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NEXT Newbury protest

Thursday, September 10, 2015

GMB Protest At Next Newbury On Monday 14th September Calling For Very Profitable Retailer To Pay Living Wage To Staff Now Not 2020

With full year profits expected to be as high as £845m in 2015 it can afford the £27m Lord Wolfson told city analysts that living wage premium will cost NEXT says GMB.

GMB Newbury Branch are holding a protest demonstration outside NEXT in Newbury at 6pm on Monday 14 September calling on shoppers to step up pressure on Lord Wolfson, chair of NEXT to pay a living wage to staff now and not wait until 2020 to do so.

In the July 2015 budget the Chancellor announced the introduction of a new compulsory National Living Wage for working people aged 25 and over, starting in April 2016 at £7.20 an hour and reaching £9 an hour by 2020. It was also announced that the Low Pay Commission to recommend future rises in National Living Wage to reach 60% of median earnings by 2020.

On 10th September Lord Wolfson referred to this announcement when he projected full year profits at NEXT of between £805m and £845m for 2015 he said “the effect of the Living Wage Premium at £27m is not welcome, but it’s not unmanageable”. See notes to editors for transcript of Lord Wolfson’s words on staffing on 10th September 2015 when speaking to analysts on the half year results.

NEXT employ 52,533 employees in 2014 (full time equivalent – 28,568) at over 500 stores, call centres and warehouses in the UK and Ireland.

From October the adult starter hourly rate will be £7.04, up 34p, for a 21 year old and over working outside London. NEXT currently pay £6.70 per hour to those 21 and over and £5.84 to those aged 18 to 20. Some store staff may get a bonus. The company claim can amount to an additional 50p on hourly rates. This will leave the majority of staff well below a living wage of £7.85 per hour and £9.20per hour in London.

GMB is aware that many jobs are for 12.5 hours per week or less in some stores.  Next have created an online shift market place for staff to address the problem of peak trading requirements – a problem they say that has arisen from employing few people on longer contracts.

The details of the protest are as follows:
From 6pm Monday 14 September,
Unit 3 Newbury Retail Park,
Pinchington Lane,
Newbury, RG14 7HU.

There will be GMB members with flags and banners speaking to NEXT shoppers.

Asia Allison, GMB Regional Officer, said “Lord Wolfson told City analysts that for NEXT the cost of introducing the living wage is £27m. He said that while “it’s a lot of money but in the scheme of things it’s not transformative”. He said that while it was “not welcome, but it’s not unmanageable.”

The aim of this protest is to demand that NEXT pay a living wage now rather than wait to 2020. With full year profits expected to be up to £845m in 2015 NEXT can afford to do so.

On hours Lord Wolfson in now line with what GMB has said that - very low weekly hours do not make sense to workers and they do not make sense to business either.

NEXT should make work pay. If this was done, staff would not need their meagre wages to be topped up by taxpayers with family tax credits and housing benefits so as to make ends meet.

NEXT says that it is over-subscribed when offering jobs. This is a reflection on the level of youth unemployment across Europe not that NEXT jobs are so good.”

End

Contact: Asia Allison on 07813 541930 or 01793 818 005 or Kamaljeet Jandu, on 07956 237178 or Martin Smith GMB on 07974 251722 or GMB press office on 07921 289880 or 07974 251823.

Notes to editors

Transcript of Lord Wolfson’s words on staffing on 10th September 2015 when speaking to analysts on the half year results:

Moving on to Retail wages, obviously this has been a subject of much discussion, comments.

There are 2 sections here, first of all I’ll talk about what Next has done with its wages because I think we’re slightly ahead of the curve and the second is to talk about the effect of the living wage premium.

In terms of what we’ve done this is a history of the national minimum wage and this is what we’ve done with our starter rates.

We started this journey about 2 ½ years ago because we wanted to improve the quality of service that we had in the stores and we recognised that in order to do that we were going to have to increase our pay rates and change some of our terms and conditions. So this is what’s happened to pay rates – in October when NMW goes to £6.70 our wage will go to £7.04, that is before an average 50p per hour bonus that we pay in customer service bonuses so in reality there’s another 50p to add to that.

In terms of increase on 2012 that’s a 13% pay increase, as important, if not more important, we have changed the way we recruit and contract our staff.

In the past we’ve gone for very large numbers on small contracts in the belief that that gives us flexibility and it does, to a certain extent give you flexibility, the problem is a lot of people working on low hour contracts means that you have people who aren’t particularly experienced, training is a big % of their total cost and they’re less loyal to the business. The other thing is that it doesn’t give you the flexibility that at first it might appear to because if you give someone a very low contract, hours per week, they’re more likely to take on another job which means they actually become less flexible. So we’ve moved significantly, through natural turnover, as people have left the business, rather than recruit people to replace them we’ve reallocated their hours across the staff base and as a result of that……. Sorry, I should say, before that, how is that funded, the 13% pay rise. Payroll, as a % of sales, in 2012 was 11.9%, you would expect, given a 13% increase in starter rates that to go up to at least 12.5 / 12.8, fact it only gone up by gone up by .2% so the majority of this has been funded through productivity improvements, some of which I’ve bored you with in the past. There’s no one big idea, there’s lots and lots of small initiatives to improve productivity.

Coming back to hours, what we’ve done is increase hours by 26% which means on average the average member of staff is earning 43% more with Next then they were 4 years ago. We think that gives us more experienced, better trained, better motivated and more loyal staff.

In terms of the Living Wage Premium it’s taken us some time to get our heads round this. Chancellor said 2 things: First of all he said the Living Wage Premium would be reaching 60% of the median earnings by 2020 and the other is that it is set to reach £9 by 2020 and the first thing to understand is those 2 things are not necessarily the same thing in that it makes an assumption about what will happen to inflation in median wages between now and 2020.

