The penalty rate problem

Retailers are adapting a few common strategies to deal with the challenge posed by online retailers.

The first is increased service. David Jones chief executive Paul Zahra said yesterday that his decision to increasing staffing levels appeared to be paying at least some early dividends, with the average transaction size in his stores lifting in January.

Is this a trend? It’s hard to say. The retailers I’ve spoken to this week in the bulky goods sector say a drop in average transaction sizes is one of their big problems, so we’ll have to wait and see if Zahra’s success is sustained. His comparable sales were also down 2.4% in the three months ending in January, so this is a minor victory in the scheme of things.

The other key tactic retailers are using is to extend trading hours where they can. Aside from price, one of the great advantages online retailers enjoy is that they never close. Bricks and mortar retailers can compete with this, if they can adjust to changes in the way consumers shop.

For example, Super Retail Group chief Peter Birtles revealed this week that weekend sales now account for 50% of total sales. The days of Saturday afternoon and Sunday trading being a real flat spot in the retail week are over for this retailer – busy consumers want the convenience of shopping when they’ve got time to spare. And naturally in an economy where employment is so high, the weekend is when they’ve got time.

The problem for Birtles and other retailers for whom the weekend is a peak shopping time is that staffing on the weekend is expensive – 75% more than employing staff during the week – due to penalty rates built into the retail award.

“I think there needs to be some consideration for lower penalty arrangements on the weekend, and I think retailers can probably invest in providing a higher level of service to people on those days if the labour costs are lower,” he told SmartCompany yesterday.

“I’m broadly happy with the core thrust of the industrial relations arrangements, and I think they are fair…it’s more on the side of penalties.”

Penalty rates are nothing new, of course. For the union movement, they are a key protection for employees who make the sacrifice of giving up their own leisure time.

There’s plenty of logic in that argument, but the structural change sweeping through the retail sector means that employers and unions are going to need to rethink how the penalty rate regime works.

Retailers need to be able to match the all-shopping-all-the-time model of online retail as best they can and this will increasingly mean more trading outside that traditional working day structure. 

Unions and employers need to work together to find an answer to this. Could penalty rates be lowered  or removed, perhaps in return for a higher base rate? Could the times when penalty rates kick in be changed to lower weekend trading labour costs?

Employers need to get creative on suggesting solutions that unions will be receptive to.