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.

“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.