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Even Amazon Is Expected to Feel a Pinch From Rising Labor Costs

As retailers gear up for another busy holiday season in the shadow of the pandemic, hiring is proving to be among their most vexing challenges.

To get ahead of the competition, Amazon announced earlier this month that it was raising its average starting wage in the U.S. to more than $18 an hour and offering signing bonuses of up to $3,000 for certain positions. The pay hike — which amounts to nearly three times the federal minimum wage of $7.25 per hour — is expected to help the online giant meet its goal of hiring 125,000 additional warehouse and transportation workers to keep up with rapid growth.

While adding workers will help Amazon deliver more merchandise at an even faster clip, rising payroll costs are expected to take a bite out of the company’s bottom line. On Monday, Morgan Stanley cut its price target for Amazon’s stock from $4,300 to $4,100, citing profit pressure from the wages paid to 700,000 U.S. logistics workers.

“We have written in the past to how Amazon’s growing logistics workforce is set to enable more e-commerce share gains, faster ship speeds (one-day and same-day) and new business opportunities (like third party logistics)… but the cost of labor is rising,” wrote analysts led by Brian Nowak in a note.

The investment bank maintained its overweight rating on the stock, which opened at $3,357.71 on Tuesday and dipped more than 2% in trading. The analysts estimated that Amazon’s labor costs will be up 60% — an increase of $4 billion — in the fourth quarter of 2021 compared with the same period last year.

Still, Amazon can at least afford to price out its competitors in the labor market. For retailers without the cash for such an ambitious hiring spree, finding workers will likely be much harder, especially given the recent exodus from the industry. In every month since April around 4% of the retail workforce has quit their jobs, according to the Bureau of Labor Statistics. In July, that amounted to a record 678,000 workers leaving retail. Beyond raising pay, employers that want to win workers back will have to address myriad concerns, including inconsistent scheduling, lack of paid sick leave and appalling treatment from customers who refuse to abide by store mask policies, among others.

“We would expect smaller (in some cases subscale) retailers/players to feel the pressure even more,” wrote the analysts.

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