Labor issues loom north of the border

Unemployment is a double-edged sword when it comes to the retail industry. The high single-digit rate in the United States means retailers can be more selective in their choice of hourly workers but the downside of fewer people working is less money sloshing around the economy for shoppers to spend. The situation in Canada is the opposite of the United States, and there are some major implications for Target.

The most significant is that the Canadian economy is booming relative to the United States, according to Jeff Doucette, founder of the Calgary-based consulting firm Sales Is Not Simple. The banks are in fine shape because they didn’t overextend themselves with risky subprime loans. Consequently, Canadians haven’t seen the value of their homes suffer, consumer confidence remains high and the exchange rate between Canada and the United States is roughly even compared with a few years ago when it took 1.5 Canadian dollars to buy 1 U.S. dollar. As a result of the favorable exchange rate, there’s never been a better time for Canadians to buy a home in the Uniteda States, as not only does their dollar go a lot further but home prices in many U.S. markets are depressed.

Things are so good in Canada, that most everyone who wants a job has a job, and the scarcity of labor means minimum wages tend to be in the low single digits, according to Doucette. That is good news from a demand standpoint for retail sales, but there are some potentially negative implications for Target’s expansion efforts and its expense structure longer term. For example, the booming economy in Western provinces means there is a shortage of carpenters, electricians and other types of trades, which could challenge Target’s ability to find workers to remodel stores next year.

“We have people working at McDonald’s who are being paid an hourly rate in the teens because it is such a competitive labor market,” Doucette said.

Minimum wage rates in Canada vary from province to province and currently range from $9.40 to $11 an hour. So to attract workers Target will need to pay those rates if not more and once hired retention will become an issue. Turnover is an operational challenge even when unemployment rates are in the high single digits as is the case in the United States, but with the Canadian jobless rate at roughly half that amount hourly workers can be selective about their employment choices and won’t stick around long if they sense greener pastures elsewhere.