This Analyst Explains Why Amazon’s (AMZN) Minimum Wage Raise Deepens Concerns for Retail Stocks


Amazon (AMZN) added fuel to the fire of wage pressures across retail by announcing a minimum wage of $15 an hour for its U.S. employees that could force other major retailers to raise their pay. This is significantly higher than the $11/hr level set by Walmart, The TJX Companies and Ross Stores and leapfrogging the $12/hr bar set by Target this spring. The wage increase will benefit more than 250,000 current employees and over 100,000 seasonal workers for the retail giant. The wage hike also applies to workers at the company’s Whole Foods grocery chain.

Evercore lSI analyst Omar Saad commented, “While we have seen persistent wage increases by many retailers over the last couple years, this surprise announcement by Amazon significantly raises the hurdle and is likely to spur another round of discussion around wage increases more broadly. Add this to the list of concerns investors harbor about retail heading into a tough holiday comparison. Though we should consider the possibility that the job skills, requirements, and pay rates working in an Amazon warehouse may not be comparable to the millions of store associate positions throughout the retail industry. Also, the factors driving higher wages are indicative of strong economy and robust consumer demand, which, when coupled with more balanced inventory and strong fashion trends (led by social media), should allow most of our retailers to absorb the higher costs while also creating equity value. However, assuming $15/hour is the new bar and most retailers will have to move in that direction over time.”

When it comes to Wall Street’s bet, the odds are on this e-commerce giant, with TipRanks analytics showcasing AMZN as a Strong Buy. Out of 40 analysts polled in the last 3 months, 38 are bullish on Amazon stock while 2 remain sidelined. With a return potential of 10.5%, the stock’s consensus target price stands at $2,178.51. (See AMZN’s price targets and analyst ratings on TipRanks)

 

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