shopkeeper

The only way for retail to survive is to increase pay and decrease inventory

January 15, 2014
January 15, 2014

While retail work is the world’s largest employer, and one with more than 1.3 million in the United States alone, it’s an industry riddled with crummy jobs—low-pay, part-time, ever-changing schedules. As a result of poor service and extremely high turnover, managers, workers, and customers end up miserable.

But it doesn’t have to be that way, argues MIT adjunct associate professor of operations Zeynep Ton in her new book, The Good Jobs Strategy. Ton has spent 10 years researching how retailers can reverse this trend, to the benefit of all concerned.

Ton writes: “In service industries, succeeding at the expense of employees and customers often go together. That’s why our experiences with restaurants, airlines, hotels, hospitals, call centers and retail stores are often disappointing, frustrating and needlessly time-consuming.”

We talked to Ton about her findings and her unusual conviction that it’s time for a radical change in how service workers are treated. Below is our conversation, edited for style and clarity.  

Q: Where did you get the idea for this book?

Zeynep Ton: It came together when I realized there is a “vicious cycle” where retailers are not investing in their people, even when they were having operational problems and low sales as a result of their current strategy.

I first went to study the Spanish grocery store chain Mercadona. They had low prices but were also offering their employees good jobs and their company had a great performance.  They were essentially forced into changing their management style when major competitors like Carrefour came to Spain in 1993. CEO Juan Roig created nine principles, one of which treats employees as experts that customers can reliably turn to for advice and recommendations. In addition to offering high pay—twice that of Spain’s minimum wage, €14,693($20,088)/year for a full-time worker—the company empowers employees and reduced its inventory, allowing its staff to know their merchandise and sell it much more effectively. The next example couldn’t be more different—QuikTrip, based in Tulsa, Oklahoma, but what they were doing was similar. That really excited me since there’s a great audience for this sort of data. Others can do this as well. When retailers choose to hire carefully—QuikTrip interviews five people for every job opening—it shows in the company’s financial  performance. QuikTrip’s turnover rate is also a mere 13% among full-time staff, substantially lower than the 59% rate in the top quartile of the convenience store industry.

Q: Isn’t your argument counter-intuitive in an era when so many people are desperate for a job, any job?

ZT: What’s sad is that retail is not the only industry to behave this way. Too many employers treat labor as just a cost to minimize. But when you have unhappy staff and customers, over and over, they manage to convince themselves this is still the way to do it. I think we have to change our mindset—and stick to it.

Q: What do you think will change this attitude that low-wage workers are dispensable?

ZT: What we need now are leaders with the commitment to investing in their employees. The four companies I profile in my book—QuikTrip, Mercadona, Costco, and Trader Joes pay their people better than average but are still able to please customers, employees, and investors at the same time.

Q: Is there a specific set of principles these retailers have adopted?

ZT: Four things are essential:

You must offer fewer products. By having a smaller number of items in the store, your staff will know the products well enough to fully engage with customers and offer them excellent service.

Combining standardization and empowerment allows operations to run smoothly while allowing staff to feel they have a say in how the store is run. QuikTrip allows staffers to decide how much inventory the story should carry each day to how to handle customer complaints. The company has made Fortune’s “100 Best Companies to Work For” for 11 years in a row.

Cross-training staff insures that everyone is busy and productive, not waiting for a specialist to arrive for their shift or scrambling when someone is out sick. While many retailers practice “chase strategy,” scheduling their staff at the last minute, we often see high turnover, absenteeism, and tardiness. When staff are able to perform a wide variety of tasks, their time is better spent.

Operate with slack. Many retailers simply don’t have enough staff working in their stores. Then when someone calls out sick, the existing staff are over-burdened taking on those tasks as well. Hiring and paying additional staff far in advance, even using them as floaters (sending them into whichever store needs additional help) is the solution. Some retailers see these staffers the way we view substitute teachers or back-up pilots—as an essential part of their business. Instead of complaining about the cost, they ask, “How can I afford not to do this?”

When I went into stores and interviewed workers, I heard over and over: “We don’t have enough time to do our jobs. We don’t have the right equipment.” They’re understaffed all the time. It’s the whole mindset of treating your employees like they matter—and they do matter!

Q: What’s in it for the employer? This might make workers happier, but how will it improve my business or profit margins?

ZT: The retailers I spoke to set very high standards for their people—and people love high standards. That surprised me. But people love it when they are set up for success. It has to come from the top. It’s how you manage the entire organization. If sales are your only metric, then store managers will achieve that at any cost, no matter the effect on employees. These retailers also have much lower employee turnover. Mercadona has less than 4% and I spoke to employees who had been there 10, 12 even 14 years. People just don’t leave!

Q: How can others apply the Good Jobs Strategy to their own business?

ZT: Hire very carefully. QuikTrip has the very best hiring practices I’ve seen. They have every employee take a math test so they’re not just relying on the computer but can even beat it, so they have the right change ready in their hands.

This is not a quick fix or just a nice way to behave. It’s a deliberate, long-term sustainable strategy. It’s not easy. It requires long-term focus.

We welcome your comments at ideas@qz.com

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