There is a great deal of comment (predictably) about the ‘spiralling’ costs of doing business in the retail sector, with some estimating the impact ranging up to £3bn due from the living wage and a further £400m from business rates and the apprentice levy. As a consequence, perhaps up to 1,000,000 jobs could be cut from the industry (almost a third of the workforce based on today’s levels).
A need to embrace change
This all sounds like a pretty sizeable problem for the sector: A call to action for change. Perhaps the scaremongering approach is just what is needed to force the industry to react and prepare and start learning how to adapt and become more efficient and effective – as long as we all have a bit of perspective on the causes of the change and focus efforts accordingly. As Sir Charlie Mayfield during the last few days, now is not a time to be “fiddling around the edges”.
Retail is a work in progress
Some of this is about cost and efficiency, but we would argue that most of it is about a shift in the industry that has been underway for a long time.
Most would agree that the changing nature of retail (rise of digital, changing consumer behaviour etc.) does cause a need to rethink many a business model, but something does not work in the equation as stated. And our very simple high level estimates suggest that the prospects are not quite as portrayed – and the causes not quite so clear cut.
Understanding the real numbers reveals the real cause of change
Let’s estimate that on average a retail worker takes home something in the region of the equivalent of £15k per annum – difficult to be exact given the high numbers of part-time workers in the sector, hence the conservative estimate of annual take home pay.
- 3m workers x £15k = £45bn current wage bill for the retail sector;
- BRCs estimate of the £3bn living wage impact is an increase of to 6.7% to this figure; almost 7.5% if you factor in the rates and apprentice levy as well.
- However, 1/3 of the workforce leaving the sector would have a major saving – at today’s numbers this would be somewhere in the region of £15bn.
- This is somewhat in excess of the impact, suggesting a far bigger influence on the workforce downsizing must be coming from ‘other factors’ (i.e. digitisation and changes in the business model for success etc.
- The Office for Budget Responsibility put the impact at closer to 60,000 jobs – a level that would take the salary bill (by our count) down by roughly £900m, so probably not enough to off-set the BRC estimate of the impact.
So which of these is closest to the truth?
The right answer is likely to be somewhere in between and my simple maths was not looking to provide an answer to this, merely to illustrate that the debate is in danger of becoming one of fear about future costs rather than a discussion about how to respond to a telegraphed wake-up call for the industry.
“By failing to prepare, you are preparing to fail”
What this really tells us is that no one can agree on the extent of the change. We are seeing attempts to quantify the negative impacts of the paradigm shift – a “new normal” approaching.
So what should the retail sector do next? Await this and face the reductions as estimated? Or start preparing now for the inevitable?
As we have previously said in relation to the two impending legislation changes (“Analytics turns the Levy into an opportunity not a tax“; “5 steps to stop retailers going bananas“), there are steps the sector can begin to take now to respond. One of the key elements to this will be looking for the best of what you have today and start using that to reshape the businesses of the future.
3 immediate important actions
- Our clients are seeing benefits of savings of up to 5% of their ‘salary costs’ without dramatic impacts on their workforce capacity – by looking for the inefficiencies in how they are spending money on recruitment and the costs of staff leaving soon after joining amongst other routine factors.
- We are also seeing them improve productivity for little or no cost by tackling underlying causes and issues of sickness and other forms of absenteeism across their businesses – some reducing these levels by as much as up to 50%.
- Others are going further to look ahead and start building both the picture and the strategies needed to make the most of the current best performance and construct the organisation that will help them succeed in the future – Strategic workforce planning in action
Given the timeframes, the retail sector has the ability do all of this as well – use the impending changes as an opportunity to learn, change and become more efficient NOW, and to strategically prepare your workforce to adapt to ‘the new norm’. Just don’t get distracted or drawn into a hyperbolic debate and not do anything. Or as Sir Charlie Mayfield has suggested, you could be one of the ‘casualties’.
We want to hear from you if you are also seeing it the way we are – please contact us at