‘Retail pay is rising at record levels – something’s got to give’

Retail pay has been rising at record levels and for the big four grocers and many other major companies, it now sits well above the National Minimum Wage.

Why is this and what is the knock-on effect?

In a tight labour market, attracting and retaining quality store staff has never been harder. 

Obviously, Brexit has been a factor, as has Covid, but there are now more than 9 million adults not in work or full-time education.

Recent well-documented increases in retail crime and colleague abuse have exacerbated the problem.

But another factor is that being seen to be a good employer has never been so important. Customers are now far more socially aware and retailers need to be seen to be doing the right thing.

“Concurrent with uplifts in hourly pay, there have been significant headcount reductions elsewhere, notably in support and distribution centres”

As one grocery chief people officer says: “Big supermarkets don’t want to be bumping along on the minimum. That’s not what we want to be known for.”

So unless they can shake the magic money tree, how can retailers afford it?

Concurrent with uplifts in hourly pay, there have been significant headcount reductions elsewhere, notably in support and distribution centres.

Sainsbury’s has announced 1,500 job cuts over three years. John Lewis Partnership is cutting 11,000 jobs as part of its turnaround plan and Morrisons shed 8,800 heads last year when losses came in over £1bn for the second year running.

One retail chief executive insisted that there is no correlation between pay rises and headcount reduction, but did admit that big hikes in minimum wage will depress hiring – as will increased regulation.

Some cuts come down to simplifying the business and removing non-value-added processes that have crept in, but increasingly they are fuelled by technology, which is becoming more sophisticated – and affordable – as people costs rise.

For example, Lidl is leading the way on digital shelf-edge pricing and that is estimated to save up to 15 hours per store per week.

Using Microsoft Copilot to manage scheduling and technology/robotics to carry out volume and repetitive tasks frees up people to serve customers, but to get the most value out of colleagues, more than ever they need to be well-trained and multi-skilled.

As a labour-saving initiative, self-scan has been well-established and accepted by customers for many years.

Counterintuitively, some retailers are now rowing back on this, including Walmart and Target in the US. It appears to be a knee-jerk reaction to the rise in shrinkage, but a more nuanced approach to where and how to deploy it is required.

In more affluent towns and villages, customers seem to prefer personal service at the till, while in busy cities, most often served by convenience stores with smaller basket sizes, self-scan rules.

The increased efficiency and throughput will, in part, offset the higher rate of shrink, but again technology can help.

“Having adopted self-scan for many years now, most retailers have learned to apply demographics and deliver the type and level of service that customers want”

Using AI to monitor consumer behaviour, the increased presence of staff bodycams and headsets, and more precise weight measurement, plus the need to show a receipt in order to exit the self-scan area all contribute to closer scrutiny.

As one retail leader says: “The technology is now so good, the self-scan area is like a prison!”

Having adopted self-scan for many years now, most retailers have learned to apply demographics and deliver the type and level of service that customers want.

As Jayne Wall, incoming director for central store operations at Marks & Spencer, says: “Service always matters and it’s even more important if you’re not offering the lowest price in the market. The key is providing customers with options.

“You have to let them make the choice, rather than forcing the choice upon them.”

Despite some evidence of scaling back self-checkout, 70% of transactions are now non-assisted and scan-and-go is increasing in popularity.

Interestingly, this appears to be driven by the ability to monitor spend as you shop and is being used as a budgeting tool by cash-strapped households, rather than as a further development in convenience.

The investment case for technology now stands up as people are becoming more expensive.

It will continue to offer opportunities to reduce and/or remove labour-intensive tasks, freeing more expensive colleagues to do what they like best – serving customers – which is a win-win all round.