Turkey's minimum wage increase seen hitting retailers

CarrefourSA Carrefour Sabanci Ticaret Merkezi

24/11/2015 16:06

* Turkey to raise minimum wage by 30 pct in January 
    * Retailers rely on low-wage staff 
    * Private pension companies will benefit 
    * Wage increase could further stoke inflation 
 
    By Ceyda Caglayan 
    ISTANBUL, Nov 24 (Reuters) - Turkey's plan to increase the 
minimum wage by 30 percent from January could squeeze companies, 
particularly big retailers such as CarrefourSA  CRFSA.IS  that 
rely on lower-wage employees. 
    The ruling AK Party (AKP) campaigned in the Nov. 1 election 
on a pledge to lift the monthly net minimum wage to 1,300 lira 
($461), appealing to the roughly 5 million minimum-wage earners 
struggling to make ends meet.  ID:nL8N1381C8  
    With minimum wage workers making up around a fifth of 
Turkey's 26-million strong workforce, the increase is expected 
to cost the private sector around $9.2 billion, according to one 
estimate from Umit Ozlale, an economics professor at Istanbul's 
Ozyegin University.  
    "The total impact will be more than just a wage increase," 
CarrefourSA's Chief Executive Mehmet Nane told Reuters. "It will 
also lead to higher social security premiums per employee and 
increase the cost of outsourcing services such as catering and 
security.  
    "As a result, our margins will decrease seriously. Retailers 
will look to cut expenses. And that means cutting jobs." 
    Supermarket operator CarrefourSA, a joint venture between 
France's Carrefour  CARR.PA  and Turkey's Sabanci Holding 
 SAHOL.IS , competes with Migros  MGROS.IS  and appliance and 
electronics chains Teknosa  TKNSA.IS  and Bimeks  BMEKS.IS , 
among others. 
    Mustafa Selcuk, an executive board member of Bimeks, told 
Reuters the company may not cut jobs initially, but will be 
"less generous" in hiring for new stores. 
    Retailers are expected to be hit hard because of their 
reliance on minimum-wage workers.  
    Margins could fall by 50-100 basis points across the sector, 
and even more at food retailers, estimated Ilyas Safa Urganci, 
an analyst at brokerage Is Yatirim. 
    At Migros, labour costs correspond to 9 percent of revenues, 
while they represent 5 percent at Teknosa, according to a report 
by Ak Yatirim, a brokerage.  
   Other large companies where the ratio of labour costs to 
revenue or earnings is high, including newspaper publisher 
Hurriyet Gazetecilik  HURGZ.IS , will also be hit. 
    At Hurriyet Gazetecilik, which publishes the mass 
circulation Hurriyet newspaper, labour costs are as high as 35 
percent to revenue or earnings, according to Ak Yatirim. 
    No one was immediately available to comment at Hurriyet 
Gazetecilik. Migros declined to comment.  
     
    SHRINKING MARGINS 
    Some companies will not be adversely affected at all. 
    Private pension firms, including Anadolu Hayat  ANHYT.IS  
and Avivasa  AVISA.IS  are expected to benefit as the wage hike 
will mean an increase in the government's contribution to 
individual pensions. 
    Food companies that produce their own products - such as 
biscuit maker Ulker  ULKER.IS  and dairy and pasta producer Tat 
Gida  TATGD.IS  - will be less affected because they can pass 
the wage hikes on to consumers, said Yatirim's Urganci. 
    Still, the rise in the minimum wage is expected to further 
stoke inflation, now at around 7.6 percent. It could also 
undermine confidence in the AKP's promises to strengthen fiscal 
discipline, risking further pressure on the lira  TRYTOM=D3 , 
which has lost nearly a quarter of its value against the dollar 
this year.  
    Bulent Gurcan, chief executive of retailer Teknosa, has 
called for government subsidies to help employers shoulder the 
burden.  
    The government, however, has only said it is looking to help 
smaller companies bear the increase, after the textile industry 
warned the higher wage could force clothing companies to move 
abroad.  urn:newsml:reuters.com:*:nL8N1381C8 
    "The minimum wage hike could lead to increases in salaries 
for workers on higher pay scales. If companies don't take 
additional measures, costs will go up and shrink margins," said 
Tuncay Tursucu, research director at Integral Menkul Degerler. 
    "Companies could decrease employment or cut bonuses. Export 
sectors such as textiles could shift their production to other 
countries to avoid losing their competitive advantage." 
 ($1 = 2.8166 liras) 
 
 (Writing by Ece Toksabay; Editing by David Dolan and Susan 
Fenton) 
 ((ece.toksabay@thomsonreuters.com; +90 212 3507052; Reuters 
Messaging: ece.toksabay.reuters.com@reuters.net)) 
 
Keywords: TURKEY EMPLOYMENT/COMPANIES