WorkZone: Retailers make more by paying their workers better, researcher says

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Can companies make money by hiring more people and paying them more money?

Zeynep Ton, a professor at Massachusetts Institute of Technology and the author of “The Good Jobs Strategy,” was studying industrial logistics when she realized there is a subset of retailers that turn conventional business practices on their head.

The typical practice in U.S. retail management is to view the people who work at the stores as a cost, so companies hire and schedule the fewest people they can get away with and pay them as little as possible, scheduling workers to few enough hours so as not to have to offer benefits.

That often translates to shoppers having little help finding items, long checkout lines and merchandise that has been misplaced and cannot be found to be sold.

The phenomenon called “phantom stock outs,” a phrase for what happens when the item is in inventory but no one can find it, is what initially interested Ms. Ton.

Say a sporting goods store inventory system says a boy’s winter coat is in stock, but no one can find it. The staff calls another store, 40 minutes away, where the inventory system shows there is another one in stock. However, when the shopper gets there, that coat cannot be found.

For retailers, according to Ms. Ton, it’s a vicious cycle.

In the book, she show how low labor budgets lead to “low quality and/or quantity of labor,” which leads to “poor operational execution” and then to “low store sales and profits.” Seeing those lower sales, the management cuts labor costs again, leading to worse service … and the cycle continues.

Ms. Ton did not research winter coats; instead, she used the example of toothpaste. A customer walks into a store looking for a specific toothpaste that is not in stock. In the typical store, no workers would approach the now bewildered shopper who would just leave. But, in a well-staffed store, a worker would approach the shopper and offer an alternative toothpaste.

To be able to do that, stores have to hire more people and pay them well enough to stick around.

An example of a company that uses that strategy, Ms. Ton said, is Oklahoma-based QuikTrip, the convenience store chain with low employee turnover that has been on Fortune Magazine’s list of best employers since 2003.

Entry-level assistant managers are paid about $40,000. All employees receive a Christmas bonus, tuition reimbursement and free fountain drinks or coffee when they are working.

While the company is privately owned, Ms. Ton noted in her book that sales at QuikTrip are 50 percent higher per square foot of retail space than the average for convenience stores overall.

Costco, a public company, is easier to quantify. With good pay and benefits and low employee turnover, the chain is a leader in the warehouse club niche and its stock has tripled in the last decade while Walmart’s stock, where employees are paid much less, has risen by 40 percent.

Ann Belser: or 412-263-1699.

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