Retail companies have typically responded to the economic recession by cutting staffing and training departments in order to keep prices low. But in an interesting new piece in the New Yorker, James Surowiecki argues that having more and better-trained workers is a smarter strategy for retailers.
The piece has ignited a flurry of debate and commentary online. The essential nugget from the piece states that:
“A recent Harvard Business Review study by Zeynep Ton, an M.I.T. professor, looked at four low-price retailers: Costco, Trader Joe’s, the convenience-store chain QuikTrip, and a Spanish supermarket chain called Mercadona. These companies have much higher labor costs than their competitors. They pay their employees more; they have more full-time workers and more salespeople on the floor; and they invest more in training them. (At QuikTrip, even part-time employees get forty hours of training.) Not surprisingly, these stores are better places to work. What’s more surprising is that they are more profitable than most of their competitors and have more sales per employee and per square foot.”
“The reasons for this aren’t hard to divine,” Surowiecki writes. “If you don’t have enough people on the floor, or if they aren’t well trained, customers can easily lose patience.” He concludes that “there’s a strong case to be made that corporate America’s fetish for cost-cutting has gone too far,” citing the troubles of Circuit City and Home Depot after rounds of layoffs and cost cutting to bolster his case.
Several others jumped into the debate as well. Freakonomics co-author Stephen Dubner used his blog to jump on the Surowiecki bandwagon, using the piece to talk about his own experiences at Whole Foods Market and Michaels supermarkets. At Whole Foods, Dubner says, “there are so many employee — who, it appears, are trained to physically escort you to an item if you can’t find it.” Michaels, on the other hand, always suffers from tremendously long lines that he he’s unwilling to wait in.
When he complained to the manager of his local Michaels in New York about the absurdly long checkout line, she explained that the store effectively had its hands tied by the dictates of distant management:
“The problem is rooted in Michaels’ corporate headquarters in Texas. She said that every store in the chain (there are more than 1,000) has a “payroll bucket” from which to pay cashiers and, if my memory serves me correctly, each store’s payroll bucket is based on the store’s square footage … The problem with this store, she said, is that it takes in a lot of money per square foot because this is Manhattan, where square feet are scarce but where customers aren’t.”
With customers being especially choosy about where they spend their limited dollars these days, it stands to reason that customer service — whether it’s simply having enough employees on-hand to deal with crowds, or having well-trained workers who can solve problems quickly — should play a big role in determining which retail operations survive and thrive, and which ones are left behind.
Does your company have policies in place to limit payroll and training costs? Perhaps it’s time to consider whether cost-cutting is in fact counter-productive.
Image used under Creative Commons by Flickr user Ed Yourdon.