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Footwear retailers to absorb living wage cost

23-Sep-2015

23 September 2015

Following last week’s news that high street giant Next anticipates a rise in prices as a result of the newly-introduced living wage, independent retailers in the footwear sector have indicated that they plan to avoid such hikes.

The living wage will see all workers over 25 earn at least £7.20 an hour from April 2016, rising to £9 from 2020. The move saw several high street retailers - including Next - admit that price hikes were unavoidable, with the clothing and footwear multiple estimating that its prices would rise by six per cent by 2020, with one per cent of that being a direct result of increased staff wages.

Within the independent sector however, a straw poll carried out by Moda Footwear indicates that retailers were keen to embrace the changes with as little impact as possible on their end consumer.

“Our market is too price-sensitive to increase prices to the levels needed to cover the cost of wage increases,” says John Meeks, director at footwear independent Meeks shoes with five stores throughout Cheshire and Lancashire. “I do think that that £7.20 is a fair wage level and – with the cost of living these days – it is needed. But it is very difficult to see how our business could continue to increase wage levels to the projected 2020 level.”

With 67 staff on his payroll, Meeks has an obligation to a relatively substantial workforce, as well as a commitment to keeping prices consistent for the store’s loyal consumers. Reluctant to make any redundancies, he admits that a cut in some workers’ hours may be unavoidable as he – like many other small business owners – seeks to fill the deficit between sales and outgoings.

“I would hope that the government would now reduce the ridiculously high business rates that we pay, or try to help us in some other way,” says Meeks. “I won’t be making redundancies, but I may have to cut back on hours, because how else are we supposed to pay for the increases?”

Far from being alone, Meeks’ sentiments are echoed throughout the industry as independent retailers seek to balance their books throughout this season and beyond.

“We do feel positive about the introduction of the living wage but we may have to limit hours to avoid redundancies,” admits Katharine McLean, partner at Andrew Begg Shoes in Aberdeen. “We employ five staff in total and it’s unlikely that we will increase prices to cover the increased cost of their wages. Hopefully there will be an increase in consumer confidence and spending as a result of the increased minimum wage, but I don’t think that this will be enough to outweigh costs for independent retailers.”

The possible indirect benefits to retailers as a result of higher earnings are yet to be seen but, according to those in the private sector, it’s unlikely that increased consumer confidence will counteract increased costs for the retailer.

“I am worried about this as I think we all should be,” says David Nash, director at Hopkins footwear in Birmingham. “It’s an ill thought-out measure by a government utterly detached from reality and as far as I can see, it will be one steps forward and two steps back for the economy. At the very least, staff hours and weekend positions will suffer as a consequence of the introduction of the living wage.”

It’s a theory confirmed by the British Independent Retailers’ Association, which carried out its own poll of its members regarding their plans following the introduction of the living wage. The majority of retailers – 63 per cent – admitted that they would employ fewer people, with only three per cent predicting that they would offer more employment than is currently the case.

“This will be a body blow to small shops if the government simply imposes this huge jump in cost on a sector already struggling to cope with falling prices, additional pension costs and ever increasing and punitive business rates,” says Bira’s CEO, Alan Hawkins. “It emphasises the need for the Treasury to push ahead quickly with its promises to review and reform this damaging tax if small shops are to have a hope of coping with this unexpected new burden.”

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