15th Nov 2022 18:31
(Alliance News) - A UK minimum wage hike will be a "double-edged" sword for retail companies, analysts at RBC said on Tuesday.
The investment bank expects the UK minimum wage to rise by high single digits next year.
The Times reported on Monday that UK Prime Minister Rishi Sunak will lift the national living wage to GBP10.40 an hour, a rise of some 10%.
"This would be a material cost headwind for retailers, particularly discounters, who tend to have the highest percentage of colleagues paid the minimum wage," RBC said.
Discount retailers, such as B&M European Value Retail SA, usually have more staff members on the minimum wage, RBC said.
To trim costs and offset a minimum wage rise hit, some retailers may turn to "automation and productivity initiatives", RBC said. These may include self-service check-outs.
"We don't expect retailers to be able to offset all of the wage rise, hence [a minimum wage rise] is likely to put further upwards pressure on pricing," RBC added.
It will not all doom-and-gloom, however. A rise in the minimum wage will boost spending power, RBC noted.
"Although we view this sort of rise as a net negative for the sector, it's not all bad news. UK wage growth has been surprising to the upside this year and some of the higher wage growth is likely to be recycled back into the sector, thus boosting retail sales," RBC explained.
While B&M may be hit by a rise in the minimum wage, for now, trading conditions are in its favour. That may change, however.
RBC added: "B&M thinks people are trading down from brands to own label, trading down to less expensive protein (steak to chicken) and they are shopping around more. They may also trade down to smaller stores with fewer skus to enable them to manage their budgets better. However, there is a limit as to how much people can keep trading down if inflation persists."
B&M shares ended 3.7% lower at 388.20 pence each in London on Tuesday.
By Eric Cunha; [email protected]
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