Karl Lacson counts himself among the lucky ones. After graduating from university with a degree in digital art, he spent time unemployed before deciding a career in retail could offer a brighter future. The 28-year-old toured stores in London’s Westfield (Europe’s largest mall) with his résumé last year, and within two days was attending an interview with Calvin Klein Jeans; today, he is a Supervisor with the company, and satisfied with his lot.
“I enjoy the face-to-face interaction with customers,” he says. “I enjoy giving good customer service, and being thanked when that service is appreciated. I’m well aware of the current economic situation and how difficult it is to get a job. I hear it a lot from friends and family.”
“The biggest mistake I see people make is to cut from the shop floor when things start going wrong”
Eric Ropert, Head of Consumer Markets, KPMG in France
But despite the gloomy financials emanating from the retail sector, Lacson’s case isn’t that unusual. In fact, many of the retailers bucking the trend in 2012 have one thing in common: they’ve consistently hired, and invested in, staff.
The idea is catching on. Anecdotal evidence says retail’s staff-to-customer ratio may be plateauing after years of attrition – almost 51,000 US retail employees were made redundant in 2011, up from 38,751 in 2010 and beaten only by government and finance. And recent research points to the power of customer service in gaining market share.
All of which turns one of retail’s long-established rules – in times of hardship, cut fast and cut deep – on its head. Conventional thinking is that people are the biggest expense most companies have (particularly when you factor in benefits that add 30-50% to the average paycheck) and that choosing part-timers over full-timers, minimizing remuneration or simply shedding them is the best way to address the problem.
“A lot of retailers see labor as a cost to be minimized,” says Zeynep Ton, MIT Sloan School of Management Professor specializing in retail operation. “When retailers are under pressure, there’s not much they can do about the price of retail estate or the cost of merchandise, but cutting labor is so immediate. You see the effect right away.”
“The biggest mistake that clients could make is that when something goes wrong, their first step is to cut staff on the shop floor,” says Eric Ropert, Head of Consumer Markets at KPMG in France. “They cut rapidly and don’t take necessary time to understand the reason for their problems.”
Many big-name retailers have fallen foul of this thinking, as creditors and bankers demand cuts to the cash flow when times get hard. When a struggling home improvement retailer’s new CEO was tasked with reducing costs and boosting profit in 2000, jobs were slashed. In the short-term, the tactic achieved its aim, but the store’s famous customer service was ruined. In 2005, it came last in a respected US customer satisfaction index and its share price dropped 8%. “The simple fact is that retail is a labor-intensive business,” says retail historian and author Robert Spector. “You have to have people there to take care of customers.”
What’s more, there is evidence that investing in staff actively pays off. Research by Marshall Fisher, Serguei Netessine and Jayanth Krishnan at The Wharton School found that for every US$1 increase in payroll, the average store could see an uplift of US$24-$28 in monthly sales. And some of today’s most successful retailers have spent the last few years defiantly investing in their staff rather than slashing and burning.
Uniqlo’s focus on high quality customer service – its new flagship Manhattan store has 520 floor staff, many of whom speak at least two languages – has helped it become the world’s third largest apparel retailer with projected 2012 revenue of US$10bn (see below). Sportswear giant Footlocker effected a major turnaround by employing 540 more store staff, adding up to 39,700 employees globally, when sales were suffering. It is now a retail poster child, anticipating US$6bn in annual sales by 2013, up almost 19% on 2010 figures.
When MIT’s Ton studied four retailers who invest in people (Mercadona, Spain’s largest supermarket chain, US grocery retailers QuikTrip and Trader Joe’s, and wholesale retailer Costco), she found they were all more successful than their direct competitors. At Costco – where internal promotion is the norm and employees earn about 40% more than at other local retailers – sales per employee are almost double that of its largest rival: US$986 per square foot compared to US$588. At Mercadona, where every new employee receives four weeks of training, sales per staff member are 18% higher than other Spanish supermarkets and 46% above those of an average US supermarket.
But KPMG’s Ropert says companies shouldn’t just focus on how much money having more people might bring in. “Finance is not the main criteria by which to measure it,” he says. “The important thing is the quality of customer service.”
It’s a view that Paolo de Cesare, president of luxury French retailer Printemps, agrees with. “Our culture is based on the quality of service to our customers. We enforce that with rewards, measures and training: we have a Printemps Academy where staff learn the skills they need to deal with customers face-to-face.”
Printemps has also carried out extensive customer research to help staff understand the types of consumers who may visit the stores, from loyal regulars to international visitors. “We have created a lot of new roles to best serve these different types of customer,” says de Cesare.
One of the most powerful arguments for keeping hold of staff (and, just as importantly, training and incentivizing them) is to help stave off competition from the ultra-lean internet. “‘Show-rooming’ [where customers view products in store, then buy them cheaper online] is a risk retailers are facing,” says Spector. Ropert says: “It’s fundamental to have shop assistants who not only have a good knowledge of products but can also convert that into sales.”
According to Ton, alongside training and customer insight, success often comes down to the “not very sexy subject of operations … It’s not just that the best performers invest in people, they continually create operations that allow their employees to be more productive, reduce costs and be at the centre of their success. Such retailers are excellent operators. Successful companies have standardized all store tasks. They know how long each task takes and how much traffic they get in a typical day. They cross-train employees so they can shift from task to task.”
These principles can be successfully applied to other customer-facing industries, such as hospitality. At Japanese restaurant chain Matsuya, every movement required by staff is carefully calculated and reflected in the layout of the kitchen and front of house, maximizing efficiency. US company Darden Restaurants, owner of the Olive Garden brand, uses proprietary Meal Pacing technology to ensure efficient service and invests heavily in staff. Eleven times a year, the company sends 14 specially chosen Olive Garden employees on a trip to Tuscany, Italy, where they spend a week learning Italian cooking techniques. Since 1999, about 850 employees have attended the overseas training, and 80% of them are still with the company.
Ultimately, as Ropert says: “Everything should be organized around the customer.” As most customers want knowledgeable staff available to listen to their problems, offer solutions and take their money, investing in people should be a no-brainer. “Companies that do it right, the last place they will cut is the sales floor,” says Spector. “After all, retail has always been a people experience. Consumers visit retailers to get that human touch.”
Tadashi Yanai, founder and President of Japanese clothing behemoth Fast Retailing, likes to think big. By 2020, he says, his will be the largest apparel retailer in the world – and people are at the heart of his plans.
Known for its iconic Uniqlo brand, Fast Retailing has hired its way through a global recession and boasts one of the highest employees-to-customers ratios in its market. It expects record financials in 2012 to be its reward, with a 38.7% rise in first-half profits already unveiled.
“Staff are key to our business,” says Lynda Tyler, Senior Vice President – Human Resources. “We aim to delight our customers by creating a shop floor and customer experience that generate excitement. We recruit people able to provide that service.”
Tyler points to the flexibility of the company’s global workforce. Alongside around 50,000 store staff, employees from regional headquarters are drafted into shops at busy times. Warehouse and logistics staff must also be able to handle customers. In Europe, Uniqlo is developing an internal training centre led by store managers and immerses promising employees in the business via a ‘Manager in Training’ program.
The payoff comes from staff who are finely attuned to feeding back on customers and products, rise rapidly through the ranks and stay longer. “A decreasing turnover rate is a good sign for the company: it means that our actions make people feel good and they are eager to build their career with us,” says Tyler.
It’s not plain sailing – in the US, the costs of expanding a people-driven business have slowed profitability. But Tyler remains a people evangelist: “The benefits may not be clear in the short term, but if you plan your programs appropriately, you will see them soon.”