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.
Home Depot $10
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.”