Photo: Walmart
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
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?
Poll
BrainTrust
Georganne Bender
Principal, KIZER & BENDER Speaking
Meaghan Brophy
Senior Retail Writer
Absolutely, and here is the physical retail trend: Stores shrinking in physical size, receiving fewer customers, with teams doing significantly more “tasks” beyond selling and serving. This requires a total refresh on the role of front-line workers, and the development opportunities to support them in this new reality. Learning and development isn’t the silver bullet, but its a significant piece when its impact is isolated along with other drivers.
It’s frightening that in 2019 we’re reading statements like, “Some retailers are starting to talk about making investments in employees – front line employees in particular.”
Every article written about retail talks up the in-store experience. I don’t care how cool your technology is, without a well trained and personable front line team, you are just another store. The thrill of tech wears off, but the desire for good customer service does not.
Retailers have spent years trying to cost-cut their way to profitability. As usual, the pendulum was pushed too far. “Right-sizing” now means staffing up, not down. Surgically for sure. Tech-enabled when possible. But retailers now know that when sorting through the knowns and unknowns of shopping and buying, human interaction is a big value adding plus.
It’s very difficult to tease out and tie a specific cause to short term financial results. But I view the rising investments in people as an absolute requirement for the success of any strategy and its execution. In many ways technology is available to industry participants, however, differentiation comes from how you select and combine that technology and put it in the hands of your employees (at headquarters and in-store) and in customer facing interactions. As long as shopping is predominantly done by humans rather than bots, companies will need to invest in people to enrich those moments of impact that connect a transaction to a long-term relationship.
This all depends on the retailer’s business model. A discounter will look at it differently than a full assortment retailer. In the age of continuous so-called digital disruption, I am sure that well-trained staff will make a big difference. As a retailer you need to differentiate. Otherwise it will all be on price and the price leader will get the biggest part of the pie. Associate training means a lot of investment but in the long run it will pay off. Look at the Apple associates — how well trained, service-oriented and knowledgable they are. You just need to pass by an Apple store and you see how many customers line up to search for competent advice.
In brick-and-mortar retail, people are the brand. A retailer can shout about service all they want, but if the people do not deliver that service, then the brand suffers. So it makes all the sense in the world to hire the right people, invest in those people and make sure everyone knows what the brand stands for.
Technology can create efficiencies throughout the supply chain, but technology cannot adequately replace the need for well-trained staff to take care of the customers.
I am certain some retailers will make corrections and cut staff to the bone in an effort to improve the bottom line. But they will suffer in the long run. There are far too many examples of labor reductions causing short and long term increases in costs and loss of sales.
It’s about time retailers start giving more credit to their people investments – even when those investments are for technology, it’s the people that produce the result, not the technology. Target and Walmart are not alone in this investment. It’s been well documented that other brands who invest in their front line store associates see the benefits to their bottom line, Costco comes to mind. I had a retail CIO last year tell me that every $1 they invest in associate enablement is worth $100 of customer-facing technology investment. Why? Because they saw the results in their sales numbers right away from the store associate investment. This shouldn’t be a technology vs. people – the technology complements a well-trained team of associates. When technology is deployed, it also needs the right investment to ensure it’s done in a way that’s reliable and consistent – if it doesn’t perform as expected every single time your associates stop using it and the benefits are never realized.
Yes! Retail tech doesn’t exist in its own ecosystem. It is implemented, maintained, leveraged, evaluated and taken action on by people who are motivated and curious enough to do so.
Hear! Hear! Well said Ricardo – this is not tech vs. people but tech and people.
I’d say this is a no-brainer. Happy employees = happy customers. Just look at Costco. They’ve been investing in employees for years and it’s clearly paid off. For companies who have neglected this for too long, it will take time to see a difference. Investing in front-line employees is not just a matter of pay, but a matter of your entire business culture, which won’t change overnight.
If the speakers and vendors at Shoptalk earlier this month are any indication, this is a very hot space. Jim Donald, CEO of Albertsons, said; “The most important element of a successful retailer is the employees. Next is the customer. Then comes the investors and the management.” Several others shared similar sentiments and the expo floor had more than a dozen vendors eager to help retailers engage their staff members.
The main advantage a store has is its people. Provide enough staff and make sure they are well trained, and you WILL increase your sales. It’s that simple. Both Walmart and Target recognize that which is why they continue to invest in store personnel and why they also continue to see positive results. What is sad today is that too many executive leaders have become more interested in short-term results rather than long-term growth. They choose to cut expense which almost always involves store personnel. Cutting people saves money, and the damage isn’t seen immediately so these executives can play the game of short-term success not from increasing sales but by showing less cost.
