Brick-and-mortar retailers are stuck between a rock and a hard place.
Today, shoppers demand a multichannel experience that meets their needs across the physical and digital worlds – an easy to navigate website, plentiful in-store inventory to sample and bring home immediately, helpful, knowledgeable associates, engaging social media accounts and beyond. Yet there’s a looming issue: in-store traffic is declining, while online shopping is eroding profit margins. And retailers’ bottom lines are feeling it. The result: significant pressure to manage costs across the retail organization. The primary target for said cost-cutting? In-store payroll.
The issue at hand is, simply put, cost containment versus revenue generation. There are several fixed expenses that a retailer simply cannot cut, such as rent and utilities; the cost of goods can be influenced, but there is a strict threshold (poorly made or priced goods may not attract shoppers; a poorly stocked store won’t generate sales). The natural reaction is to then limit variable costs, and under a traditional microscope, in-store labor is the primary candidate. In fact, many retailers believe that labor is the primary expense that is within store managers’ control.
This view is highly misguided because it doesn’t acknowledge that the presence of in-store associates motivate shoppers to visit the store and that their interactions fuel purchases. A main point of differentiation for physical retailers is the presence of engaging, informed associates. This is especially true when compared with online retailers, but it also separates the successful brick-and-mortar retailers from the ineffective. By cutting payroll, retailers are narrowing their opportunity and further hurting sales.
Retailers should approach in-store payroll like a balancing act by harmonizing cost of labor with the revenue that drives labor. And the first step in doing so requires that a retailer determine their service model.
The following graph, which compares traffic with assumed customer-facing activity for associates, is a spectrum that all retailers should leverage in order to plot their model.
For example, a Redbox has a dramatically different selling model than a Tiffany’s (i.e., rapid, limited, automated service versus personal, in-depth interaction). As a result, they will be at the top of the Y axis but at the low-end of the X axis. Once a retailer establishes where they are on the chart, leaders can then determine staffing levels for their brand, which directly informs the ideal STAR (shopper-to-associate) ratio, and is essential for any retailer, regardless of service environment.
Be sure to check back for a follow-up post, in which I’ll offer strategic approaches to staffing for various retail environments.