Which Retail Stock Will Be Hit Hardest by Minimum Wage Increases?

Will the low-priced retailer Dollarama Inc. (TSX:DOL) see the biggest impact from minimum wage hikes?

| More on:

As minimum wage hikes are planned in some of Canada’s major provinces, the impact could be significant on retailers. Alberta will be the first province to reach a $15 minimum wage in about a year, with Ontario looking to follow three months later.

Many retail positions pay close to minimum wage, and so the larger the hike, the larger the potential cost increase. Ontario’s minimum wage will rise by $0.20 to $11.60 next month, and an increase to $15 means a jump of almost 30%. In Alberta, the minimum wage will reach $13.60 next month, and an increase to $15 will mean wages will only rise 10% in that province.

I’m going to have a look at four of the biggest retailers on the TSX that have significant operations in these two provinces and assess which one might be the most impacted as a result of the increasing minimum wages.

Which company pays its staff the least amount?

To gauge the overall pay for a company is difficult, but by looking on the website glassdoor.ca, where employees have posted wage information, you can certainly get a rough estimate. I’m going to take a look at a cashier position since that will be prevalent in all companies, and it should provide a good benchmark.

According to the website, Loblaw Companies Ltd. (TSX:L) averages a wage of $11.44 for its cashiers, followed by Empire Company Limited’s (TSX:EMP.A) stores, which average $11.25, Dollarama Inc. (TSX:DOL) comes in at $10.91. Canadian Tire Corporation Limited (TSX:CTC.A) is slightly lower and has the lowest wage of $10.90. These figures will change as more employees contribute wage information to the website, so these are not fixed amounts.

Overall, the gap between the stores is not significant. Loblaw stores have been known to pay employees better than other retailers, while Empire has a much stronger presence (as a percentage of its stores) in Alberta where wages are higher, and the numbers from glassdoor seem to confirm this information.

A look at margins

Another important number to look at is each company’s gross margin. This is important because it allows us to see what percentage of revenue that a company will have to cover its overhead and other operating expenses. The higher the gross margin, the greater ability for a company to be able to absorb higher wages, and an increase in sales can more easily offset higher costs.

A look into each company’s most recent fiscal year saw that Dollarama’s margins were the highest at 39%, followed by Canadian Tire, which averaged 35%, Loblaw averaged 28%, and Empire averaged the lowest margins with just 24%.

Bottom line

Although Dollarama and Canadian Tire had the lowest average wages in this sample, the gap is not significant, and with strong gross margins, both companies are in better positions to absorb increasing costs than the other retailers listed here.

However, for Loblaw and Empire, these two companies could see the biggest hits from minimum wage increases since added costs won’t as easily be covered by rising sales. This could result in both retailers raising prices, which could adversely impact top and bottom lines if consumers turn away in search of more affordable options.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor David Jagielski has no position in any stocks mentioned. 

More on Dividend Stocks

growing plant shoots on stacked coins
Dividend Stocks

4 Ways to Grow $100,000 Into $1 Million in Retirement Savings

Anyone can build a million-dollar retirement portfolio. Here are four ways you could practically grow $100,000 to $1 million.

Read more »

A shopper makes purchases from an online store.
Dividend Stocks

3 Reasons to Buy TFI Stock Like There’s No Tomorrow

TFI stock (TSX:TFII) had a hard 2023, but now it's set up for a solid 2024, with an acquisition that…

Read more »

Dividend Stocks

5 Secrets of TFSA Millionaires

These lesser-known secrets can help you set up the perfect long-term portfolio and achieve a million-dollar TFSA!

Read more »

analyze data
Dividend Stocks

How to Build a Powerful Passive-Income Portfolio With Just $20,000

These fundamentally strong TSX stocks have paid and increased their dividend in all market conditions. Add these stocks to build…

Read more »

Canadian stocks are rising
Dividend Stocks

iShares S&P/TSX Capped REIT Index ETF (TSX:XRE): Why I Like this ETF Better Than a Rental Property

XRE is a great ETF for gaining exposure to the Canadian real estate sector.

Read more »

Payday ringed on a calendar
Dividend Stocks

3 High-Yield Dividend Stocks That Pay Cash Every Month

These three dividend stocks all offer high yields and have sustainable dividends, making them some of the best investments to…

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

3 Stocks That Could Create Lasting Generational Wealth

If you want to start transferring over your wealth, you'll need to actually have some! And these are three stocks…

Read more »

data analytics, chart and graph icons with female hands typing on laptop in background
Dividend Stocks

Down by 25%: Is Canadian Tire Stock a Buy in February 2024?

Take a closer look at this Canadian retail stock if you are looking for low-cost additions to your self-directed portfolio…

Read more »