Zeynep Ton

Author, Speaker & Adjunct Associate Professor at MIT Sloan School of Management

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Archives for December 2010

Christmas shopping and understaffed stores

December 24, 2010 by Zeynep Ton Leave a Comment

“Not all retail messes are created equal” reported WSJ yesterday.  The article describes the messy shelves and tables at a retail store and comments that this is probably the result of the retailer’s staffing cuts.  Long lines at the cash register, messy or empty shelves, and expired products still lingering on the shelves are all problems that we have learned to live with as customers in this country.  And as WSJ predicts, one reason why we have these problems is understaffed stores.
 
Let me start by saying that having just the right amount of staffing levels at all times is often very challenging in retailing especially during Christmas season.  There is a lot of variability in the demand for labor (customer traffic, promotions, etc.) and there is a lot of variability in the supply of labor (employee availability, absenteeism, etc.).  And having too many or too few employees are both expensive.  But what I have found in my research is that when faced with this challenge of matching labor supply with variable workload, many retailers err on the side of having too few employees.  So retailers are systematically understaffed.  Here’s why this happens:

For most retailers, store payroll is the highest operating expense. So retailers watch this expense very carefully.  There is constant pressure for store managers to reduce their payroll expense.  Many retailers I’ve worked with put great emphasis on managing payroll expenses in their store manager evaluations.  In addition, the cost of having too many employees is quantifiable and felt immediately while the cost of having too few employees is difficult to quantify and not immediately felt.  Messy shelves, expired products on the shelves, or long lines might not affect profits immediately, but they do in the longer term.  So if you were a store manager operating in this environment, what would you do?

What is interesting about understaffing is that retailers lose a lot of money because of it!  In a recent article, using four years of data from stores of a large retailer I find that increasing staffing levels can substantially increase profit margins.  I’ll write more about this article in a future post. 

As the WSJ reports, understaffing is a problem now because we live in difficult times.  But I have seen this problem for more than ten years.  In fact, the data I use in my paper come from 1999-2002.

Filed Under: Uncategorized Tagged With: low wage/supply chain labor, retail, understaffing

The low wage problem and retail

December 21, 2010 by Zeynep Ton Leave a Comment

Alan Blinder wrote a wonderful opinion piece in the Wall Street Journal the other day.  Among other things, he mentions the discrepancy between productivity and wages.  Since 1978, productivity in the nonfarm business has risen by 86% while real compensation per hour is up just 37%.  Is that fair, Blinder asks? 

Retail, which employs about 15 million people, is an industry for which the hourly wage is way below the national average.  According to BLS, in 2006 the average retail cashier made $8.62 per hour, less than half of the average of all industries, which was $20.27.  So if you are a full-time cashier and lucky enough to get 40 hours a week (more on this in a later post), every week, you make about $17,900 per year.  In many states this would be below poverty threshold for a family of four.

When you talk to retail executives, they often mention that they can’t pay employees more if they want to keep their low prices.  So in their mind, there is a clear trade-off between how much employees earn and how much consumers pay for goods.  But my research shows that this is not the case.  I have recently researched a Spanish supermarket chain, Mercadona (my case about Mercadona is available through Harvard Business School Publishing).  Mercadona not only pays its employees more than its competitors, but also provides lots of other benefits including job stability and internal promotion opportunities.  And just today, there was new evidence that Mercadona is the Wal-Mart of Spain when it comes to prices.  They have the lowest prices in Spain.  Period. 

For those who believe that low wages is a problem for this country, I encourage them to look into industries like retail, where companies can pay their employees higher without having to increase prices or having to decrease profits.  I’ll write more about how companies do this in future posts.

Filed Under: Uncategorized Tagged With: low wage/supply chain labor, retail

FedEx versus UPS

December 15, 2010 by Zeynep Ton 1 Comment

FedEx’s drivers are classified as independent contractors so FedEx doesn’t need to pay them benefits.   But many drivers claim that they are treated like employees so should get full benefits.  Well, it seems that their claim didn’t go very far.  Today, Bloomberg reported that “FedEx drivers were found by a judge to be independent contractors...”

This seems like a great win for FedEx; having independent contractors gives the company a huge cost advantage over their rival UPS, which gives full employment benefits to their drivers (who, by the way, are unionized).  But while UPS has high labor costs, it has amazing operations. They constantly improve their processes to make sure that their employees are as productive and as safe as possible.  They also manage their trucks in a way that minimizes fuel costs and hence their carbon footprint.  They are also known for outstanding customer service.

I wonder if the fact that UPS has to live with high employee costs make them innovate in ways that FedEx would not even dream of.

Filed Under: Uncategorized Tagged With: constraints, low wage/supply chain labor

A Beginning

December 13, 2010 by Zeynep Ton 2 Comments

I am writing this blog to start a conversation around several themes.  

The first theme is around my research interests in operations and labor management.  I have written extensively about retail operations and just started working on a book that argues for a better way for managing retail stores. 

The second theme is around community impact.  Through this blog, I want to start a conversation about what young leaders can do to maximize their impact on the world.  I am very proud of a new initiative we started at HBS this year. Both HARBUS and Harvard Crimson wrote about the initiative. 

The third theme is teaching. It is something I do with absolute joy. I am hoping to connect with educators on how to improve teaching and connect with my former and current students.

The final, and most important theme is family.  With two young children, I have the same challenges that many other working moms have.  So I look forward to sharing these and learning about yours!

Filed Under: Good Jobs Strategy

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