The New Economics of Retail Payroll

2015 WFI ChapterIntroThe following post was written by our board member, Mark Wales.  Mark has a long career in retail workforce management, and issues a strong call to action below about what it will take to deliver expected sales and profits in the retail environment of the future.  Spoiler: it’s about the people.

(“You better get your coat dear, it looks like rain”)

The world of retail is changing so rapidly that everyone is struggling to keep up with the implications of the pace of change. If you attended this year’s National Retail Federation annual conference in New York, a.k.a. Retail’s BIG Show, you will have seen that it was larger than ever with even greater selection of technology on show. It had a mesmerizing array of new technology that ranged from talking robots, interactive display with RFID, advanced predictive analytics and too many more technologies to mention.

It was very easy to get carried away with visions of the new order of things. Yet there was a strong current, almost an undercurrent, which was all about people. A number of speakers were attempting to direct the focus back to people. Why?

The stark reality is that retail today is not what it was even a year ago. Retail stores are no longer as profitable as everyone expects them to be and that creates a self-fulfilling prophecy. When financial times get tough, most executives turn to cutting what they think is the largest controllable cost: their retail payroll. This is bad news for anyone trying to fund staffing in stores to fuel long term growth (Shameless plug: I cover this topic and more at length in my chapter for The Workforce Institute’s latest book, It’s All About Bob(bie): Strategies for Winning With Your Employees, titled ‘Aligning Business Processes with Organizational Goals’).

Here’s what’s happening:

  • Bricks & mortar retailing is predicted to grow from $3.7 trillion to $7 trillion by 2024. You read that number correctly. Despite what many think, physical retailing is not going away.
  • Associates are key to bricks & mortar retailing as research indicates that a primary reason to go to the store is the experience of a highly engaged and informed sales associate. But that experience cuts both ways, as the primary reason for not going to the store is a bad experience with a sales associate.
  • Bricks & mortar retailing have rising costs and a 5 year trend of falling traffic:
    • Rising cost of labor due to changes in minimum wages and labor laws affecting retail staffing
    • Rising cost of labor due to higher consumer expectations, creating more complex transactions and requiring more intensive staffing in store to handle new technology, increases in SKUs and the ability to find and sell products from outside the store.
    • Technology costs are rising as new technology is deployed to deliver a compelling in-store experience.

So with rising store costs and falling traffic, how can stores realistically deliver year on year growth in sales and profitability? Something does not add up and many retail companies will fall back on the traditional method of reducing payroll as a controllable cost. This mentality leads to the self-fulfilling prophecy of failure.

Payroll is an investment, just like location or product. Smart retailers will be looking for the best return on their investment, and retailers who don’t invest will not have the same opportunities to drive growth and profitability. The old retail adage that it’s all about location is still true, but you also need the right people, in the right place, at the right time and with the right engagement to win in today’s retail.

Perhaps at NRF next year we’ll see the introduction of an Employee Engagement Council that recognizes that a fundamental foundation for the future of bricks and mortar retailing is the sales associate and they deserve greater attention at this major industry event.

 

 

One thought on “The New Economics of Retail Payroll

  1. That’s a good piece, and it certainly got me thinking.

    For me the most poignant point may be that unrealistic expectations are leading companies to taking actions that will make things even worse.

    Henry Mintzberg talks about “management by deeming”. If shareholders insist you increase profits 10% then the easiest thing to do is set a target for every store to increase profits by 10%–problem solved. However, if there is no reasonable way to achieve this then we seek unreasonable ways; such as replacing all the staff with robots. This just might work and we’ll hit our 10% target. More likely it will be a disaster and our profits will fall. Still that risk may seem to be the best choice when saying “I can keep profits steady” is not an option.

    In some ways the best approach is simply to say “Let’s use our best thinking and do some thoughtful experiments to find the best options.” The “best” may be a slight decrease in profits, a small increase, or even a big increase…we can’t know for sure and pretending we can achieve something we can’t is surely a worse strategy.

Please share your comments