Having lots of well-paid staff around is good for retail profits

Why "Good Jobs" Are Good for Retailers, a Harvard Business Review study by MIT's Zeynep Ton, argues that the success of retailers like Uniqlo and Trader Joe's can be attributed, in part, to maintaining high levels of well-paid staff. This runs contrary to contemporary retail wisdom, which has relentlessly focused on cutting staff levels to the bare minimum. Ton's research shows that having lots of well-paid staff around increases how much customers spend, bringing in enough money to cover wages and turn a profit besides. I think this is likely especially true in the Internet age: no retailer will be able to match the self-serve convenience of Amazon, so to compete with Amazon, they need to provide something Amazon can't match: personal service.

James Surowiecki comments in The New Yorker:

The big challenge for any retailer is to make sure that the people coming into the store actually buy stuff, and research suggests that not scrimping on payroll is crucial. In a study published at the Wharton School, Marshall Fisher, Jayanth Krishnan, and Serguei Netessine looked at detailed sales data from a retailer with more than five hundred stores, and found that every dollar in additional payroll led to somewhere between four and twenty-eight dollars in new sales. Stores that were understaffed to begin with benefitted more, stores that were close to fully staffed benefitted less, but, in all cases, spending more on workers led to higher sales. A study last year of a big apparel chain found that increasing the number of people working in stores led to a significant increase in sales at those stores.

The reasons for this aren’t hard to divine. As Fisher, Krishnan, and Netessine show, customers’ needs are pretty simple: they want to be able to find products, and helpful salespeople, easily; and they want to avoid long checkout lines. For a well-staffed store, that’s no problem, but if you don’t have enough people on the floor, or if they aren’t well trained, customers can easily lose patience. One of the biggest problems retailers have is what is called a “phantom stock-out.” That’s when a product is in the store but can’t be found. Worker-friendly retailers with more employees have fewer phantom stock-outs, which leads to more sales. And happy workers tend to stick around, which saves the costs associated with employee turnover, like hiring and training...

If investing in employees yields such big dividends, why don’t more retailers do it? Partly, it’s a matter of incentives: store managers are typically evaluated on their payroll costs. Moreover, the benefits of keeping payroll costs low are immediate and easy to see, whereas the benefits of hiring more people are long-term and harder to track. On top of this, keeping a large staff runs counter to one of the most important trends in retail: making customers do more of the work. We’re all familiar with the phenomenon of outsourcing work to foreign companies. But there’s also been a great deal of outsourcing work to customers. Often enough, this is a good thing: the self-service layout of a modern supermarket offers more freedom than an old-fashioned grocery counter, where you have to ask for things. It seems easier to pump your own gas at a gas station than to wait for an attendant, and people are increasingly happy to use a self-service kiosk at an airport instead of standing in line for a check-in agent. But you can only outsource so much work before alienating your customers. And in retail stinting on employees doesn’t actually save you money. It just gets you less for less.

How Hiring Makes Uniqlo a Successful Retailer : The New Yorker: (via Kottke)

• [Todd Bradley]

  Not surprising, when you think of companies like Neiman Marcus.  Counterexample: Wal-Mart.

  It would be an interesting experiment, though, to take a random Wal-Mart and double its personnel budget.  Make it a priority to hire better-qualified employees, give them better training and benefits, and pay them enough to keep them on staff for 5 to 7 years each (instead of turning over in 10 months).  I wonder what would happen.

  • [Antinous / Moderator]

    I loved shopping at Neiman Marcus.  Their salespeople would walk over,  introduce themselves and say, “I’ll be over there if you need any assistance.”  So different than being chased around by someone trying to give you a makeover that you don’t want so that they can make a commission.

    • [penguinchris]

      When I first got used to this type of store, when I started checking out higher-end shops in Southern California mostly just out of curiosity (since I’m from a smallish town without that kind of store), I felt like I’d been hoodwinked my whole life. Why aren’t all stores like that? I still can’t quite understand why.

      On a different note I’m not sure Uniqlo as cited in the article is a great example. They’re better than most, and certainly have enough staff on hand, but I’ve gotten conflicting information from different people there and the way their merchandise works makes it difficult for the staff to keep up to date. It’s not as bad as, say, H&M, but available styles change very quickly at Uniqlo and really the only way the staff can help is by looking up inventory on the PDAs they have. The cute girls at the registers sometimes compliment me on my taste when looking at the things I’m buying, so that’s nice anyway :)

  • [msbpodcast]

    I loved shopping at Brook Brothers in NYC because they had people who knew what the were selling, where an item was or when it would be in stock and didn’t hover but kept in earshot so that help was aways available.

  • [Steve Pan]

     eh, Nieman is Nieman.

• [JProffitt71]

  Thank you, Zeynep Ton, for this timely and critical piece of research. Everything that shows the profits-over-people mentality fails to maintain either is vital to our immediate future.

• [beemoh]

  Alternative hypothesis: overstaffing your store leads to bored employees mithering customers for something to do.

  • [SoItBegins]

     Let’s focus on overstaffing when we’ve conquered understaffing.

