low wage/supply chain labor

Crummy Retail Jobs Are a Corporate Choice, Not a Law of Nature

October 30, 2012 by Zeynep Ton 1 Comment

Right on the front page of Sunday’s New York Times there was a story about part-time work in retail. Steven Greenhouse, a Times reporter, and author of The Big Squeeze, highlighted the tough working conditions for part-time employees, especially their struggles with too few hours and ever-changing schedules.

As someone who has been studying retail for a while, I was not surprised by what I read. But looking through the readers’ comments, I saw that many were surprised and upset. Some likened the work conditions Greenhouse described to slavery and some blamed capitalism and greed for producing these bad jobs. But other readers pointed out that bad jobs are the price society pays for low prices. If companies were to pay more money to their employees or provide better working conditions, then the prices we all pay would have to go up.

For example, a reader from Manassas, VA wrote: ”If ‘we the people’ demand that companies such as Jamba Juice and Fresh and Easy (and Walmart) hire more full-time and near-full-time employees, we should not be surprised when the prices charged to us go up to cover additional employee costs. We have demanded lower and lower prices for years now. As a result, the working conditions at companies have been squeezed, the benefits packages have been nearly slimmed out of existence, and the hours allotted to each worker have been cut.”

The problem with this very common view is that it assumes that an employee working at a low-cost retailer can’t be any more productive than he or she currently is. It’s mindless work so it doesn’t matter who does it. If that were true, then it really wouldn’t make any sense to pay retail workers any more than the least you can get away with.

One reader from Austin, TX was angry enough to call for a boycott, but even he bought into the bad-jobs-for-low-prices assumption: “We have a civic responsibility to boycott establishments that abuse their workers in the name of efficiency, even though this will mean higher prices.”

But this assumption is plain wrong. Even low-cost retail work is not trivial and how you perform that work makes a big difference for the company’s bottom line. This is not just my opinion; there are successful low-cost retailers that prove it. These retailers invest in their employees and complement that investment with a particular set of operational decisions that I have identified. That way, their employees are more productive. Far from being a mere cost—a drag on profits—these well-paid employees, with all their expensive benefits and training, are seen as an asset—a generator of profits. These companies demonstrate that there is no need to choose between low prices and good jobs. It is possible (though nobody said it’s easy) to provide the lowest prices to customers and much better jobs for employees and great returns for shareholders, all at the same time.

Let me give an example that is related to part-time work. As Greenhouse’s article mentions, some retailers operate with 85% part-time workers. Their excuse is that they need that much “flexibility.” Sure, some flexibility is needed in retail. The nature of most service industries is that customer traffic varies greatly. Sometimes the store is crowded, sometimes not. But flexibility for 85% of the employees? That’s just ridiculous!

How do I know it’s ridiculous? Mercadona, Spain’s largest supermarket chain, offers the lowest prices in the country and it does so with over 85% of its employees full-time and even salaried, with very predictable schedules that are provided one month in advance. Yes, these are the same employees—cashiers, people bringing bananas out from the stockroom—that other companies need to be so “flexible” with.

Don’t Mercadona customers visit the stores at different times? Don’t the stores need flexibility? You bet they do. Go into a Mercadona store in the afternoon and it’s almost empty. It’s the siesta time, I guess. Go back in the evening and it’s full of people. But pretty much the same number of workers are there throughout the day.

How does Mercadona get away with this? It invested in its employees. Mercadona spends about €5,000 per new employee in a four-week training program which includes cross-training. So when traffic is high, employees help customers and when traffic is low, those same employees shelve goods and order merchandise. There’s always something productive to do and pretty much any employee has been trained to do it well. That’s Mercadona’s idea of flexibility.

And by the way, Mercadona doesn’t do this for charity. It’s highly profitable. At a time when Spain is struggling (to put it mildly), Mercadona is thriving!

