Ikea staff will get the living wage - but is it good business?

The Swedish retail giant knows a PR win when it sees one.

by Rachel Savage
Last Updated: 16 Nov 2015

Ikea sure knows how to burnish its Scandinavian do-gooder credentials. The Swedish mega-retailer is jumping the gun on the government’s new ‘living wage’ policy, announcing it will go above and beyond the new legal requirements announced in the recent Budget.

From next April the furniture store’s British staff will be paid at least £7.85 an hour, or £9.15 if they work in London, it said today. That’s the rate recommended by the Living Wage Foundation, rather than the £7.20 an hour for over-25s mandated by the new law, rising to £9 by 2020 (it’s not clear if Ikea’s wage will stay above the legal level).

Ikea said more than 50% of its 9,000 workers will be ‘impacted’ by the move, which one would hope means an overall pay rise rather than any cuts to wages, hours or jobs. The Office for Budget Responsibility said the new living wage will cost 60,000 jobs, although chancellor George Osborne argued his latest Budget policies will create 1 million overall.

Businesses have been divided over the merits of paying a living wage. JD Wetherspoon’s boss warned it would ratchet up the ‘unsustainable pressure’ on pubs, while CBI deputy director general Katja Hall said it was ‘quite a gamble’. On the other hand, Institute of Directors director general Simon Walker argued, ‘after several years of slow wage rises, now is the time for companies to increase pay.’

Ramping up wages ‘makes good business sense,’ Ikea’s UK and Ireland manager Gillian Drakeford said. ‘This is a long-term investment in our people based on our values and our belief that a team with good compensation and working conditions is in a position to provide a great experience to our customers.’

Ikea, which currently has 18 UK shops, is certainly making itself a retail employer of choice, and perhaps the go-to store for customers with a conscience too. But whether that will actually filter down to better customer service and increased sales and profits is another question.

It’s certainly prepared to take a hit to the latter: in the year to August 2014 UK profits fell 10.5% to £41.6m as it 'invested' in price cuts and home deliveries, even as sales rose 12% to £1.5bn. Indeed, last month, the group announced it was investing €1bn (£700m) in measures to combat climate change.

The foundation that owns the retail giant has come in for plenty of criticism over the years (founder’s Nazi past, not much actual charitable giving, etc). But Ikea has tried to overcome said critiques, while the private ownership structure means it can take a more long-term view than most plcs. If it keeps flogging flatpack furniture as successfully as it has done, its relatively generous pay and environmental investment could be a model for more to follow.

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