    • [beemoh]

      Oh, I’m not saying that this overstaffing-based idea is a bad one, just that the reasons for its results might be simpler than the article suggests. :D

• [princessalex]

  I love shopping at Trader Joe’s.  And, despite their employees being paid more, I cut my regular grocery bill when I do my weekly shopping there.  It’s wonderful to recognize employees.  It makes it much more likely that I’ll ask where something is, or why they don’t have something on the shelf.  And, if I ask, I’m more likely to buy it.  But, THEN, they always have a personal story about how they’ve had this item prepared before and loved it.  Leading me to buy MORE items to make this recipe they just told me about.

  I’ve been shopping at the same TJ’s for so many years that everyone knows my two sons, and asks about them if I’m shopping alone.  One time, we were shopping there on my older son’s birthday, so the manager gave us a free pie, and announced over the store’s speaker system that they had a very important birthday to celebrate . . . and he lead the whole store in singing Happy Birthday to him.  That kind of personal customer service is why they’re paid more . . . and, why I continue to shop there.  Every single week.   :-)

• [Svenn Diagram]

  Sounds like a variation on Henry Ford’s dictum that  “There is one rule for the industrialist and that is: Make the best quality of goods possible at the lowest cost possible, paying the highest wages possible.”

  • [danimagoo]

    Henry Ford figured out a lot of things that corporation routinely forget, and then rediscover every few years and act like they’ve figured out something amazing. Then they forget it again.

• [Daemonworks]

  One major difference is that employees are treated as a valuable resource in Japan. They’re actually trained to be useful to the customers, rather than seen as entirely expendible.

• [anharmyenone]

  They should be evaluating managers based on the store’s NetPromoter score.  That’s the percentage of customers who rate the store 9 or better on a scale of 1 to 10. Studies show that customers who rate a business 9 or 10 out of 10 will recommend the business to other people. The percentage of customer surveys that are 9 or higher is the NetPromotor score. Having customers who recommend you to their friends is more valuable than any advertising and loyal happy customers are easier to serve efficiently and effectively and profitably.

• [improabllydrunk]

  I’ve been a retail manager for several years with the same company and one thing that has always pissed me off is that our corporate office has one single word on their lips, Labor. Their always so worried about overtime and using too much labor that they think its acceptable to run stores with minimum personal and then sit back and wonder why sales suck. They get stuck in this feedback loop of low sales cut labor low sales cut labor, so when you actually do have good sales  due to a great promotion or a holiday, you don’t have enough staff that is well trained and those customers don’t come back. I might sneak over to the corporate offices and wallpaper the place with this article!

  • [msbpodcast]

    Retail management is in a particularly hard place.

    Just ask corporate management where they shop and why they shop there?
    If they don’t go to their own stores, why should they expect that anybody else would?

• [Hollando]

  I worked at Home Depot for four years, during a time period when ( due to a turnover in upper management) they went from handling store staffing in the way recommended here– a lot of trained and helpful full time people, [ as in, every department had at least one person working during 9-5 who'd been a professional in that field-- master electrician, master plumber, etc.] to as few  employees as they though they could get away with, most of them hourly temps.
  What is described above is exactly happened.  Sales and service went to hell, as did morale.

  For various reasons I was setting my own schedule, not being assigned hours by HR, and at least once a week, I would be one of two or three employees on the floor in the entire store.
  Needless to say, any customer who needed assistance left in an angry hurry if they couldn’t find me, or if I couldn’t help them with their flooring/plumbing/blinds issue.  ( I was in electrical, primarily).  Every single customer would tell me how much they had used to love shopping there, because the staff were so helpful.  If I hadn’t been there, at least 4 -5 departments would have had no one on duty.

  But who wants to shop in a serve-yourself warehouse?  Painfully few people.
  Loews came along and started to eat HD’s lunch.

• [MrEricSir]

  Just like anything else, good customer service has to be bought. Many failed retailers seem to learn that one the hard way.

• [Hanglyman]

  Speaking as someone who was a good hard worker at a retail job and had his hours gradually cut back to nothing, I can also say that someone  who is paid well and has lots of coworkers has much lower stress and is more likely to buy things elsewhere. If every business has as few employees as possible at the lowest possible wage, guess what? Fewer people in stores overall, spending less. Also, having an entire grocery store-sized building staffed by as little as two people is not a good way to get customers to come back. No matter how much they’re spending, they don’t want to wait in line for 20 minutes.

• [Roy Trumbull]

  I go back to when there were an adequate number of sales people and they actually knew something about the products in their department. They didn’t cost their company a lot of money either. The sales staff cut deals with manufacturers. Someone wasn’t sure what brand they wanted. Thanks to “push money” the salesman made suggestions. Buy some shoes? Do you need a fresh can of polish? Each can sold earned a SPIF (special product incentive fee).
  Some of this goes on today in consumer electronics. Both satellite TV and satellite radio use push money to get signups.

  • [koanhead]

     I always wondered what “spiffs” were in the context of sales. Thank you, Mr. Trumbull, for enlightening me!