So it’s not the need to offer low prices that produces the kind of job Steven Greenhouse describes in his article. It’s the choice made by companies to offer bad jobs. We should all be outraged to see so many companies making the choiceto rely on bad jobs. It’s the biggest waste in so many ways. It’s a waste of human talent and human dignity. It’s a waste of corporate profits and shareholder value. And it’s totally unnecessary. We all need to do our part to stop all this suffering. How? See my previous post.

Telling the Dalai Lama About Bad Jobs in Retail

October 20, 2012 by Zeynep Ton 1 Comment

Last week, I had the privilege of presenting my research to His Holiness the Dalai Lama. My presentation was part of a panel in which scholars talked about the world’s big problems. Each of us spoke about what research in our field said about one of those problems, including what we could do to improve the situation. Naturally, I talked about jobs—bad jobs.

How bad a problem is that? Here’s how I started:

We spend most of our waking hours either at work or thinking about our work. We are often defined by our work, identified by it. When our work gives us meaning and dignity, we feel fulfilled. We are happier. When we are happier, society is healthier. But according to the International Labor Organization, more than 900 million people in the world have jobs that do not provide a living wage, let alone dignity and meaning. They have bad jobs.

Then I went on to describe bad jobs in the retail industry in the U.S. I started with low wages. A typical full-time cashier or salesperson who works 40 hours a week—which is supposed to be the definition of a full-time job—does not earn enough money to take care of a family of four. If he or she is the sole breadwinner in the family, that family will be below the poverty threshold. And by the way, even so-called “full-time employees” in retail are not actually guaranteed 40 hours a week of work (and pay) because 94% of retailers consider anyone who works more than 32 hours to be a full-timer. So their income can vary by as much as eight hours of pay from week to week.

From work hours and pay, I moved on to work schedules. You might think that it doesn’t matter so much when the hours are as long as there are enough. If so, you haven’t worked in retail. Schedules can be all over the map; they change all the time and the workers only find out one or two weeks in advance.

I showed the Dalai Lama the schedule of a full-time employee I recently interviewed. Let’s call her Jane to protect her privacy. Jane is not even at the bottom of the heap; she’s a manager. She handles customer problems, equipment problems, and employee problems. But Jane is an hourly manager and her schedule looks different every single week.

Here’s what her schedule looked like for one particular week. You can see that, on Wednesday night, she worked from 5pm to 9pm, but the next morning, her shift began at 5am. She lives about an hour from the store, so that leaves her 6 hours to eat, sleep, get ready to go to work again. Not to mention details like trying to wind down from work so she can get to sleep. And she’s in her fifties. Imagine having a life or taking care of a young family when your schedule changes like this every single week!

The Dalai Lama doesn’t exactly work a 9-to-5 day, either, but I could tell that he was surprised and perhaps even upset. There were many problems that he probably already knew about coming into the panel. From the questions he asked, it was clear that he knew about climate change, hunger, and inequality in the world. But I think he was really surprised to see that jobs could look like this for millions of people, even in a developed country.

He told me, “There should be an organization to look after these workers.” He was thinking of unions. He’s right. It’s unreasonable for workers to be treated this way. It’s unreasonable for companies to operate this way, especially when we know that it is possible and highly profitable to operate differently (see my HBR piece on this).

I think we all need to do our part to take care of these workers. We all need to do our part to convince companies to operate differently. What can we do? Here’s what I told His Holiness:

At a minimum, we can do something as customers. When either of two stores or either of two restaurants has what you want at the price you want it, why not choose the one that treats its employees better? When customers care, companies may also start caring.

Our politicians can certainly play a role. When they speak about the need for more jobs, they can start mentioning not just more jobs in terms of quantity but also better jobs in terms of quality. We don’t just need more high-tech jobs and fewer retail jobs. We need more jobs of any kind, which pay a living wage and give a person a sense of doing something worth doing—which can easily be retail. Politicians can’t solve this problem themselves, but they can acknowledge it and encourage companies to offer better jobs.

