Retailers leverage tax benefits, other strategies to fill store positions

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Retailers leverage tax benefits, other strategies to fill store positions

By Mark Hamstra - 06/18/2018
Does anyone want to work in retail these days?

That is a big question for retailers who are well aware that finding and retaining store-level workers in the retail industry — never an easy task — has become more difficult, even in a strong economy with relatively low unemployment.

The challenge has taken on increasing urgency as retailers seek to enhance the in-store experience to compete against online retailers, while the increasing availability of such store-based e-commerce options as click-and-collect also is introducing new responsibilities for store workers and forcing retailers to rethink their store-labor models.

The nationwide unemployment rate recently dipped to 3.9%, its lowest level in almost 18 years, which is coincidentally the last time many retailers faced a labor crisis. Combine that with the fact that retail jobs often are seen as unappealing because of their relatively low pay and odd hours, and the recruiting and retention hurdles retailers must overcome are only magnified.

“Recruiting and retention are always a challenge, because of the nature of retail,” said Jose Tamez, managing partner at executive search and recruiting services firm Austin-Michael. “There’s an inherent challenge that will always exist, no matter what.”

In March, the Bureau of Labor Statistics estimated that about 700,000 retail jobs were unfilled, on a seasonally adjusted basis, which is nearly double the number of open positions from 10 years ago, and close to the highest level of open retail positions on record.

Although overall wages have not improved as much as some economists have projected, given the tightening labor market, many retailers said they have been increasing their starting wages and other benefits to attract and retain workers. These initiatives included a flurry of announcements in connection with the Tax Cuts and Jobs Act, which, as of the end of last year, reduced the federal corporate tax rate from 35% to 21% and resulted in financial windfalls for many companies.

Among the food and drug retailers announcing plans to reinvest their tax savings into their employee wages and benefits were Walgreens, CVS, Walmart, Target, Kroger and others.

Tamez said it might take a few months before the effectiveness of these strategies can be determined. “There have been some broad statements from retailers about using the benefits of tax reform to invest in labor, whether it will be used for hiring more people or increasing pay, or investing in training and development,” he said. “But it will likely be a while — possibly the end of the summer — before there’s any data on that. It hasn’t been active long enough.”

According to data from job-finding and recruiting website Glassdoor, retail salaries have been on the rise in the last four years. Retail cashier salaries have increased more than 15% in that time, to a median base salary of nearly $28,000. That represents a 3.4% increase in the past year. Store manager salaries have increased nearly 10% since 2014, to nearly $49,000, according to Glassdoor data.

A proactive approach
Chuck Cerankosky, an analyst at Northcoast Research in Cleveland, said leading retailers have been proactive about improving wages and benefits.

“I think the stronger ones, the smarter ones, were out ahead of the [labor] shortage,” he said. “They realized the need to staff service departments, such as pharmacies or prepared foods. To make those departments work, you have to have trained, skilled in-store staff, so these retailers were raising wages to competitive levels, and maybe even above the minimum needed to fill the slot.”

When the Tax Cuts and Jobs Act took effect, it provided even more fuel and flexibility to those companies that were seeking a leg up on competitors in terms of wages and salaries. In addition, for those companies that were behind in terms of offering competitive wages and benefits, tax reform offers them a chance to catch up. The pricing environment also remains competitive, however, and retailers must decide how to allocate the increased cash they are seeing from tax reform.

“If a company was slow to react [to the tight labor market], now they are having to raise wages to get the people they need, and maybe they thought the reduced tax rate was all going to fall to the bottom line,” Cerankosky said. “I believe in many cases the retailer’s first inclination was to use the tax savings to strengthen their price position.”

Overall, however, Cerankosky said the improving economy creates an environment that benefits retailers, even if it has put pressure on wages. “It’s definitely nice to have an economy that pushes demand levels higher for consumer products,” he said. “It’s a nice problem to have, I think.”

Labor investments yield results
Target and Walmart have been steadily increasing their starting wages in recent years in an effort to find and retain store-level employees. There have been some signs showing the efforts are yielding dividends, including contributing to the improved performance at Walmart.

“These initiatives are paying off for our customers through cleaner stores, friendlier service and faster check-out times,” Doug McMillon, Walmart’s CEO, said during a conference call with analysts last year.

Target, meanwhile, said that when it raised its starting hourly wage to $11 last October, it saw a spike of more than 30% in applications for seasonal positions.

“And, we had a much stronger pool of talent to hire from,” said Brian Cornell, chairman and CEO at the Minneapolis-based chain, in a conference call with analysts. “But the benefits of that investment go much further than just the short-term seasonal boost. Our leadership position on wage establishes Target as an employer of choice, and we will drive preference for years to come.”

Target has focused on revamping its service model to allocate more payroll investment in certain categories “where our guests expect a more human touch,” he said. In another earnings call, Target said the company has invested in retraining employees as it remodels its stores, with a particular focus on food and beverage, beauty, electronics and apparel.

John Mulligan, Target’s executive vice president and COO, said the chain already has seen a measurable increase in certain metrics as a result of higher levels of service, including increased warranty sales in electronics.

CVS, Walgreens invest tax savings
In February, Woonsocket, R.I.-based CVS Health unveiled plans to invest a portion of the benefits of tax reform in its workers to the tune of $425 million annually.

The investment included the introduction of an $11-per-hour starting wage for all hourly employees, which took effect in April. As a result, CVS Health said it also would adjust the pay ranges and wage rates for many of its retail pharmacy technicians and other hourly retail employees later in the year “to ensure a competitive compensation structure that supports the company’s plans to evolve its retail stores into a healthcare destination,” the company said in a statement.

Other labor investments at CVS Health that were spurred by tax reform include absorbing the 5% increase in healthcare costs for this year, rather than passing the increase on to employees, and the creation of a new parental-leave program, offering four weeks of paid time off to full-time employees who are new parents.

“It’s our employees who drive our performance, and we appreciate how hard they work every day to deliver on our purpose of helping people on their path to better health,” Larry Merlo, president and CEO of CVS Health, said at the time.

Deerfield, Ill.-based Walgreens Boots Alliance followed with an announcement of its own in March, saying it would invest $100 million per year in wage increases for hourly employees, beginning later this year.

The company’s co-COO, Alex Gourlay, announced the