Retailers Cite Low Wages as Major Threat to Business

Two-thirds of America's largest retailers, most of which pay minimum wage, are citing "flat or falling disposable incomes" as a serious risk factor to their business models. This according to a report by the Center for American Progress. The report isn't based on squishy personal corporate responses from public relations staff. No ... It's based on the actual Securities and Exchange Commission filings for these companies as they cite risk factors to their businesses. These 10-K filings show that major retailers are highly concerned about how low and stagnant wages among consumers are a threat to business.

Median household incomes are not doing well. In 2013 they were 8 percent lower than in pre-recession 2007 which, according to the report, "leaves the median married couple with two kids with $5,500 less to spend annually on food, clothes and other essentials that retailers sell."

Low estimates are that the middle class accounts for 30 percent of the 115 million American households. That's about 35 million households, times $5,500 less per year, for a total of about $193 billion less in available funds each year that could be going to Walmart, Burger King, Kohl's, Sears or whatever favorite retailer you might have. That's a huge hit to America's retailers, and it's got Wall Street worried. While our leaders in Washington, D.C. keep insisting on the merits of trickle-down economics, retailers, restaurants and Wall Street economists are starting to notice that not only is money not trickling down -- but it's also no longer trickling up.

This is no small thing. Consumer spending is the largest segment of the U.S. economy.

The horrible irony of course is that many of these retailers, acknowledging that stagnant incomes hurt their sales, are part of their own problem as they pay low wages while lobbying aggressively to keep the minimum wage low. Meanwhile, their 10-K corporate filings with the Securities and Exchange Commission tell a story at odds with their own pay scales, with 88 percent of these retailers citing "weak consumer spending" as a risk factor to the very stability of their own business model.

JCPenney's 10-K filing says, "The moderate income consumer, which is our core customer, has been under economic pressure for the past several years, and may have less disposable income for items such as apparel and home goods"

Burger King's 10-K filing says, "Increased unemployment and underemployent of our customer base, decreased salaries and wage rates ... adversely affect consumer behavior by weakening consumer confidence and consumer spending."

Goodness. If only some ... entity ... could increase the salaries and wage rates so people could afford a delicious flame-broiled burger, had Your Way. Don't look to the National Restaurant Association, however -- also known as the NRA. Restaurants send millions of dollars per year to D.C. to lobby to keep wages low -- one reason $7.25 has been the national minimum wage since 2007.

It's unclear whether or not retailers and restaurants are connecting the dots between their own low wages and their struggles to sell to the increasingly struggling middle class.

Wall Street and banks are also struggling with the same apparent cognitive dissonance.

Says Ellen Zentner, executive director and senior economist at Morgan Stanley, “Faster employment and wage growth for those at the bottom, were it to have staying power, would help lift consumer spending, the biggest part of the economy.”

And says Michelle Meyer, senior economist at Bank of America Merill Lynch, "Wage growth has been, as you know, extremely lackluster. So that’s one of the factors that’s weighing on primary home buying."

Is it possible this is one of those scenarios where everybody knows what it takes to solve the problem -- but nobody wants to make the first move? Retailers, restaurants, Wall Street, all know that consumer spending and low wages are dragging the U.S. economy down, and yet they continue to funnel millions into efforts to keep wages low. It's bizarre. If these dudes can't get their act together even to save their own skin, let alone the skin of those struggling, maybe the government should in the form of the minimum wage increase. It's clearly what everybody needs.

Image credit: Mike Mozart: Source