Treasure Your Talented Employees

Researchers at Massachusetts Institute of Technology are bemoaning the profitability opportunities retailers miss when they shortchange staff on income, employee benefits, availability of full-time hours, predictable work schedules, in-service training, and opportunities for promotion. They build their case with examples from large retailers.

• At Costco, about 98% of store managers are promoted from within. Sales per employee are about $986 at Costco, while at Sam’s Club, where there is significantly less promotion from within, the figure is $588.
• At Trader Joe’s, full-time employees start at $40,000 or more per year. Sales per labor hour are more than 40% above that at an average grocery store, where starting salaries are about half as much.
• At Mercadona, which is Spain’s largest supermarket chain, workers are trained to perform a variety of tasks so that as customer traffic patterns change, the workers can be shifted to different tasks rather than being deprived of work hours. Mercadona’s sales per employee are 18% higher than those at other Spanish supermarkets.

     These productivity advantages of Costco, Trader Joe’s, and Mercadona are surely attributable to more than just their labor practices. In addition, you won’t keep getting more productivity as you keep on increasing expenditures on employees. Still, overall, the research indicates that for every $1 bump up in payroll, monthly sales climb between $4 and $28.
      All this is related to budgeting and benchmarking. Many small to midsize retailers fail to set a budget and track expenditures. Those that do budget often overlook benchmarking—comparing their division of expenditures with how best-practices retailers in similar businesses do the division. Without budgeting and benchmarking, your store might be slowly going out of business each day without you realizing it.
     However, there’s also a potential danger when you budget and benchmark: It’s tough to find the treasure chest of maximum profitability if you’re looking in the rearview mirror at the expense of looking through the front windshield. The MIT researchers saw this danger with retailers who set expenditures for employees as a percentage of sales. When sales drop, staff are paid less and there are fewer work hours for the next time period. The rear-view-mirror problem here is that the retailer is assuming sales won’t increase in the months ahead with staff dedicated to the store’s profitability.
     Treasure your talented employees so they’ll be around when those customers come in expecting to see a familiar face and hear a recollection of the customers’ shopping preferences.

For your profitability: Sell Well: What Really Moves Your Shoppers

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