Report: Raising minimum wage will add significant costs to warehouse operations

By Daphne Howland | March 21, 2016

Dive Brief:

• A $1 increase in average hourly wages will increase warehouse operations costs by at least $1 million a year (for warehouses employing 500 people), according to a report from real estate brokerage CBRE Inc.
• The report, covered by the Wall Street Journal, notes that e-commerce is increasing warehouse operations across the country, at a time when some state and municipal governments (and the economy recovery) are raising minimum wages. 
• While many of the highest wages are in more densely populated areas, e-commerce companies are unlikely to move their warehouses because that would boost their transpiration costs, which are even higher. About half of supply chain costs are transportation, much more than labor, while labor accounts for some 20%, according to the report.

Dive Insight:

Last year, Los Angeles joined Maryland, Nebraska, Alaska, South Dakota, and Illinois, as well as cities San Francisco and Seattle, in raising the minimum hourly wage to some extent. 14 cities and states last year moved to get the hourly minimum to $15, a living wage in some regions.

All that is putting pressure on retailers including, according to this report, their e-commerce operations. Certainly that could accelerate any move to automate warehouse operations as much as possible, already well under way at Amazon and other companies with major warehouse operations. 

But Stephen A. LeMay, an associate professor of marketing and logistics at the University of West Florida, told Retail Dive that the cost of warehouse labor is set to rise regardless of minimum wage laws because of changes in the economy.

"We are moving into a climate over the next 14 years that says there’s going to be a shortage of workers, and that particularly applies to supply chain people," LeMay said.

In some areas, that could mean lost jobs, and, for the companies, a loss of any bargaining chips that help them win tax breaks with the promise of new jobs in a given area. But the repetitive tasks of most warehouse work and the increasing efficiencies demanded by e-commerce—conditions that have garnered Amazon some pretty poor press for its treatment of warehouse workers—perhaps is more suitable to machines than to human beings. 

But there are jobs that should be left to humans, who remain extremely important to retailers.

“You can’t automate the actual person who needs help in a store," Brett Wickard, founder and president of “lean retail” software solutions firm FieldStack, told Retail Dive. "You can’t automate making sure endcaps are beautiful and appropriate—the things that make the store not just four walls and some stuff, the way you are uniquely adding to the stuff, comes from your store staff.”