Are people investments paying off for retailers?
Listen to any retailers’ quarterly earnings call and, almost without fail, the CEO can be heard heaping praise and appreciation on employees for their dedication and hard work in delivering a great store experience and business results.
Given the critical role people play in the success of any retail enterprise, it’s surprising that people initiatives don’t get more credit or coverage. Instead, the retail industry narrative is dominated by technology and automation — Scan & Go, floor cleaning robots and artificial intelligence, to name a few.
The tide, however, may be turning. Some retailers are starting to talk about making investments in employees — and their front-line store associates in particular.
Walmart is a good example. In its recent fourth quarter earnings report — which topped analysts’ expectations, delivering a 4.2 percent gain in same-store sales — it provided a list of operational highlights that included these notable people initiatives:
- Launched 17,000 virtual reality training devices;
- Raised U.S. starting wages for hourly associates to average more than $17.50, including benefits;
- Trained about 450,000 associates in nearly 200 Walmart U.S. training academies;
- Expanded parental leave benefits for associates;
- Launched $1 a day college program for associates;
- Instituted a new adoption benefit for associates.
Target is another good example. Posting a 5.3 percent increase in fourth quarter comp sales — its best in a decade — Target is doing a lot of things right and, according to CEO Brian Cornell, the investments the retailer is making in its team is a big part of it.
Target hired over 120,000 seasonal employees for the holiday season alone and plans to raise minimum wages to $15 per hour by 2020. This all seems to be part of a bigger, long-term people strategy that aims to provide more training, additional hours and wage increases.
The upside of investing in people is also backed by academic research. Studying the impact of labor in retail stores, researchers at the Wharton School at the University of Pennsylvania discovered that, for every $1 invested in staffing payroll, the impact on sales was estimated to be between $4 and $28, depending on the retailer and category.
- Walmart U.S. Q4 comp sales1 grew 4.2% and Walmart U.S. eCommerce sales grew 43%, Q4 2019 GAAP EPS of $1.27; Adjusted EPS2 of $1.41, Fiscal year 2019 GAAP EPS of $2.26; Adjusted EPS2 of $4.91, Company reiterates fiscal 2020 guidance – Walmart
- Target CEO explains Q4 earnings results, Q1 outlook – CNBC
- Target is raising its minimum wage as part of its latest barrage in the war for talent – Business Insider
- Retail’s Big Mistake: Slashing Payroll Cuts into Profits – Knowledge@Wharton
DISCUSSION QUESTIONS: Do you think that investments in people like the ones by Walmart and Target are translating into better business results? Is this part of a broader trend that will see retailers increase investments in people or is this more likely a correction from many years of cutting employee investments to the bone?