Why Amazon's minimum wage hike was 'inevitable', and others may soon follow in its footsteps

Key Points
  • On November 1st, Amazon is expected to hike its minimum hourly employee wage to $15. The move will impact 250,000 current employees, plus 100,000 seasonal workers.
  • “They accelerated the inevitable and they were able to grab a victory from something that was a negative for them,” retail consultant Gerald Storch told CNBC's "On the Money."
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Paying up

Amazon employees who package your order will soon be getting paid more. But will you be paying more because of it?

On November 1st, Amazon is expected to hike its minimum hourly employee wage to $15. The move will impact 250,000 current employees, plus 100,000 seasonal workers. That rate exceeds the federal rate, which has remained at $7.25 an hour for nearly a decade.

Previously, Amazon was paying an hourly average of $11 for employees in its fulfilment centers, prompting questions about the move's timing.

"They accelerated the inevitable and they were able to grab a victory from something that was a negative for them," retail consultant Gerald Storch told CNBC's "On the Money" in a recent interview.

While Amazon founder and CEO Jeff Bezos has become the richest person in the world, the company has faced criticism and political pressure for low wages and poor working conditions at some of its warehouses.

Storch, who was Toys 'R' Us Chairman and CEO from 2006 to 2013, the ex-vice chair of Target and former CEO of Hudson Bay Companies — parent to retailers like Lord & Taylor and Saks Fifth Avenue – said that other retailers had been contemplating the same move before Amazon beat them to it. The company's rivals have been increasingly raising pay to attract and keep workers.

"I talk to a number of retailers constantly, and many were already thinking about doing this," Storch said, adding that businesses are being spurred by a high demand for workers amid the tightest labor market in 49 years.

"Even to get workers (now), retailers are having to pay more already," he added.

In January, Walmart's minimum wage jumped to $11 an hour, up from $9, three years ago. In March, Target raised its wage from $11 to $12 and plans to reach the $15 level by 2020. And Costco hiked its minimum wage to $14 back in June.

Wages are going up, no matter what. The economy is very hot and unemployment is very low. In some jurisdictions, $15 an hour is going to be mandated, and in some it already is.
Gerald Storch
CEO, Storch Advisors

In fact, brisk economic growth is leading several states and localities to hike wages. According to a National Employment Law Project report, six states and 17 cities and counties have minimum wage increases approved that will eventually reach $12 to $15 an hour over the next few years.

Storch told CNBC that "wages are going up, no matter what. The economy is very hot and unemployment is very low. In some jurisdictions, $15 an hour is going to be mandated, and in some it already is."

For Amazon employees, there's a catch: While the hourly rate it pays is rising, the retail giant is phasing out its stock option program. It says employees prefer cash compensation that is "more immediate and predictable."

Still, Storch expects that more Amazon competitors will be under pressure to keep nudging hourly pay toward $15.

"I cannot believe that others aren't going to follow suit very rapidly. If you don't, you have a demotivated workforce," he said. "So the retailers who can afford to, are absolutely going to get there a lot faster than they were going to."

An Amazon warehouse
Getty Images

'Need to raise wages'

With the sector already struggling, Storch cited battered companies like Sears and JCPenney as among "a group of retailers who are troubled now, that could be damaged further by these wage moves."

He added: "If you have people who are on their backs already, who have undergone major cost reductions with layoffs and store closings and cuts all over the place. It's all going to be negated by this need to raise wages."

Storch said Amazon has a labor cost advantage "given the nature of its workforce, more in the distribution center, they can also turn to automation to offset a higher wage more easily than brick and mortar retailers," who have "all those thousands of retail clerks out there."

That said, he doesn't think consumers will pay higher prices in response to Amazon's higher wages, especially since the company recently increased the cost of its Prime membership.

"They're not going to try and charge more because they pay $15 an hour than what they would have charged otherwise or what Target or Walmart charged. That's just absurd," Storch said. "They'll take the 'short term pain here for the long term gain' in the wage rate increase."


On the Money airs on CNBC Saturday at 5:30 am ET, or check listings for air times in local markets.

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The Post Office wants to raise the fees it charges Amazon and other shippers

Key Points
  • The U.S. Postal Service has proposed a 9 to 12 percent increase to the shipping service used by Amazon.com.
  • The parcel select service, which is also used by United Parcel Service and FedEx, is the last and typically the most expensive step in the shipping process that gets the packages to customers' doorsteps.
  • The USPS proposed a 9.3 percent increase on this service for packages weighing over one pound and a 12.3 percent increase to lighter packages.