Fifteen states have increased their minimum wage this year, with more on the way. In Seattle, for example, large employers will have to pay a $15 minimum wage by January 2017. These increases will seriously affect low-wage employers such as retailers and restaurants, which means investors should be asking some tough questions to see which low-wage employers in their portfolios will benefit from the wage hikes and which will lose:
How are you increasing your labor productivity?
If a company raises wages, it needs to increase labor productivity or either raise prices or lose profits. Simply cutting employee hours is not a viable solution. Companies that rely on understaffing to squeeze more profit out of fewer people will never get to the land of high productivity and great service that creates customer loyalty. The operational problems caused by understaffing will stymie attempts to lower costs and reduce service. So how can a low-wage retailer increase productivity? There are three possible approaches.
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