HR · 20 July 2015

IKEA becomes first living wage retailer, but impact on smaller firms is still unclear

The furniture chain has confirmed it will roll out the living wage in April 2016

Swedish furniture chain IKEA has become the first national retailer in the UK to confirm it will offer all staff above the living wage from next year. The compulsory national living wage introduced as part of George Osborne’s Summer Budget has had a mixed response from the business community so far. The retail sector in particular has said the implementation could be detrimental to businesses, and smaller companies remain ambivalent about what this will mean in the long-term.

All of its 9,000 UK workers will be paid at least £7.85 an hour from April 2016, following the chancellor’s announcement that the new compulsory living wage would be set at £7.20 an hour.

Gillian Drakeford, country manager for IKEA UK and Ireland, said the introduction was both “the right thing to do for our co-workers” and “makes good business sense”.

“This is a long-term investment in our people based on our values and our belief that a team with good compensation and working conditions is in a position to provide a great experience to our customers,” she added.

The retailer has introduced a range of reward programmes for staff over the past few years – those who have been in their roles for five years receive an annual top-up to their pension if the business achieves its global sales targets. After expansion in Asia and Europe, the business also paid out millions of euros in bonuses to its workers.

Rhys Moore, director of the Living Wage Foundation, said it marked a “huge step for the British retail sector”, and hoped it would encourage many other businesses to follow “the leadership IKEA is showing on the issue of basic pay”.

However, while the future for IKEA looks promising as the UK’s biggest furniture retailer with 18 stores and more on the horizon encompassing Sheffield, Reading, Exeter and Greenwich, smaller businesses remain uncertain as to the effect the living wage will have on them.

The pub industry has voiced concerns that its business will be hit hard by the compulsory living wage

Katja Hall, deputy director general of the CBI business lobby group, said the introduction of the living wage was “quite a gamble”. She said the knock-on effect could see businesses facing “tough choices around what jobs to create – possibly even job losses in some case”.

Concern has been voiced among smaller shops within the retail sector. The Association of Convenience Stores has called it a “reckless measure,” with CEO James Lowman saying the move will have a “devastating impact on thousands of convenience stores”.

“This will lead to retailers having to reduce staff hours, work more hours in their business and ultimately cancel their investment plans,” he added.

Disagreement with the policy has also come from the pub industry, with some of the established companies warning it could hit smaller businesses and cause pub closures. Simon Emeny, CEO of Fuller, Smith & Turner, encouraged ministers to either cut beer duty or eradicate the disparity between VAT on food sold in pubs and supermarkets, to offset the hit that companies will take from higher wages.

He said the living wage “will lead to wage inflation, it will lead to higher prices and I think ultimately it will lead to more pub closures”.

Image: Shutterstock

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Rebecca is a reporter for Business Advice. Prior to this, she worked with a range of tech, advertising, media and digital clients at Propeller PR and did freelance work for The Telegraph.

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