Why hiking wages is good for business: Ikea US CFO
Ikea's decision to raise its minimum hourly wage in U.S. stores for the second year in a row not only benefits employees, but the company as well, the Swedish furniture store chain's U.S. chief financial officer told CNBC on Thursday.
One of the biggest financial impacts has been a decrease in turnover, Rob Olson said in an interview with CNBC's "Closing Bell."
"We've seen a 5-point reduction in turnover, which of course benefits us from recruiting costs [and] from onboarding costs," he said.
On top of that, Olson said there has been a great response from consumers.
"We're trending ahead of the sector and picking up speed actually as we go throughout the year."
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Ikea announced Wednesday that effective Jan. 1, the average minimum wage in existing stores will increase by 10 percent, to $11.87 from $10.76. That's $4.62 above the current federal minimum wage.
The company is tailoring its pay hikes to the cost of living in each store's location. The increase will affect 32 percent of Ikea's hourly retail workers.
In June 2014, Ikea raised its minimum wage by an average of 17 percent, effective 2015.
Not surprisingly, the wage hike is also attracting more job seekers. After last year's announcement, the company opened two new locations and the applicant pool was "ahead of expectations," Olson said.
"Our expansion plan is growing as we speak and we expect the same response."
He said the cost of the wage increases is offset, in part, by the reduction in turnover and consumer response. The store has also been able to lower the overall cost structure, which has allowed it to "reinvest in the co-worker," said Olson.
"We, over the past five years, have really focused on our operational cost structure throughout, nationalizing purchasing instead of purchasing location by location, taking advantage of economies of scale, being more effective and efficient in our day-to-day operations."
As for whether Ikea will raise the minimum wage for a third year in a row, Olson said time will tell. The company plans to evaluate the wage structure every year and will take "necessary steps," he said.
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—CNBC's Laura Petti and The Associated Press contributed to this report.