This practice allows the executives to get their bonus and go on to the next day. Because too many executives today are only in it for the short-term, by the time the damage is seen from cutting store personnel, they’re off to their next job. It just doesn’t work, and I hope that smarter leaders are becoming aware of this failed strategy. The adage, you have to spend money to make money is the strategy here. Invest in-store associates, make sure you have enough people covering the floor. Train them and give them the tools they need to “wow” the customers and watch as your sales grow, grow and grow!
No mystery here. If you feel great about your employer, it will show to your customers.
Every year, the Store Operations Council discusses the critical role that store associates play in modern retail. Today’s associates need to be better educated, more bought-in, and better informed than the associates of 15 years ago. Retailers who haven’t gotten the memo should start talking with other companies to learn about their success stories.
Employers who actively try to foster environments where employees are empowered with the autonomy to be human with their customers will come out ahead. It’s not always about having the best price or product, but having the most compelling experience overall – and employees are a major linchpin for that.
The key is to invest both in people and in the right technology. The retailers that are doing that are the ones that are setting themselves up for success. Cutting store staff to the bone (or waiting for robots to replace them) is a failed strategy. Some retailers have recognized that their people are the critical link between the customer and the digital experience and are making that the focus of their digital transformation efforts.
An overdue correction indeed. I met a retailer this week who had recently cut their entire staff and was relying on unpaid labor from family members to keep the lights on. They blamed everyone (especially the government) but themselves, and believed their employees should have felt “lucky” to be making $7 an hour. They couldn’t fathom paying them more. They also had no long-term plan for turning the ship around. It was a sobering interaction. Not prioritizing fair pay is damaging, to your brand, to your customer loyalty, and to your longevity. It’s simply table stakes.
Agreed. When there’s high employee turnover, customers absolutely notice and it reflects negatively on the retailer’s brand and their management.
You would think this is especially important for independent retailers and SMBs given the personal relationship between associates and shopper is such a differentiator for these stores!
Pretty much all great points made above this. Having been in the retail staff training business for the past 30 years, I’ve been on the inside of this discussion for a long time. The good news: there’s no longer much need to have to sell a retailer on the importance of training their teams. The bad news: far too many still don’t make the investments needed.
The proof is in the pudding for those that make the investments in their people. Average basket size goes up. Conversion rates increase. Sales jump up. Staff turnover goes down. CSI goes way up.
Invest in tech all you want … but don’t forget that retail is a people business.
For even the least likely retailers interested in supporting employees, labor remains the #1 cost across the board. Add to that the cost of employee turnover, it’s financially negligent to avoid investing in staff. If I had $100 to invest in my car, I’d put that money into tuning up the engine, not shiny chrome bumpers. It’s not just cost savings. Smart retailers are finding ways to hold onto their best employees and invest in their future growth. Even when the car is humming nicely, I’d still invest in the engine tune up over car detailing to make sure I can continue driving it.
Retailers absolutely should be investing in people. When it comes to the experience of visiting the store, it’s often the staff that make or break it. Even an annoying development like the item you want being out of stock can be turned into a good experience if you’ve got a member of staff who can help you by ordering it for delivery to your home or from another store, etc.
The more valued staff feel the better they perform and the longer they stay. Retailers should be thinking about their investments in a holistic fashion, e.g. “what tech could we incorporate that would help staff do their job better?” rather than investing in one area to the detriment of others.
Well-trained and emotionally intelligent frontline employees are retailers’ frontline against commoditization and competition. That frontline extends not only to stores, but also to online customer experience associates. At Caravel, we actually leverage the paradigm of expert associates as the model and inspiration for our conversational AI. Any digital or automated interaction with customers should be inspired by the stellar employees forging emotional relationships with your customers.
We have a saying that we repeat to retailers often: “Your front line is your bottom line.” Certainly untrained associates can derail the best intentions of management. Often we hear, “Why spend time and money training them when they will leave for 25 cents?” Our response is always, “What if you decide to not train them and they stay?” I think targeted training will grow quickly as retailers see the results of customer satisfaction in our competitive, and at times, impersonal retail environment.
Investing in people is definitely the right thing to do. Retailers are under tremendous pressure to deliver exceptional customer experiences. Sure it can mean being creative and innovative with technology and store design, but that will only go so far if the people doing work in the stores are not highly engaged and motivated. From the recruiting process to day-to-day work, retailers should treat workers like they are their most important asset.