The minimum wage continues to be a hotly debated topic within the United States. Most people think the issue is limited to fast food workers, cashiers at big box retailers, restaurant servers and the like, but a recent report cited by The Wall Street Journal suggests even more industries could be affected.
According to a report by real estate brokerage firm CBRE Inc., adding a dollar to average hourly wages across the nation would have drastic consequences for warehouses. For a company with 500 packing and shipping employees, this increase would add more than $1 million in yearly expenses. As The Journal noted, this increase could be even higher for warehouses built especially for e-commerce operations. These establishments are typically two to four times more labor intensive than their retail-only peers. In addition, e-commerce distribution centers host even more activity during the busy holiday season. When combined with overtime, the increase in employee paychecks will cost employers a lot more.
Shipping: an e-commerce pain point
Shipping is already one of the biggest issues confronting Internet retailers today. In addition to the convenience of online payments, customers expect their orders cheaper and faster than ever before. Many online shoppers abandon a purchase because of unforeseen shipping costs, while others demand free shipping from the start. At the same time, consumers also request components that make the shipping process more expensive for retailers. According to a survey by Shorr Packing Corp., 30 percent of respondents said they would repeat a purchase because of a custom packaging design. When asked which was more important, a unique design or custom printing, 71 percent said design.
Online retailers already take several steps to accommodate these demands, Practical Ecommerce mentioned. Some focus their marketing efforts on increasing their store's average order value. Having consumers spend more money on each occasion helps offset the cost of free shipping. Some also pay close attention to the shipping materials they use, monitoring changes in costs to save the most money. Others are dedicated to the art of negotiation, striking deals and contracts with carriers and suppliers.
Each of these techniques requires tremendous amounts of energy and the kind of resources usually only seen at industry giants like Amazon and Alibaba. What's more, Practical Ecommerce also suggested online businesses use multiple fulfillment centers. The idea makes sense – after all, shipping a product from a warehouse in Santa Fe, New Mexico, to Boise, Idaho, is a lot less expensive than shipping it from New Orleans. However, a minimum wage increase means warehouse operations will rise as well. Owners are likely to transfer some – if not all – of these additional costs to the e-commerce retailers and other stores that use their services.
As The Journal noted, many e-commerce distribution centers are located close to cities with large populations. This provides the greatest benefit, as these areas see higher rates of online orders than suburban and rural locations. Therefore, customers get their purchases quicker and the retailer doesn't have to pay as much for transportation.
However, as Spencer Levy, head of research at CBRE America, told The Journal, these same cities are where the push to increase the minimum wage is the strongest. Chicago, Los Angeles, Washington D.C., Seattle and San Francisco have already increased their baseline wages above the federal minimum of $7.25 per hour. Eleven states in total are expected to have wages above $10 by 2022.
In such instances, businesses usually relocate or outsource operations to a cheaper location. This won't happen for distribution centers, Levy said, as the increased distance will just raise the cost of transportation.
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