We’ve all been watching the national discussion about minimum wage carefully, because payroll is the largest expense after rent for most retailers.  Last year Wal-Mart announced that it is going to raise all employees to at least $9 an hour, and it has been interesting to see how this played out.  Wal-Mart stock fell more than 10% the day the announcement was made by president and CEO Dough McMillon, and it hasn’t recovered yet. Why did this happen? 

While no one denies that fact that living on minimum wage is very difficult — especially for an adult trying to afford housing and food for a family — retailers of all sizes are concerned that any increase in hourly wages will impact their bottom line. And clearly Wal-Mart’s stockholders are among those who don’t believe that the business can be as profitable while paying its workers above the current minimum.

Yet something has to change.  Recent government statistics show that “in 2014, 1.3 million workers age 16 and older in the United States earned exactly the prevailing federal minimum wage of $7.25 per hour.” Although this number does include a large number of food service workers who  hopefully receive tips to supplement their income, we know that store employees are often among those paid close to the low end of the spectrum. More than half the minimum wage employees today are over 25, which means these individuals are living below the poverty line (a full-time minimum wage employee earns $15,000 annually, and in 2012, the poverty threshold for a single person was $12,000).

Is it true that stores such as Wal-Mart can’t afford to increase their wages? Investors were concerned that prices would go up, which could indeed happen — but current reports show that less than a 1% increase would cover the increased cost.  If prices didn’t go up, Wal-Mart’s sales would have to increase about 1.4% in order to cover the estimated $1.2 billion additional payroll cost, which also concerned stockholders. But Wal-Mart’s official prediction is “Net sales growth is expected to range between 3 and 4 percent annually over the next three years, translating to $45 to $60 billion over the period.”  

Why should we care about the response to Wal-Mart’s payroll issues? Because the minimum wage issue is very much in the public eye, and Wal-Mart’s response is more likely to garner attention than ours.  But we do have a few advantages over Wal-Mart: we are not beholden to a group of shareholders who may be short-sighted enough to think that paying workers $9.00 will damage the profitability of the business. And we can, in most cases, handle a small increase in retail pricing without our customers turning away.  Even if it requires belt-tightening elsewhere, it is important that independent retailers do what we can to match Wal-Mart’s modest attempt to bring their workers’ wages up above what is mandated nationally. Because our employees are essential to our success, and their well-being contributes to the future of our stores.

Happy Retailing,

Carol “Orange” Schroeder