– Penalty rates and retail’s rush to the bottom

March 10, 2017


March 10, 2017 12:56:37

A financial planning lecturer once explained to his students why he believed wealthy people are so obsessed with tax.

“The thing is,” he said, “when you are earning $1 million a year it actually doesn’t go that far!”

“When you have the big house in the flashy suburb, the holiday house on the coast, the two or three European cars in the garage, the kids in top private schools, the annual overseas skiing trip, meals in posh restaurants, the wife’s regular visits to the top fashion houses … it can be a struggle to make ends meet.

“The only variable it seems in a world full of big fixed costs is tax; and so wealthy people lobby the government furiously, and employ creative tax accountants, to try to get their tax bill down,” he added.

Why is this relevant to retail?

Because when you look at the retail scene you can see a similar scenario.

A world full of fixed costs and declining revenue and a desperate search for a circuit breaker to try to firstly make a profit and then grow it.

That circuit breaker it seems is the wages of those at the bottom of the pile.

In the retail world, rents are fixed, supplier costs are pretty much fixed, or rising, and on the other side, the only sales strategy it seems at the moment is to be seen as the cheapest.

So revenue is getting squeezed

Against that backdrop, it’s no surprise retailers are looking to cut any costs they can.

They can’t cut their rents and despite the best efforts of the big retailers there’s only so far you can squeeze your suppliers.

And so Sunday penalty rates for those at the bottom have become the target.

However the question retailers must ask themselves is: “Will the dollars saved by cutting the wages of their lowest paid employees be greater than the damage they may do to their business?”

Retailers need their customer-facing staff to be at their best to ensure customers have good experiences in their store and want to come back.

Will they be at their best if their wages are cut?

You can guarantee any executive of the big retailers who was told he or she would have to take a pay cut would be out the door in a flash.

The mantra from boards is that megabucks need to be shovelled at executives to “incentivise” them to perform at their best.

Why would people at the bottom be different and not feel they too need to be incentivised?

The good news is some retailers get that

Cosmetics chain, Lush, has told its staff no-one will be “adversely affected” by Fair Work Australia’s decision to allow Sunday penalty rates to be cut.

“The happiest and most productive employees are those who feel safe, valued and listened to by their employers,” the company said.

It noted cutting penalty rates was a choice.

Those at the top of the big retailers in particular get paid millions of dollars to grow both revenue and profits.

One wonders if those at the bottom are soon going to pay the price of their boss’s inability to fulfil their brief.






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