California Apparel News

When boutique owner Eduardo Fernandez heard the news that California’s minimum wage would be increased to $8 an hour, he immediately considered how his San Diego store, The Assembly, might benefit: People would be buying more clothes. Their new disposable income should release pent-up demand for fashion.

Yet, Fernandez also considered the consequences of the $1.25 wage increase, which was agreed to Aug. 21 by Gov. Arnold Schwarzenegger and the state Legislature’s Democratic leaders. “Employees will start asking for more money.”

The Assembly paid $8 per hour to its three part-time employees before the minimum wage deal was struck, Fernandez said, so the store would have no problem complying with the upcoming law.

But how will businesses cope with one more rising cost—in this case, labor—in an already expensive market in which to run a business?

Retailers, workers and economists across California grappled with the impact of rising wages. The California minimum wage is $6.75. The deal gives minimum-wage workers a 75-cent increase on Jan. 1; they will get a 50-cent increase on Jan. 1, 2008.

Smaller retailers might have a tough time absorbing the wage increase, said Bill Dombrowski, president of the California Retailers Association in Sacramento. He said most retailers would struggle in order to avoid passing the increased cost of doing business on to the consumer.

If sales don’t grow in tandem with the increased payroll costs, he and other market observers—such as Ilse Metchek, executive director of the California Fashion Association— say that retailers will be forced to take other steps.

“They’ll hire fewer people,” Metchek said. “If a retailer is not doing well, they’ll have less people on the floor.” She also said that some retailers might try to take the bite out of the wage increase by changing the way they balance wages and other payment options such as commissions.

“Retailers often pay commissions to offset low minimum wages,” Metchek said. “They may pay less commissions in the future.”

Any sort of pay cut, whether wages or commissions, would hurt retail workers, said Stephanie Ghanem, a 20-year-old sales associate at Buckle boutique in Valencia, Calif.

The part-time saleswoman and full-time fashion student said that monetary compensation for her job was rewarding when she gets a busy shift. Then her commission checks are high. “But what happens if I have a slow week?” Ghanem said. “To know that I can fall back on a minimum wage is reassuring. To think it may go up is even more reassuring.”

When fully implemented, the wage increase should add $2,600 annually to the $14,040 currently earned by full-time minimum- wage employees. However, many retail workers are earning a better living than what the minimum wage pays, according to the California Employment Development Department.

In Los Angeles County, the average annual salary for retail trade was $29,598, compared with hospitality/restaurant workers, who make an average salary of $25,974. The average wage for traditional manufacturing jobs was $47,168.

For many retail executives, paying competitive wages to their employees is the price to pay for retaining good workers. Retail executive Fred Levine said that providing a good compensation for workers also should be a point of pride.

“Living in Los Angeles on $6.75 [an hour] is tough,” said Levine, who co-owns the Agoura Hills, Calif.–based M. Fredric chain. “You must have a sense of decency first. If you don’t have that, close your doors.” M. Fredric employs 200 people and runs 22 stores.

An increase in the minimum hourly wage has been one of the major economic issues across the United States in the past year. The U.S. Senate fought over a bill that would raise the federal minimum wage $2.10 from the current $5.15 per hour. It was the first time in a decade that the Senate had considered an increase in the minimum wage. However, Senate Democrats, according to a New York Times report, refused to support the bill when it was attached to a proposed decrease in the federal estate tax.

On July 26, the Chicago City Council passed a minimum-wage ordinance for bigbox retailers such as Wal-Mart. The law stipulates that such retailers must pay a minimum wage of $10 per hour by 2010. The increase would also include $3 in benefits.

In California, Jack Kyser, chief economist for the Los Angeles County Economic Development Corp., did not expect the state’s pending minimum wage increase to start a spending spree.

“It will put more spending power into the overall economy,” Kyser said. “But this new spending power will go for the basics—shelter, food and transportation—not luxuries.”