$15 minimum wage may crimp Amazon's profit margin
Amazon's big move to a $15 hour minimum wage wouldn't seem to cost the e-commerce giant much when compared to its mammoth revenues.
The company's new base pay takes effect not in phases over years but nearly immediately -- as of Nov. 1 for all U.S. workers, including part-time and temporary holiday employees. The hike comes after Amazon faced criticism over employee treatment and pay, especially for warehouse workers.
Including 100,000 seasonal employees coming on board for the holiday rush, the wage increase may add $2.2 billion to Amazon's annual payroll, making it $8.2 billion. That looks big like a big jump, but it's actually less than 1 percent of the retail giant's projected revenue in 2019, analysts at Deutsche Bank noted this week.
However, the pay hike could cut Amazon's operating margins -- a key measure of profitability that Amazon has struggled to raise, especially in its earlier stages -- to 4 percent in 2019 from 4.8 percent now, with "all else equal," the Deutsche Bank analysts wrote. Lower margins could make Wall Street leery in the short term as Amazon digests the new costs.
"The implications for the traditional retail industry could be significant, especially given the low unemployment rates as we head into the labor-intensive holiday season, and could force other retailers to potentially pay higher wages," the Deutsche Bank analysts wrote.
In turn, that may produce a "meaningful headwind for the broader retail industry and is likely to negatively impact sentiment heading into 2019," the analysts wrote. For each additional dollar in hourly pay, retailers in general may see a per-share profit drop of 3 percent to 8 percent, Deutsche Bank estimated.
Amazon, Walmart and Target stocks all slipped in the days following the wage announcement.
Target already announced its own plan last year to get to $15 an hour as a minimum wage. But it phased in the increases through 2020, the Deutsche Bank analysts noted. Amazon's move could make it harder for Target to hire the 120,000 seasonal workers it had planned on for this holiday season, the analysts said.
Walmart, which announced it was raising worker pay in early 2015, said it continually evaluates its policies.
"With more than a million associates in the U.S., we continue to make significant investments in the wages, benefits and training we offer. We also offer competitive wages in the markets that we operate in," Walmart said in an emailed statement. "We consistently review where we stand, taking into account many factors, and we will continue to do so."
Amazon will also phase out its restricted stock unit program, which gave shares to workers if they stayed with the company for a certain amount of years. Amazon said it will replace that program next year with one that will let workers to buy company stock.
Some economists point to wage increases being more powerful to employee well-being than bonuses or stock-based compensation, because a fixed wage is more reliable.
This year, with demand for workers surging as unemployment stays relatively low, even in jobs that pay smaller wages, the need to lure better more productive workers is more acute.
Worker pay and consumer demand is an important metric for the broader economy also: Roughly 70 percent of the U.S. economy is consumer-based.
Amazon is expected to report third-quarter results later this month.
-- CBS MoneyWatch's Kate Gibson and the Associated Press contributed to this report.
