Retailers in Southern California already struggle to reach profit-margin goals in an area with an extremely high cost of living. Now a minimum wage increase likely will mean these professionals will have to charge more to maintain their margins.
In June, Los Angeles Mayor Eric Garcetti signed into law a measure to increase the minimum wage in Los Angeles’ incorporated areas to $15 per hour by 2020.
“[Wages] are an economic decision by the employer; you can’t mandate it by legislation,” said Bill Dombrowski, president/CEO of the California Retailers Association. “And this idea that we can affect poverty by legislation is just preposterous.”
The association has been working to educate the voting bodies on the effects of increased labor costs, including the possibility of decreased hiring, increased automation and the likelihood of discouraging new-store development in the city.
And, of course, prices likely will rise.
“Everything’s got to go up,” said Patrick Teel, president of Pools By You in the Granada Hills neighborhood of Los Angeles. “It’s just a simple matter of basic economics.”
Teel, who has owned his store since 1982 and sister company Pat’s Pool Service since 1975, has seen many minimum-wage increases. In such circumstances, maintaining profit margins often requires raising prices.
“I hate to do it,” Teel said. “I hold back on price increases as much as I can. … You don’t want to hear your customers screaming all the time about how prices are getting too extreme, especially when we’re working with a lot of retirees who are on fixed incomes.”
California’s minimum wage rose to $9 on July 1, 2014, and it will increase to $10 on Jan. 1.
There’s been a national push for a $15 minimum wage, largely promoted by fast-food industry workers and others earning that level of pay. In 2014, Seattle became the first U.S. city to approve phasing in a $15-per-hour minimum wage — the highest in the nation — over the next several years, with exact timelines determined by the size of the business. San Francisco, another city with a high cost of living, approved a similar measure later that year, with the minimum wage rising to $15 per hour by 2018.
But Los Angeles, the second most populated U.S. city, is the largest to approve this measure.
The danger for pool and spa retailers, who often pay employees more than the minimum, is the ripple effect this increase will have on their overall pay.
“If you already have someone who’s at $15 an hour, and they’re a skilled laborer, and then you raise somebody who is not skilled to $15, you’re going to obviously have to raise the person who was at $15 to begin with because they’re not going to work for the same price as an unskilled person,” Teel said.
National chain stores are in a better position to manage the increase because they can absorb it across their entire bottom lines with very small adjustments. But stores with only a few locations will have more of a challenge.
“If you’re a small retailer in Los Angeles with just your revenues from Los Angeles, you are in a really tough economic bind right now,” Dombrowski said.
Also under debate in Southern California: A measure by the Los Angeles County Board of Supervisors to follow the city’s lead and incrementally raise the wage in unincorporated areas to $15 per hour.
That measure was slated for the board to vote on at its June 23 meeting, but was postponed for a month while the board reviews a report it commissioned examining a minimum-wage increase.
“Employers want to pay their employees the most they can,” Dombrowski said. “The economics dictate what that is going to be.”