Shares of retailers drop on worries that they will have to raise wages, just like Amazon

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Amazon’s latest move is creating a new headache for fellow retailers.

Shares of most retailers are down 3 percent to 5 percent on Tuesday, including big names like Ascena, Abercrombie & Fitch and Gap plus smaller retailers like Buckle. This time the headache is from an entirely different line of attack: wages. Amazon‘s decision to raise the minimum wage for its workers to $15 an hour will create new margin pressures for retailers, most of whom pay far below $15 hourly.

Chuck Grom at Gordon Haskett notes that only Costco, which offers a minimum wage of $14 to $14.50 an hour, comes close to Amazon’s move.

Target raised to $12 this year, and Walmart is at $11.

Amazon $15

Costco $14-$14.50

Target $12

Walmart $11

Home Depot $10

Lowe’s $10

BJ’s $9

Macy’s $9

Dollar General $8

Source: Gordon Haskett/Glassdoor

It was all going so well for retailers. After several miserable years, they finally began to increase online sales and to develop strategies to compete against e-commerce juggernaut Amazon.

That improvement in sales, coupled with changes to corporate tax rates, a strong consumer and low unemployment has made 2018 a greatly improved environment. After lagging for three years, the S&P Retail ETF (XRT), a basket of the retailers in the S&P 500, is up 12 percent this year, exceeding the 9 percent gain in the S&P 500 itself.

But that outperformance may now be changing. “This is another added pressure point to a retailer’s margin,” Grom told CNBC. “You have had higher transportation costs, lower margin digital businesses, and now wage pressure. It’s a trifecta of margin pressures for retailers.”

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