The key themes to emerge from the 'Super Thursday' results day

The impact of the living wage

The big theme that emerged on ‘Super Thursday’ was how retailers are planning to deal with the financial impact of the upcoming living wage.

Until now retail bosses have said little about Chancellor George Osborne’s living wage, which will be introduced in April 2016 at a rate of £7.20 an hour and rise to £9 per hour by 2020.

However, now the retail executives are back from their summer holidays and have had to face the City and media as they revealed their results en masse, they have raised their heads above the parapets.

“In an environment where wages go up 19%, the 6% increase in prices is one that our customers can afford”

Lord Wolfson, Next

Next’s Lord Wolfson believes the retailer faces a £27m a year bill from the living wage, while Morrisons boss David Potts said the cost will be in the “tens of millions”.

Wolfson, never one to shy away from contentious issues, revealed Next will increase its prices in order to offset staff costs.

“The maths is very compelling for a price increase. In an environment where wages go up 19%, the 6% increase in prices is one that our customers can afford,” he said. “In fact they can still afford to buy more clothes.”

Wolfson hinted that other retailers could follow suit and believes any prices changes at Next “should be comparable across the industry”.

Home Retail boss John Walden conceded price rises could be on the cards as well, but said this is only likely to happen in “pockets” rather than across the entire product range.

“I don’t think it will be as simple in our industry as just raising prices enough to cover it because it is a pretty competitive market and unless everybody raises prices it makes you less competitive,” says Walden.

However, not everyone believes price rises are the solution, or indeed necessary. Dixons Carphone chief executive Sebastian James seemed baffled by the idea prices will have to increase as a result of the living wage.

“My view is you keep driving prices down and you keep driving service up”

Sebastian James, Dixons Carphone

“I think it is very weird people saying they will have to raise prices, big businesses like ours are complex organisations and you can’t just say if I change one input my customer prices need to go up,” said James. “We spend our whole lives thinking of ways to become more productive and ways to attract more customers so the impact on us is relatively modest compared to our plans. My view is you keep driving prices down and you keep driving service up.”

John Lewis Partnership chairman Sir Charlie Mayfield told Retail Week the living wage “will probably have an effect on pricing in some areas, productivity in some areas, and employment in some areas” across the retail market but added “it’s too soon to say” to what extent.

He cautioned against knee-jerk reactions and declared that the living wage’s impact on the John Lewis Partnership specifically would be “very modest indeed”.

Mayfield said the John Lewis Partnership is “different in a number of ways” to its rivals, due to its broad range of pay structures and the fact its pay is based on performance.

Dunelm chief executive Will Adderley argues the homewares retailer can “absorb” the living wage by doing things “more efficiently” and is determined to keep prices down because the retailer stands for “great value for money”.

An in-depth report from Morgan Stanley released this week suggested retailers could soften the impact of the living wage on their bottom lines by cutting back on other staff benefits.

Unsurprisingly, none of the retailers to report on Thursday said they would be cutting such benefits.

However retailers mitigate against the living wage, it will be a challenge to prevent increased wage bills hitting profit margins.

The question is how hard they will be hit.

“Unless additional costs can be covered completely it is always going to hit profit, but to what degree, who knows?” said Walden.

Driving efficiencies

Productivity was a word that came up time and again in today’s updates. And it has more than a passing connection with the looming living wage - as costs continue to rise, and demand remains subdued, retailers must work harder just to stand still.

Next singled out “productivity improvements” as one of the reasons why wage and property costs did not rise as much as expected. The high street bellwether also added that it hopes to “compensate for some wage inflation through increased productivity measures throughout the business”.

As Morrisons reported a 35% slump in pre-tax profits and revealed a turnaround plan, boss David Potts said its “efforts on improving productivity will be all the more important”. In its six priorities, the grocer revealed plans to eliminate waste by removing staff layers and creating a smaller team with greater accountability and responsibility.

The focus on creating efficiencies came after John Lewis Partnership’s restructure, when it revealed it was making efficiencies across its two businesses and was promoting retail director Andrew Murphy to the new role of group productivity director, across both John Lewis and Waitrose. Murphy will aim to find efficiencies across both brands as they strive to keep up with changing customer habits - that are often expensive for retailers to fulfil.

Focus on maturing markets

With economic troubles in countries such as Japan and China, the updates today showed a clear focus towards the more mature markets, namely the US.

Dixons revealed that its First Sprint stores would open in the US next week and, although not part of a trading update, clothing giant Primark cut the ribbons on its first American store in Boston.

In its full-year results today, Ikea said it had rolled out three collection points across stores in Spain, Norway and Finland, with customers able to pick up pre-ordered items.

Food deflation

Retailers noted a fall in food prices in their updates, and said the decline was likely to continue.

Waitrose managing director Mark Price blamed the retailer’s 1.3% fall in like-for-like sales – its first fall in seven years – on deflation “as we invested in price in a really tough market”.

Meanwhile, fellow grocer Morrisons said it expects food deflation to continue, despite some commentators predicting food price inflation will return.