• [Andrea]

  The “cutting payroll” strategy was one of the mistakes that Borders made as it was going down. With the absolutely massive variety of books available, what can a brick-and-mortar store offer over Amazon? Bookloving employees who have the time to listen to what you’re looking for, ask some intelligent questions, and then help you find the right books. But payroll just shrank and shrank, and staff got thinner and thinner, and one of the reasons I left (five years before the bankruptcy) was because the job I loved so much just wasn’t paying the bills.

  It wasn’t their only problem, but it sure didn’t help.

• [retepslluerb]

  I don’t think that Amazon’s self serve at all.   The only thing they can’t do is help me with a vaguely defined goal or need like “I want to get to the Internet” an educated sales assistant could help me with.

  But the majority of sales are of the “I want product X/gadget Y”.

  Yes, I have to do the search myself, but Amazon’s programmers and database herders do a good job to show  it to me.

  They made it possible for other customers to comment on the products.

  When I made my decision, someone will run and get it, someone else will pack it and a couple of more people will hand each other the package until my doorbell rings. 

  • [LaylaSV]

    I would also say that Amazon’s customer service is off the chain, frustration free packaging is awesome and the buyer reviews work better than the old method – a recommendation from an educated employee at a brick and mortar store. 

    I understand the advantages of shopping locally but the experience has become so miserable, who would want to?  Online retailers like Amazon or Zappos have been so quick to innovate and incorporate customer feedback. Their big box compatriots, on the other hand, are responding to the lost market share by systematically dismantling any theoretical advantage they had over their virtual competitors. Where they could have capitalized on the social, real world interaction and immediately available merchandise, instead, they opted to slash their main advantage, actual people, leaving customers to wander around horrifically ugly, cavernous environments in search of merchandise they can’t find.

    • [retepslluerb]

      Oh, I still shop locally, where and when it makes sense. As we buy mostly fresh foods, delivery services don’t make that much sense. And there are still some specialists who give way better counsel than the combined wisdom of the masses. And if they ask for a little more, I pay that – gladly.

• [msbpodcast]

  I once told my wife who was complaining about the lousy (execrable really) service we were getting at a discount store in NYC, that the difference was between shopping at a discount store and shopping at a high-end store wasn’t just the price (which was considerable) but the fact that the high-end stores actually had well-paid staff, not a bunch of ignorant kids getting minimum wage, who would just stand there and watch you bleed out and hope one of the other customers would get you some help, ’cause they weren’t getting involved.

  The high-end stores cost more but you get service while you’re there.

• [Uncle Geo]

  The flip side, for more complex or more expensive products anyway, is when buyers go to a well staffed store with knowledgeable people who help them figure out what they need to buy -and then buy it online. 

• [BadIdeaSociety]

  A lot of “Phantom Stock” issues in department stores like Wal Mart, Target, K Mart, Meijer, etc are because toy collectors and gamers have a tendency to stash products under shelving units and endcaps. I understand that having better-paid workers will help prevent a lot of missing or mis-counted product-related issues, but it is difficult to eliminate the selfish collectors who shove their products inside of other products or under shelves to keep the product from being sold until their payday.

  • [Peter]

     These stashing collectors are greatly outnumbered by the seething hordes of people who pick things up and shove them in random places for no good reason. If you’ve ever asked someone to help you find something at a bookstore and they seemed completely unable to find it while knowing it was in stock? This is why. People just shove things wherever the hell they feel like.It’s why you have staff clean and merchandise the store on a daily basis. The problem is when you have insufficient, unmotivated, and poorly trained staff it barely matters that you have them do it because they’re very nearly as bad as the customers.

  • [Antinous / Moderator]

    We used to do that at Filene’s Basement. Prices were cut in half every week, so you’d take the item that you wanted, stick it inside the ugliest winter coat you could find and come back on the day that it would be down to 1/8.

    • [penguinchris]

      I think discount stores like that are different though. It’s always a big game in those to get the best stuff at the lowest price, and everyone who regularly shops there – and the staff – knows it. And even regular shoppers at that kind of place are annoyed when something at a regular store can’t be found.

      I used to go to Nordstrom Rack in Costa Mesa a couple times a week to look for stuff… I’d only actually buy something maybe once a month (unless it was under $10 or so) and yeah I would hide things :)

      • [Antinous / Moderator]

        In my case, I was just living on $50 a month.

• [Cowicide]

  Does this explain why Best Buy may go out of business?

  • [IronEdithKidd]

    Cutting staff is just one of the many capitalist maladies afflicting Worst Buy. 

• [Ladyfingers]

  Commission, as lucrative as it is for employees, results in poor service as the staff get greedy and push high-margin goods over customer-suitable goods.  I took my friend to a shop where they tried to push a $60 HDMI cable on him after selling him a $100 DVD player.  When I scoffed, the sales dude said that cheap cables can overheat.

  I wanted to punch him.

• [onepieceman]

  “If investing in employees yields such big dividends, why don’t more retailers do it?”

  That’s what I was thinking, and the answers given don’t seem at all persuasive. It would surely be an easy thing to run a pilot in one or more stores, watch sales shoot up, and roll out? Something tells me there is more to this than the article suggests…