Hartford Business Journal

8 Hartford Business Journal • October 31, 2016 www.HartfordBusiness.com FOCUS RETAIL Looming OT rule changes pose added challenge for retailers this holiday season By Matthew Broderick Special to the Hartford Business Journal A s president of the Connecticut Retail Merchants Association, Tim Phelan understands the chal- lenges that internet sales pose to the state's brick-and-mortar retailers during the fast-approaching holiday shopping season. But this year, there's another looming pressure state and national retailers are fac- ing: new Department of Labor (DOL) overtime rules that could hit retailers particularly hard at their busiest — and most lucrative — time of year. Under the rule, which is set to take effect on Dec. 1, the Department of Labor is more than doubling the national threshold for overtime exemptions for salaried employees from $23,660 a year to $47,467. "For small businesses that potentially increases their cost of doing business," Phelan said, noting many of his organization's small business members expressed frustration with the rule. While nearly 2.2 million restaurant and retail workers alone nationwide are expected to be effected by this rule, the impact to Con- necticut's retail sector may be less acute than in other states. That's because many retailers in the state — particularly small businesses — employ hourly workers to whom this rule doesn't apply. Additionally, being in a higher cost-of-living region like New England, sala- ries in Connecticut tend to be higher than the national average. In fact, according to compen- sation survey analysis from salary.com, the median retail store manager salary in the Hartford region is $57,693, more than $10,000 above the new exemption threshold. Although the Nutmeg State might stack up nicely against a national measuring stick, the rule will still impact an estimated 27.6 percent of salaried workers earning below the new $970 per week threshold. That's a concern for opponents of the new legislation, like Lizzie Simmons, senior director of government relations for the Washington, D.C.-based National Retail Federation, which opposes (and filed a lawsuit against) the new over- time rule and is working to get the DOL to at least delay its implementation. "It's too much [change], too soon," Simmons said, not- ing that unlike past DOL shifts in overtime regulations, which have historically applied a regional cost-of-living to factor in threshold calculations, this new rule applies a one-size-fits-all approach that may prove unrealistic for many small business owners across the U.S. "These small business owners and retailers don't have a magic pot of money [to increase salaried employees pay]," she said. In fact, less than two months from implementation, many potentially impacted retailers, especially small busi- nesses, remain largely unaware of the rule. "The aware- ness gap [about this rule] is huge," Simmons said. In August a survey by payroll vendor Paychex, which serves more than 600,000 clients nationwide, found that nearly half of all small businesses were completely unaware of the new DOL rule, and 31 percent were only somewhat aware. Among the one in five retailers aware the new rule is coming, only 7 percent polled by Paychex thought it would impact their business. And how they planned to deal with that reality varied, with the more than one-third of busi- nesses reporting they will transition employees from exempt to non-exempt status and 21 percent saying they will reduce employee hours to minimize overtime. Only 7 percent of employers polled planned to increase salaries of impacted employees to the new exemption thresholds. And the financial hit to impacted employ- ers and workers could be significant, Sim- mons said. Data from Oxford Economics predicts the new rule will cost U.S. retailers a collective $745 million to comply. Meantime, 11 percent of salaried retail employees could have their hours reduced, costing them an estimated $2.32 billion in wages. But it's not just employee paychecks, Simmons says, that will be impacted. "For managers who were exempt or for young college graduates starting out, there will be less room for career development," Simmons said. "If an employee below the threshold goes to a networking event or travels to a conference that puts them over hours for the week, that's compensable OT," Simmons explained. "So fewer of those opportunities — which are important for career growth — may be made available by employers." Phelan worries that more than just local, independent retailers will feel the pinch. In Connecticut, he noted, many national chain retailers such as Target and Walmart need to balance their overall bottom line and could poten- tially shift resources as a result of the overtime regulation. Phelan said he hopes the latest DOL rule doesn't hamper the progress that's been made in the retail sec- tor over the past seven years coming out of the Great Recession, which hit retail hard. He noted the sector now employs nearly 470,000 people and generates $34 billion Q&A CT auto sales remain strong in changing dealership landscape Q&A talks about the state of CT's retail auto industry with James Fleming, president of the CT Automotive Retailers Association. Q: According to some projections, auto sales this year will be flat or below last year's record num- bers. What are you seeing in Connecti- cut? How will sales be this year? A: Connecticut's auto sales this year are very good and will likely push Connecti- cut's new car sales well into the $11-bil- lion range surpass- ing the $11.4 billion in sales recorded for 2015. Franchised new car dealers accounted for 20 percent of all retail sales in our state in 2015, which is the last full year for which I have figures from the National Auto Dealers Association. Q: How does an event like the Connecticut International Auto show being held Nov. 18 to Nov. 20 at the Connecticut Convention Center in Hart- ford help sales? Do attendees turn into customers? Are auto shows still relevant? A: This year, 27 car manufac- turers will showcase their latest models throughout the floor of the Convention Center. In addition, Harley-Davidson, Indian, Victory, and BMW motorcycles will be on display for the first time. Exotic cars and antique cars will also be on display. A variety of cars will be available for test drives. In addition, the Auto Show is excited to announce there will be an opportunity to test drive elec- tric cars on Friday, Nov. 18 from 10 a.m. to 2 p.m. Plug in America and the Connecticut Department of Energy and Environmental Protection are partnering with the show to offer this event. Auto shows are very rel- evant. National studies by the Association of Auto Shows for North America (ASNA) confirm that attendees at auto shows are directly influenced by the show when purchasing a car: 64 per- cent of attendees say they are in the market to buy a car or truck in the 12 months after the show (up from 57 percent in 2014). Fifty-six percent of attendees who purchased new vehicles post show said the show influenced their decision (from 51 percent two years ago). Over one in four auto-show attendees who planned to purchase a car had their mind made up which brand to purchase when leaving the show. Dealers in Con- necticut support auto shows because it gives consumers the oppor- tunity to see hundreds of vehicles at one time and in one place, and then compare and contrast the vehicles without any sales pressure. The nice thing about our auto show is there is no selling allowed on the floor, so it is an easy and relaxed place to see lots of great vehi- cles. We do believe that auto shows are still very relevant. Q: How goes the battle against Tesla? As its sales get stronger, will more be done to allow the electric-vehicle man- ufacturer to sell directly to the public? Does it hurt the retail market when people have to go out of state to buy Teslas? A: Tesla could sell with local dealers under existing laws in Con- necticut. However, they choose not to. Dealers have invested millions in a franchise system and the phys- ical dealership structures that go in that system through a deal with manufacturers and regulators. This system protects the consum- ers if something goes wrong with the car, fosters local competition amongst dealers, and creates a balanced system between manu- facturers and local dealerships. Connecticut residents are able to buy the newest vehicles including zero-emission vehicles and hybrids from dealers across Connecticut, at all price ranges, and that are backed up by the best warranties. The Chevrolet Bolt, Nissan Leaf, fuel cell Toyota Mirai, Honda Fit, Chevy Volt, Mercedes B-Class, Ford Fusion, and the BMW i3 are currently in dealer- ships or will be shortly. The deal- erships have the trained mechan- ics to work on these cars. Q: Speaking of electric vehicles (EVs), how is the market doing in Connecticut? The state has invested heavily through the rebate program, known as CHEAPR, to offer rebates on electric-vehicle purchases. Would there be a JAMES FLEMING President, CT Automotive Retailers Association Continued Continued Tim Phelan, president, Connecticut Retail Merchants Association Salaried retail workers who make less than $47,467 will be eligible for overtime pay Dec. 1. P H O T O | M I C H A E L J U N G , S H U T T E R S T O C K . C O M

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