UK Retailers Axe Low-Skilled Workers as Higher Wage Bills Bite
Britain’s low-wage workers are due a pay rise next month but not all of them are celebrating. As the new minimum wage takes effect, the country’s biggest retailers are finding inventive ways of making do with fewer employees, in what economists call a sign of the potential pitfalls of the UK’s attempt — mirrored in many US cities — to favor the working poor.
At least 3,700 shop workers have been made redundant from leading UK store chains this year, although some companies are adding jobs in frontline roles even as layers of management are peeled away.
Publicly, at least, the retailers insist the cuts are geared towards serving customers better, rather than saving cash.
At John Lewis, the UK department store, and its upmarket supermarket chain, cafeterias will soon serve pre-prepared meals trucked in from central kitchens rather than made on-site. The group says the change will better “meet the dietary requirements of customers” — but will also contribute to the loss of 387 jobs.
At J Sainsbury, one of the UK’s biggest grocers, “price controllers” will no longer patrol the aisles in search of misplaced product labels, the kind of mishap that executives say is rarer now they rely less on weekly promotions.
Rival supermarket Tesco is abolishing the position of deputy manager in its smaller stores, asking lower-paid staff to pick up the slack. Tracey Clements, managing director of the chain’s convenience business, told colleagues the change would help “run . . . stores more simply, while also improving our customers’ experience”.
But in private, retail executives concede that sharp increases in the minimum wage have lent urgency to their efforts to use workers more efficiently, by investing in technology that makes many low-skilled jobs obsolete.
“On a personal level, we all want to pay our workers more,” said a top executive at one large retailer that has recently announced redundancies. “But there’s going to be unintended consequences from what the government is doing. Automation that used to be too expensive is now cheaper than the people it can replace.”
Beginning next month, over-25s in the UK must be paid £7.50 an hour. That is 12 per cent more than the lowest-paid received in 2015, when then-chancellor George Osborne announced a series of increases to lift the hourly rate to £9 in 2020.
Retailers will bear the brunt. British shops employ about 1.7m people on wages close to the legal minimum, according to the British Retail Consortium, an industry lobby group; most are succumbing to the pressure to pay more. At Tesco’s UK arm, a 12 per cent increase in the £4bn salary bill would have all but wiped out last year’s £505m operating profit at the country’s biggest private-sector employer.
The higher wage costs come at a time when UK retailers are also contending with an increase in property taxes and import costs that are rising as sterling falls.
“A lot of the firms are absorbing the cost at the moment by lowering their profits or maybe increasing prices,” said Matthew Whittaker, chief economist at the Resolution Foundation, a think-tank that focuses on low-wage work.
“They don’t have to make an immediate knee jerk reaction in the way that you would in a downturn. But over time they’ll think a bit more about their structure and their business model. If you look at