage rates if economic conditions allow.
Four in 10 small employers say they will raise prices in response to an National Living Wage increase of this magnitude
Craig Beaumont, director of external affairs and advocacy for the Federation of Small Businesses
“It’s also important to flag that these increases are set to be accompanied by [employment taxation regulation] IR35 changes and another round of business rates increases in April. Taken together, these substantial labour market interventions could cause real disruption if not handled carefully.
“Four in 10 small employers say they will raise prices in response to a National Living Wage increase of this magnitude [in the Federation of Small Businesses’ latest submission to the Low Pay Commission]. One in four say they will recruit fewer workers, one in five will cancel investment plans, and one in 10 will consider redundancies.”
Emma Limn, digital marketing and ecommerce assistant at independent clothing store Roo’s Beach in Newquay, said: “We’re of course hoping that with the rise in the National Living Wage, more money will be spent on the high street.
“As a small boutique, the rise in wages does have an impact, albeit small in the greater scheme of things. At the end of the day, everyone’s costs are going up across the board, both living costs and business costs.
“We are only just into the new year and we’re already noticing that brands we work with are putting their prices up for products we’ve been selling for years, which may in turn have a negative impact on sales.”
The industry says the government must now help retailers by reducing overall costs, such as taxes, business rates and rents.
Retail analyst Mark Pilkington said: “The only solution to this conundrum is for the government to lighten the load of business rates on retailers, so that they can get some respite and continue to provide valuable jobs to vulnerable employees.”
The former womenswear CEO said: “It is now even more urgent that the government helps retailers with a joined-up plan to reduce overall costs.”
The Department for Business, Energy and Industrial Strategy did not respond to Drapers’ requests for comment.
The Drapers Verdict
With thousands of retail workers and their families struggling to keep their heads above water, it is no surprise to hear that the latest National Living Wage has received a warm welcome by many outside the industry.
However, by increasing the minimum wage, it pushes up the salaries of other employees, putting further pressure on an already-struggling sector. Added to IR35 changes and another round of business rates increases in April, could this be the straw that breaks the camel’s back?
If the government fails to intervene further by reducing overall costs, such as taxes, business rates, and rents, we could see many more retail redundancies in 2020.