And what we’ve done is separate out the effect of the taking the Living Wage Premium to 60% to the effect of inflation on general wages and the median itself.

So in terms of analysing that NMW, not our rate, the NMW of £6.70, that goes to £7.20 next year, that will cost us around £2 million in 2016.

In terms of taking that to the median assuming no inflation in wages, that will go to £7.85 and it’s the assumed assumption which the OBR forecast to be around 4.5%. Fascinating read on this, try appendix B of the OBR’s July financial outlook document. It really is actually very interesting and worth reading but that is the inflation that takes it from £7.85 to £9.35.

There are 2 elements to this, there is the legislative element which gets it to £7.85, and inflation element that takes it forecast to £9.35. In order to get it to £9.00, wage inflation would need to be 3.5% pa in the median.

In terms of assessing the cost, the likely costs to Next, given the scenario set out by the OBR, this is how we’ve analysed it.

If we take our staff wages 2016 at £7.20, that’s 55% of the median. We then looked at the other levels of management in the business . What you can see is that as we go from Supervisor to Junior Manager, Floor Manager, Store Manager as we progress through the wage hierarchy you’re getting a 9%-10% wage differential at each level. If the staff level goes to £7.85 you can see there’s only a 2p difference with the next manager up. What we’ve assumed for the purposes of our modelling is that we can compress the current 9%-10% differential to around 7%.

So this is assuming a 7% differential which we think, at these rates of pay, should be enough to encourage people to take promotion.

That means first level manager has to pick up 6.7%, next one 4.6%, 2.7% and 0.5% and that manager at £10.50 there’s no further knock on effect. In terms of the cost of that, the cost is around £11m, that includes our estimate of any sub-contractor costs where sub-contractors are paying the, are not yet paying the Living Wage Premium.

The knock on effect is surprisingly high at £16m. Most of that doesn’t come from these managers, you would look at that and think you’ve got far too many managers if that were the case. The knock on effect comes from the fact that more skilled jobs within the business, more skilled and more demanding jobs, which are less attractive currently have a 9%-10% premium to our store wages, things like Call Centre Operatives, and we’ve assumed that those wages, that if a Call Centre Operative was on the same level as a Junior Supervisor that their wages would have to rise by as much to attract them to that job rather than doing a shop job. So that’s why the knock on effect is much higher than you might initially expect. Cost of that is £27m. It’s a lot of money but in the scheme of things it’s not transformative.

If you then add on the 4.5% inflation it doesn’t make any difference to the cost of the Living Wage Premium. The orange and the green blocks remain exactly the same.

Obviously that 4.5% is a big cost because if you translate that across our wage bill which is around £600m across the group, that adds another £120m of costs. So you’re at £147m of additional costs to the group in 2020 if wage inflation comes through as expected. What you can see from that is the Living Wage Premium is a relatively small part of the total increase.

In terms of the price rises required to pay for that we estimate that price rises will be need to be in the order of 6%, of which 1% comes from the Living Wage Premium. Incidentally, in case you were thinking we would always choose to pass it through as price rather than take the cost hit, because if you take the cost hit, if you do the Maths, the Maths are overwhelming in favour of a price rise. If you take the £147m as a % of our profits, it’s around 18%, if you work out what sales would have to fall by to give us the same drop in profit you’re at a level that could not possibly be caused by a 6% price increase. In the past, when we increased our prices by around 7%, about 3-4 years ago, we had a big devaluation in the pound, and that adversely affected sales by about 1.5%. So what you can see is that, given the choice, take the hit or pass it on, the Maths are overwhelming in favour of passing on the cost, particularly if wages have risen by 4.5% pa because that 6% price increase needs to be taken in the context of a country where on average people are earning 19% more.

So actually in the OBR scenario the effect of the Living Wage Premium at £27m is not welcome, but it’s not unmanageable. The problem, potentially comes if wage inflation falls below the 3.5% and the 60% median target is dropped and the £9 target is maintained. Because once you start moving the Living Wage Premium much above 60% it begins to have 2 impacts. It’s worth just explaining back to our chart here.

That increases wages by 2% compound to 2020, staff would then be paid £7.79 and getting them to £9 would be a 15.6% increase. And what you can see is that rather than being paid 2p less than the first manager, they’re actually paid 50p more. So the increase required here is far greater and so on and so forth until you get to manager 4. But what you then realise is, actually hold on a second, this is now affecting manager 5 because manager 4 is at £11.97 and manager 5, through inflation, would only get them to £11.93 so you have to begin to cascade the effects of the median wage further up the wage hierarchy. And there are 2 problems with this. One is that the costs of implementing this obviously increase dramatically, from £27m we estimate this would cost nearer £70m and we think that is probably conservative.

The other problem which is more serious for the wider economy is that at that point median wage would be at £14. So you end up with a situation where raising the Living Wage to £9 begins to move the median and then you end up with a situation where all of you will be hugely familiar with where with your circular references in your spreadsheets which you tend to just fudge, we all do that. You end up with a potential inflationary loop where the Living Wage Premium begins to move the target against which it was set.

So, in summary on this, if wage inflation comes through as expected, or even if it comes through at anywhere at or around 3.5%, we’re not worried. If it comes through at less than 3.5% we’re still not worried if the target remains 60%. The only worry would be if the target remains £9 and inflation comes through at significantly less than 3.5%. In that situation costs escalate and price rises would be less easy to swallow. Wages would still be rising faster than prices but those price rises become harder to swallow which would have an adverse impact on sales which means the impact on profit would be significant.

Now I’ve said it, it all sounds completely simple but that’s where we are on the Living Wage Premium.

 

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