We couldn’t be more pleased to see that Lidl has committed to increasing 9000 staff’s wages to the Living Wage from next month. While Sainsburys was quick to announce increased wages, it did not commit to the hourly rate advised by Living Wage Foundation.
This comes after Lord Wolfson of Next raised concerns that retailers may have to increase prices in order to cover the increased wage bill and didn’t rule out Next doing exactly that in the next 12 months.
While the Living Wage does indeed increase the wage bill for retailers, it does not logically follow that retail prices will have to increase to fund it. With productivity modelling of the retailer’s hours, it could be that Next can make savings elsewhere in the wage bill in order to maintain margins across the business.
We have conducted productivity reviews for multiple retailers sometimes to cut labour costs, sometimes to balance costs across stores, but in all cases to date savings have been made which are either improving margin or to be reinvested elsewhere in the business. The added benefit is the improved customer service levels, fresher product and more effective work practices.
Lord Wolfson is known for his pessimistic outlook on Next’s fortunes and the retailer generally performs better than he would make out. However we would encourage him to look inward to the organisation, central operations, store operations and ultimately store hours in order to absorb the cost of paying the Living Wage rather than increase prices because we are certain that there will be savings there if you know where to look.
Lidl has not indicated it intends to increase prices and given its strength as a discount retailer it would make no sense to do so. The reaction on social media has been very positive to the Lidl announcement and would suggest that an increase in sales would cover the labour bill.
The PR from the Lidl announcement has served the retailer well and others may regret not committing sooner to the Living Wage. However, we expect that others will follow, perhaps not before Christmas but very soon after.