Thought leaders like the Dalai Lama can play a role: They have a chance to communicate the message to business leaders, often with a lot of media and other people looking on. And if they want to know how companies can do better—if that’s really true or just wishful thinking—I am happy to send them my papers and case studies (and certainly my book to be published next fall!).

And professors, like me, who teach future managers, can play a role. In addition to teaching our students tools and techniques, we can start teaching them how to use those tools in a meaningful way. We can remind them that there are different ways to make money. Some ways are good just for companies and some ways are more sustainable in that they are good for companies, their employees, and society. We can encourage our students to take the better way and teach them how to get there.

We can all do our part so that there are more people in this world who feel the way Patty Donovan feels about her job. Patty works at QuikTrip and she’s proud to have me use her name and QuikTrip’s. QuikTrip is a big chain of convenience stores that have gas stations. Patty’s job includes, among other things, such seemingly unpleasant tasks as cleaning gas pumps and toilets. But she doesn’t see her job as a rotten job at all—not even as an okay job with some rotten parts. Like other QuikTrip employees I interviewed, she sees her job as something much bigger. Here’s what she told me:

“You’re working with 12 or 14 people . . . they go out and they touch 12 or 14 people . . . so I get to make a really big impact in so many people’s lives, just by trying to get them to see . . . what QT’s ending goal is and that’s for everybody to be successful, you know, and everybody to be happy. “

Patty finds meaning and dignity in her work and she is paid well, has good benefits, and doesn’t have to juggle a schedule that would drive anyone crazy.

Every person who wants to be a manager in a business has the power to ensure that people who work with him or her have dignity and meaning in their work, even if their job is to clean toilets. And that’s powerful. We can make a big difference in this world if we want to. And that would make our lives more meaningful and ourselves happier! As Patty herself said of her own job taking good care of customers and being taken good care of by her employer, “What else do you want in life?”

WalMart’s Greeters Swept Away in the Vicious Cycle of Retailing

February 11, 2012 by Zeynep Ton 2 Comments

In The Wal-Mart Way, former vice chairman and COO Don Soderquist makes a point of how important little things such as having greeters can be for customer service. “The Wal-Mart organizational culture begins with a positive can-do attitude,” he writes, “which welcomes our customers at the front door in the person of a greeter.” Indeed, it’s often the case that the greeter is the only WalMart employee customers actually talk to.

So it seemed ominous to me when WalMart recently decided to reassign the greeters to other tasks during the day shift and eliminate them altogether from the night shift. A lot of other industry observers also disapproved, predicting that WalMart was sacrificing the personalization of the customer experience and might also suffer from greater shrinkage. Some argued that greeters, who are often older employees, may not work out that well in other tasks.

I immediately suspected that the elimination of greeters is part of something bigger. To me, it is a sign that WalMart, like many other retailers, is operating in what I call a vicious cycle (see my recent Harvard Business Review article that describes the vicious cycle of retailing in detail) and that things are therefore getting worse for the company.

Let me explain the vicious cycle using Borders as an example. As my older son says, Borders is unfortunately not with us anymore. The company went bankrupt last year. Obviously, many things contributed to the bankruptcy. Bookselling is a tough industry with many trends operating against brick-and-mortar retailers, including the emergence of Amazon during late 1990s, the popularity of digital music, and then the rise of electronic books. But still, Borders didn’t have to be the first book retailer to disappear.

In fact, Borders used to be a great company, especially during the 1990s. I say that without hesitation because I did a lot of research there. But then things started changing and the company lost its way. I could write a long article on all the things the company could have done differently to survive, but keeping to the subject—WalMart’s greeters—let me focus on a few mistakes Borders did in managing store employees.

Borders stores used to be quite profitable and store employees were a part of that. Not surprisingly, Borders used to have better labor practices than a lot of other retailers—better selection of employees, more training, and so on. But when things started getting tough and Borders management was under pressure to cut costs, one of their first moves was to cut labor costs at the stores.

