How can retailers offset paying higher wages?
Through a special arrangement, what follows is an excerpt of an article from Retail Dive, an e-newsletter and website providing a 60-second bird’s eye view of the latest retail news and trends.
Will raising prices be necessary to offset the cost of higher wages?
Massachusetts Institute of Technology researcher and retail expert Zeynep Ton studied Costco, Trader Joe’s, QuikTrip (a U.S. chain of convenience stores with gas stations) and Mercadona (Spain’s largest supermarket chain) and found that the strength of those four retailers defy the traditional argument that retailers have to raise prices — or lose money — in order to pay higher wages. Rather, these companies treat the money spent on workers as a strategic investment and design operational systems that enable their workers to be more productive. That allows all four to pay better than their competitors while also offering low prices and pleasing shareholders.
"They have high productivity, great customer service, healthy growth, and excellent returns to their investors," Prof. Ton wrote in Forbes. "They compete head-on with companies that spend far less on their employees, and they win."
Source:Â quiktrip.com/Jobs
Many retailers have also attempted to find labor savings by employing software that uses algorithms to make staffing more efficient — a practice known as "just-in-time scheduling."
But there’s still plenty of other wasted energy when it comes to recruiting, hiring, and scheduling store employees, said Steven Kramer, founder and CEO of WorkJam. The year-old Montreal-based company has developed software that uses data from employees and the retailer itself, store by store, to help companies more strategically hire, pay, promote, and schedule workers.
Right now, those processes can often be cumbersome, fail to be based on good data, vary from store to store, and create havoc and expense for both employees and the store, Mr. Kramer said.
WorkJam has a free app that allows employees to look for retail, restaurant, and other hourly jobs. Workers who have earned badges for credit-worthy job performance measures like punctuality or good customer service can carry those badges to their next job interview.
Indeed, Mr. Kramer said that worker empowerment is a Millennial concept that actually has its place in a well-run store or e-commerce operation as long as it’s based on data factors that are meaningful to employers’ needs.
"Employees want more control and more collaboration," he said. "Giving certain employees more say in their schedules, for example, so they can trade shifts with peers without consulting with a manager, could cut down on costs. The amount of texting and phone calls that happens between managers and employees is amazing. And I think in the end happier employees make for better employees as well."
Discussion Questions
What’s the secret to keeping prices low and wages attractive? Where else should stores be looking to find savings to offset higher wage costs?
Poll
BrainTrust
Camille P. Schuster, PhD.
President, Global Collaborations, Inc.
Mel Kleiman
President, Humetrics
Payroll is a huge item on every retailer’s P&L.
Nothing wrong with focusing on employee engagement and motivation which help increase operational productivity and employee retention, but a major historical challenge is that retailers have been viewing labor as “expense.” So any rise in wages is deemed a “cost” and loss of profit.
There is a major opportunity to re-examine how wages can become an “investment” in better talent who can increase sales, improve customer satisfaction and, most importantly, enhance relationships with the most profitable customers.
Productivity is the secret. Aldi with a productivity rate of about $500 per man hour can afford to pay higher wages. Costco with unit sales of nearly $3 million per week can afford high wages. Trader Joe’s with a sales per square foot of over $40 per week can afford high wages. But to achieve these levels you can’t just use random warm bodies. You need sharp, reliable, quick-on-their-feet people who are motivated.
In those companies, employees are an investment and an asset. If words like “minimum wage” are associated with your business model, then labor is a cost or a liability. If your labor force is slow, unproductive and you need a social worker in HR, you’ve got a problem because a few dollars per hour wage increase is not going to get you a more productive worker. The good workers are already $5 to $10 an hour above any proposed minimum wage increase. The pool of really good employees is limited, hence the reason why those workers often top $20 per hour. The high wage retailer is all for wage increases because they know they won’t have to raise theirs and it will be a crushing blow to the warm body labor model competitor.
What are the costs related to wages? If a company was efficient when hiring, provided the necessary training to deliver the required customer service, kept turnover very low and provided a working wage with benefits how would the numbers compare to the costs of inefficient hiring practices, high turnover, repeated training costs, low customer satisfaction and low wages with few benefits? Wages are part of a company strategy, they are not the only element affecting prices.
Retailers are the ones who will have the biggest problem with higher wages. Why? Because their hiring practices are generally poor. They should take a hard look at, and may learn from, companies like Zappos and The Container Store. The Container Store starts their new hires off with a higher wage than most retailers are paying experienced employees. They train them for many months before letting them loose on the floor. The company culture lends itself to higher sales productivity per square foot because they hire and train with the intent that the employees will be with them for a long time.
The companies mentioned above have one thing in common. They make the recruiting, selection, retention and development of employees a major part of their culture.
As I have written about in the past, there are a few questions you need to ask before you hire any employee.
In looking at this as a small business, it is difficult to not have to raise prices, especially in high-end departments, like a scratch deli bakery or butcher shop. Aldi and Trader Joe’s produce nothing in their stores and have a limited assortment of items that require much less labor to set up than traditional stores with the services they offer.
Costco carries half the SKUs that I do, about 4,000 items, in comparison to a Kroger with 50 to 60 thousand items, which keeps their cost down, and it is stocked quickly with all pre-cut palletized products.
There are going to be problems as we move forward trying to stay competitive and make a smaller profit, knowing that is how it is going to be. There will be casualties, as the costs and regulations to run a family restaurant or small deli-bakery will continue to climb, and growing your way out of it is almost impossible. Our GDP is almost zero, so we as retailers must stay creative and be competitive on key items, or business will continue to be lost. I speak to a lot of independent stores and restaurants who are scratching their heads trying to figure out their future.
No whining here, just simple math, and I hope that our hiring policies stay strong and the employees can be compensated well, which I am committed to. Healthcare could be the most cumbersome problem for many of the multiple franchise operators, who haven’t found a way out of providing healthcare to everyone, which in a pizza or sub shop will be very difficult to do. Many have said here before, “retail ain’t for sissies,” which may be true, but even the toughest operators are going to have to accept less bottom-line or find something else to do. Have a great weekend everyone.