The coronavirus pandemic is having cascading consequences on people's lives and business operations. At the onset of the pandemic, governments worldwide thought of businesses in two different categories. They were deemed either essential or nonessential. As a result, those selling goods and services that were essential to people's daily lives were allowed to stay open during the pandemic -- the rest had to sell exclusively online, and workers could only work from home.
Nonessential businesses that had to close furloughed and laid off millions of workers. The essential businesses, like Costco Wholesale (NASDAQ:COST), Home Depot (NYSE:HD), Amazon (NASDAQ:AMZN), and Walmart (NYSE:WMT), experienced a boom in business -- so much so that they had difficulty meeting the surge in demand.
In response, corporations started increasing wages, offering bonuses and other benefits to lure employees to join the company or increase their hours worked. Here are a few quotes from large retailers showing the steps they are taking to secure the staff they need.
Costco has 275,000 employees, mostly in the U.S. Here is what CFO Richard Galanti had to say on wages in the company's third-quarter conference call:
Last year, we incurred 10 weeks of the incremental $2-an-hour premium wage. ... This year, we incurred two weeks of the incremental two hour -- the incremental $2-an-hour premium wage, as the program was discontinued at the end of the second week of Q3 after 52 weeks in place. ... In conjunction with the discontinuing of the $2-an-hour premium pay, we implemented a permanent wage increase for our hourly employees, as well as most of our salaried manager employees, which took effect in week 3 of this fiscal quarter.
The permanent wage increase was $1 per hour, so wages will not be as high as during the pandemic, but this increase is permanent. That highlights Costco's belief that competition for employees will remain intense even in the aftermath of the pandemic.
Home Depot has 500,000 associates, and it acted earlier in making permanent its temporary boosts in pay for its employees. Still, the company needs more staff even as states are easing business restrictions and folks have more options in where they can spend their money. Here's what CEO Craig Menear said in the first-quarter conference call:
I mean, as you know, we converted part of our COVID expense into permanent labor cost in the November timeframe of 2020, and so obviously, all that is in the performance that we just delivered. As it relates to labor in total, this is spring, we're hiring up.
Amazon has 1.27 million employees, mostly in lower-wage customer fulfillment roles in its warehouses. During the pandemic, sales surged for Amazon as folks reduced their trips to brick-and-mortar stores and ordered online instead. Amazon ramped up hiring and increased wages. Here's what the company said in its Q1 press release:
Amazon pulled forward its annual fall pay review for its U.S. Customer Fulfillment, Delivery, Package Sortation, and Specialty Fulfillment teams, and will be rolling out increases from mid-May through early June. More than 500,000 people will see an increase between at least $0.50 and $3 an hour, which is an investment of over $1 billion in incremental pay for these employees.
Walmart, the largest employer in the U.S., has 2.2 million associates overall. It, too, was deemed an essential retailer and saw customer demand increase since the pandemic. Here's what Walmart said about employee wage increases:
As expected, SG&A [selling, general, and administrative] expenses were pressured by increased wage and technology investments in the U.S., partially offset by lower COVID-related costs, resulting in 21 basis points of deleverage.
Certainly, the wage investments had an impact. I won't get into the specifics of that. It did cause us, primarily caused us deleverage in the first quarter, but we knew that was coming. We're glad we did that and certainly ahead of the environment you're seeing right now, wage increases, tech increases as well... And, as we said, when we get through this year with the increased wage investments going forward, I still feel good about our ability to leverage long term.
It's appearing more likely now that the temporary boosts in pay that companies implemented during the pandemic will become permanent. That could mean a lasting effect of the pandemic would be a rise in personal income, which could sustain elevated consumer spending assisted by fiscal stimulus.
For investors at home who want to follow along, you can check how rising wages affect companies by checking the line item called selling, general, and administrative (SG&A) expenses on the income statement. It's still too early to tell whether increasing employee costs are going to eat into profits. For instance, rising pay may lead to a lower turnover or higher productivity because employees will work harder to keep jobs with better pay.
In addition, it will be interesting to observe if the increase in wages and spending will cause inflation to perk up. In any case, it's a breath of fresh air to see wages going up for everyday working folks.