U.K. Retailers Slide Amid Concern Over Cost of Living Wage

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U.K. retail stocks tumbled in London amid concern that Chancellor of the Exchequer George Osborne’s decision to introduce a national living wage will lead to increased costs at some of the country’s largest employers.

Marks & Spencer Group Plc and Home Retail Group Plc were the biggest losers, falling 2.5 percent and 1.9 percent, respectively, at the close of London trading. Wm Morrison Supermarkets Plc fell 1.5 percent, J Sainsbury Plc dropped 1.1 percent, and Tesco Plc pared earlier gains.

The new compulsory living wage creates an additional difficulty for retailers already contending with intense competition and fewer customers visiting their stores. Tesco, Sainsbury, Morrison, Marks & Spencer and Argos-owner Home Retail together employ about 725,000 people in the U.K., according to the companies’ latest annual reports.

“We should not understate the boldness of this move,” Simon Walker, Director General of the Institute of Directors, said by e-mail. “George Osborne has offered business a new deal on employment.”

Starting in April 2016, U.K. companies will be required to pay staff a minimum of 7.20 pounds ($11.06) per hour, roughly 10 percent higher than the current requirement. The government expects the benchmark to rise to more than 9 pounds by 2020. Osborne also announced a reduction in corporation tax to 19 percent in 2017 and 18 percent in 2020, from 20 percent this year, and said local councils will have powers to relax rules regarding Sunday store-opening hours.

Funding Increases

One positive of a living wage for retailers will be that it puts more money into the pockets of many customers.

“The value players, such as Asda and Morrison, may benefit more from lower socio-economic groups having more money,” said David McCorquodale, head of retail at KPMG.

The living wage has been a hot topic in retail recently, with Tesco, Marks & Spencer and Sainsbury all fielding questions from shareholders at their annual general meetings.

At Sainsbury’s meeting Wednesday, Chief Executive Officer Mike Coupe said that more than 95 percent of staff would prefer to receive a discount card than a pay rise. Sainsbury’s base pay is 7.08 pounds an hour, equivalent to 10 percent above the current minimum wage.

“Retailers may halt some employee benefits such as paid lunch hours and paid holidays,” McCorquodale said. “They will find ways of mitigating the negatives they have been given.”

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