The Fair Work Commission’s decision to increase modern award rates by 5.75 per cent could be the last straw for many small business retailers already struggling with rising costs.

Australia’s peak retail body, the Australian Retailers Association (ARA) says the wage rise, coupled with a scheduled 0.5 per cent increase in the superannuation guarantee, will place significant pressure on struggling retailers, particularly small businesses.

While no one is denying the need for a wage increase for workers covered by modern awards – some of which are the lowest paying in the country – ARA CEO Paul Zahra says many small businesses will struggle to absorb the wage rise.

“We’re experiencing a cost-of-living crisis – so it’s important that wages continue to grow, but we’re also continuing to experience a cost-of-doing-business crisis so it’s a very delicate balancing act to keep business operating sustainably,” he said.

Retailers under pressure

“Many retailers are under enormous financial pressure, with rising operating costs across the board. Supply chain costs have increased, utilities have increased, rent has increased, materials have increased, and now labour will increase substantially,” Zahra said.

With many Aussies tightening their purse strings and discretionary spending softening, the ARA CEO suggests small business retailers are fearful of how they will cover the increase in operating expenses.

“We fear the scale of this increase will tip some businesses over the edge – especially smaller retailers who are on very slim profit margins or, in some cases, in the negative cashflow territory.

“The Reserve Bank’s message last week included a warning that the moderation of wages over the period ahead is crucial to prevent a wage-price spiral,” Zahra explained.

Impacts of inflation

Zahra suggests whilst inflation remains high, it’s essential to consider any future conditions – which also includes the hope that inflation will lessen in the months ahead. The ARA CEO also stressed there would need to be further discussion with government and industry bodies around increased productivity if businesses are to cope with the increase.

“There will need to be a labour productivity improvement to mitigate against the impact of this very significant rise to avoid job losses in an otherwise challenging year,” Zahra said.

“We look forward to expected discussions with the government around the review of the General Retail Industry Award to deliver much-needed productivity gains,” he concluded.

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