On April 1, the NLW increased by 6.7% to £12.21 an hour. That's an additional £1,400 yearly for a full-time worker. But what is the actual cost to retailers? Considerably more.
Add on employer National Insurance Contributions (NICs) and pension contributions, and the real hourly cost of an over-21 employee is £13.46. More than 10% higher than the headline pay rise indicates.
Let's break it down.
The fully costed wage rise
For a full-time employee who works 37.5 hours per week:
Annual salary: £23,810.08
Employer's NICs (13.8% of earnings above £9,100): £2,029.99
Employer's pension contributions (3% of earnings over £6,240): £527.10
Total annual cost: £26,367.17
Effective Hourly Rate to Employer: £13.46 per hour
For a retailer with any number of employees, the impact of these changes will be keenly felt.
Industry reaction: What retail executives are saying
Retailers up and down the country are wondering how to deal with these higher costs, and the sentiment is strong: something's got to give. Some are already acting, Marks & Spencer has doubled down on logistics automation, and Lidl has been piloting AI-driven workforce planning to optimise labour efficiency. Smaller retailers, meanwhile, are looking at store opening hours and staffing models to soften the financial blow.
Retail leaders speak out
Alex Baldock, the boss of Currys, was not shy in his appraisal: "Having the big increase in the National Living Wage at the same time as a projected half a billion-pound rise in the business rates bill just highlights how little the government seems to understand or care about this sector." (LSE)
ACS Chief Executive James Lowman highlighted the problem for independent retailers: "Our members are trying to work out how they will afford this inflation-busting rise in wage bills. Without easing on business rates and incentives to encourage investment, our sector is facing a bleak future." (Talking Retail)
The British Retail Consortium (BRC) cautioned: "For any shop, large or small, it will not be possible to absorb such huge increases in cost in such a short timescale. The effect will be to drive inflation up, moderate wage rises, cause shops to close, and reduce employment, especially at the entry level." (The Guardian)
How can retailers react?
With higher wages now a reality of life, retailers must act fast to minimise financial stress. Increasing prices would be an easy answer, but it will scare customers away. So, businesses are turning to efficiency, technology, and targeted cost management to survive this episode.
The issue now becomes how to manage the pay increase without compromising margins. Retailers are contemplating a series of measures:
1. Adopt technology & automation
From checkout automation to AI-driven stock management, investment in automation can reduce reliance on labour-intensive processes. Aside from checkout automation, retailers are also turning to robotics in warehousing, automated stock monitoring, and AI-driven demand forecasting to make stock levels more efficient and reduce waste.
2. Generalist employee training
Maximising staff efficiency through training, roster optimisation, and incentive-based performance can make up for rising staff costs. The move from specialist to generalist roles on the shop floor can be seen as part of this broader trend towards operational efficiency. Retailers like Sainsbury’s and Asda have already embraced this, recognising the need for flexibility and a more agile workforce. I've written a full article on this specific point here.
Workforce analytics are also being employed by retailers to identify peak times, justify shift schedules, and place employees where they're needed most, improving ideal work coverage without unnecessary labour expenses.
3. Supply chain & operational efficiency
Retailers are focusing on logistics optimisation, renegotiating with suppliers, and eliminating waste in a bid to enhance their bottom line without transferring costs directly to the consumer. This involves utilising just-in-time inventory management, enhancing collaboration with suppliers, and investing in intelligent warehousing to cut unnecessary costs and enhance efficiency.
4. More intelligent pricing & product mix strategies
The use of data analytics in price, promotion, and product assortment optimisation can ensure profitability without compromising competitiveness. Dynamic pricing models, personalised promotions / discounts, and tighter category management are increasingly the key levers in ensuring healthy margins without letting price sensitivity chase customers away.
The way forward
For retail decision-makers at a senior level, the message is simple: this wage rise is a game-changer, and early moves are key. Those who are getting ready now, by investing in technology and operational efficiency, are the ones who will remain ahead.
Let's discuss
What are the practical actions you are taking to mitigate these increasing costs? Are you thinking about automation, price increases, or operational efficiencies? Let me know in the comments below or send me a message directly with your opinion.
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This article was written by our Commercial Director, Jonty Edwards. Get in touch with rascal or Jonty to discuss how we can help your retail business deliver efficiency across complex categories.