It started with increasing the percentage of part-timers and cutting down on employee hours. I analyzed four years of Borders data, from 1999 to 2002, and found that the stores were on average understaffed—there simply weren’t enough employees to get all the work done. In fact, my analysis showed that the company would have made higher profits if it had kept more employees working at the stores. Understaffing then led to operational problems. At some stores, boxes of new books just sat in the backroom for weeks because there weren’t enough employees to shelve them. Thousands of books that were supposed to be replenished from storage locations just sat in storage for a long time. Books that were supposed to be returned to publishers were not pulled from the shelves.

Operational problems like these reduced store sales and profits. When sales decreased, labor budgets shrank. Store managers with shrinking budgets certainly couldn’t increase staffing levels, so the vicious cycle continued…

This cycle is not specific to Borders; most retailers suffer from it. But then something else happened at Borders. When things got worse, Borders eliminated “community relations coordinators” from many of its stores. What did community relations coordinators do? The short description for this job title was: “Responsible for creating and maintaining strong ties in the market for the purpose of creating a community presence and to increase our customer base.” Community relations coordinators localized the stores and made them part of the community.

I think we would all agree that making stores part of a community is important for a lot of retailers that have to compete with online stores; it was extremely important for Borders and they had been pretty good at it.

I don’t know if greeters are as important to WalMart as community relations coordinators were to Borders. But if they are, then their elimination could mean that the vicious cycle is getting really bad at WalMart and—as is the way with vicious cycles—will only get worse.

Using Clutter to Improve Sales: The Wrong Choice

April 10, 2011 by Zeynep Ton 4 Comments

New York Times had a recent piece about how retailers like Dollar General, JC Penney, Old Navy and Wal-Mart are increasing clutter to improve sales. So to get their customers to buy more, these retailers are adding more inventory and more variety to their stores, according to the article. I think this is a really bad way to increase sales.

Yes, these companies will see a short-term increase in their same store sales. You give customers more choices, stuff the store with inventory, and they will buy more. And yes, Wall Street will probably love this. The increase in same store sales growth will make the analysts think that these retailers are actually doing something right. But of course, the analysts will miss that since this sales increase comes solely from more inventory or variety increase, it cannot be sustained. This is just a one-time increase in sales. You cannot keep on adding more and more inventory to the store.

More importantly, this is a bad long-term decision. It does not benefit employees because their operating environment has now been made more complicated. It will not benefit store operations because employees will be less productive and make more errors when their stores are cluttered. It surely does not benefit the environment because this will increase waste from obsolete inventory. And it probably doesn’t even benefit the customer. Store clutter leads to customer confusion. Some customers even responded on the New York Times article’s comment section saying they regretted buying stuff they didn’t need.

Here is an idea. How about offering fewer but better products and investing in employees so they are knowledgeable about these products and they can educate their customers about the value they are receiving? This is exactly what retailers like Trader Joe’s, Mercadona of Spain, and Costco are doing. And you want to know how they compare to their competitors in terms of sales? Not too bad! Trader Joe’s sales per square foot is more than double the supermarket average. Mercadona’s is more than 50% higher than that of their largest competitor, Carrefour. Costco’s is more than 30% higher than that of Sam’s Club.

Today, I also learned about another retailer that has the same strategy: Patagonia. I met the Director of Advanced Research and Development at Patagonia at a panel I was moderating at HBS Retail and Luxury Goods Conference. When someone asked a question about how Patagonia responded to the economic crisis, he mentioned that they did so by cutting their product variety in half. In half! It took them 18 months to do so, but their customers loved it, their employees loved it, and their performance showed it. Of course, one reason Patagonia was able to do this was because they had invested in their store employees so that their employees could intelligently talk to the customers about the products they carry.

The panelist also mentioned that Patagonia’s salespeople are taught to encourage customers to only buy things that they need—not waste resources on stuff they don’t need. Why would they do this? Because this is aligned with their mission: Build the best product, cause no unnecessary harm and use business to inspire and implement solutions to the environmental crisis. Kudos to Patagonia!

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.

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.

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.