Smaller retailers have been worried for months, and now it has arrived – the National Living Wage (NLW). The new minimum pay rate was introduced on April 1, paying workers over the age of 25 at least £7.20 an hour, then creeping up over the next four years to reach more than £9.

Retail will be severely knocked by the wage hike, think tank the Resolution Foundation predicts, since it employs such large numbers of low-paid, relatively unskilled staff. Smaller companies will also be proportionately badly affected, so independent retailers may wonder how they can offset the added burden on their wage bill.

The cost to smaller vendors

The vast majority of Britain’s 192,000 retail businesses are small, with the industry employing around three million people in total. A good number will be young people below the age at which the new rules apply, but the Centre for Retail Research still estimates by 2020 Britain’s retailers will see their wage bill increase by £3.26 billion a year.

Wholesale and retail businesses are the most likely to say they’ll be negatively affected by the pay rules, the Federation of Small Businesses has found.

And most firms will lose out financially in the short-term while they adjust to the new system. SMEs are faced with a dilemma – cut jobs, raise prices, and risk closure, or boost staff productivity, promote themselves better and, ultimately, increase sales and profits to make up the difference.

Shops will have to think imaginatively to make up the difference

Good financial husbandry

Are you sure your operation runs as efficiently as possible? Many small business bosses rely on gut instinct when assessing how their company is performing, but it’s essential to have a proper grasp of the numbers to be confident money isn’t being wasted or growth opportunities missed.

For starters, making regular sales forecasts is a must for retailers, using past sales data while factoring in any new products in the pipeline, as well as events in the calendar that may affect trade.

One thing any boss should know is the break-even point of their company – when a firm’s revenue equals its costs and outgoings. Past this point, you’re in profit, yet surprisingly few business owners can name this vital figure. What are your sales, fixed costs, and variable costs?

Calculate all these figures on a regular basis based on real data to check the current health of the enterprise. With this invaluable information at your command, you can identify when certain items or lines aren’t selling, and maintain more accurate inventory levels.

Operational costs will be laid bare, allowing bosses to spot unnecessary waste or rising expenses. For example, if you realise energy costs have gone through the roof, it’s possible to shop around for a better deal. Pricing policy could also be informed by this exercise, with the retailer realising early on if they’re out of pocket.

Finding new customers online

When you’re faced with raised expenses to cover staff salaries, growing your business may be the last thing on your mind. But working on plans to increase revenue and profits will make the pain easier to bear in the longer term – as well as being good for the enterprise overall.

One thing smaller retailers should be embracing is new technology, offering customers the chance to browse and buy their goods online, both via home computers and mobile phones.

Two-thirds of Britons own a smartphone, Ofcom says, and almost six out of ten online sales are already made through mobile handsets or tablets, another study has found. With internet-driven sales in the UK, US, Germany and China set to increase by £320 billion by 2018, smart retailers will be setting their sights on online shoppers both at home and overseas to grow their customer base.

Retailers that haven’t invested in mobile-friendly technology are missing out on this potentially enormous revenue stream, so entrepreneurs should act now to ensure they’re up-to-date and accessible via all channels. They also need to build the right third-party relationships to help with the logistics of warehousing, distribution, and returns.

Appealing to the mcommerce generation is a good idea

And customer service has also entered the digital age, with many complaints and queries now handled online or via social media. Again, having the right technological infrastructure and resource is a must.

It sounds like a lot of hassle – and some will fret about the money involved – but investing in such measures will keep your enterprise abreast with competitors, plus the future business rewards could be great.

Improving staff performance

Finally, back to the staff – after all, it’s their pay packets causing business owners so much anxiety. Advocates of the living wage insist better rewards in traditionally low-paid sectors could see a boost to employee loyalty, motivation, and productivity.

But pay issues aside, training and managing workers properly to ensure they’re operating efficiently will always have a material effect on a business’s bottom line.

With its comparatively low-skilled workforce, the retail industry often complains about skills gaps, particularly when it comes to handling customers. This makes staff training a necessity in the retail sector, not a luxury.

A Government report last year into skills shortages in retail identified customer service and sales assistants typically needing better product knowledge, as well as training in the new technologies being used by the industry.

This greater reliance on technology - both in-store and online – has increased the pressure on employers to educate employees, both young and old, in this area, while improving customer service skills remains essential to increasing sales.

The report also pointed the finger at small retail business owners themselves, recommending they take courses in financial management to respond quickly to competition. In summary, brushing up the skills of those on the shop floor and in the boss’s office should result in better performance across the board – and, one hopes, greater sales.

Retail will feel the effects of the new pay regime in the coming months, and some will struggle with the higher wage bill. But scrutinising your business’s existing costs and revenue streams could reveal areas of opportunity. After the minimum wage was introduced in 1999, the business community was similarly scared, but many companies were forced to become more efficient, and improved their processes as a result.

The Chartered Institute for Personnel and Development advises employers look at working practices and job design to increase productivity. Take positive action in response to the living wage rules – and you may be pleased with the results in the months to come.