By Lee Peterson, wdpartners.com
Across-the-board payroll cuts have rarely delivered margins long-term for retailers. Crude cuts are more than misguided today, but a dangerous strategy for stores in the fight for survival against Amazon.
The calls came with quarterly consistency. “We need to balance spend to sales,” the regional manager always said. “Get it out of payroll by tomorrow.” It was more than two decades ago at a men’s fashion retailer. I wasn’t managing just any location, but the top-grossing store in the nation. Yet the numbers had spoken. In fact, every location was given the same edict.
Hectic Saturdays followed. Short by one or even two associates, register lines steadily grew longer, shoppers impatient and dissatisfied. I could viscerally sense the shrink, without even witnessing the unpaid inventory heading out the door. The sales associate stationed front and center invariably drifted from her greeting duties, inadvertently neglecting her dual role as shoplifting deterrent. The desire to help frantic, stressed colleagues is always too difficult to ignore. Piles of clothes filled fitting-room floors. There was no time for add-on sales, everyone entered crisis mode as shoppers inevitably headed out unsatisfied to better-staffed competitor stores.
I wish I could say, decades later, the retail industry has moved beyond its practice of wreaking havoc on the store experience in its pursuit of margins. Yet a pervasive lack of appreciation for the critical role a store employee plays – beyond operating as an easy lever to create margins when times are tough – persists. This margin chasing is and has always been a zero-sum game. Some industry leaders are beginning to argue that “the role of the employee promises to be the most disruptive change of all.” As we enter an era of retail rationalization, retail brands that recognize the opportunity to reinvent the role of the store employee will survive.
The warehouse model of retail is under threat. The rapid store rollouts and cookie-cutter big box retail design is no guaranteed path to growth anymore, let alone survival. Mass-market chains that once thrived without offering much at all in the way of customer service, now must compete with online retailers that offer next-day delivery, one-click shopping and transparent price comparisons at purchase. The warehouse mentality often fails to see the value of well-trained associates on the floor. If your store is a warehouse anyway, how can your brand compete against the powerful pull and convenience of online shopping? Bottom line: It can’t.
Online shopping continues to cannibalize store purchases. Consumers, especially millennials, have embraced the convenience of next-day delivery and free shipping and returns. Amazon sells everything and is loved by almost all. Paradoxically, amply staffed and customer-service driven retailers thrive today. Consider Nordstrom, Apple or Whole Foods, three of the industry’s top-performing retailers. All invest heavily in store employees, from enviable health benefits to abundant training resources. Crude payroll cuts have never been the strategy and so long lines, empty aisles and dissatisfied customers aren’t either at these chains.
Why does headcount quick fix retain its allure to C-suite retail executives then? Quarterly pressure from Wall Street, of course, but the shortsighted strategy is dividing the market into two kinds of retail brands: Stores consumers actually love to shop and the rest they merely tolerate and patronize out of convenience and habit.
Consider the Apple employee model. The setting: An Apple store at a packed lifestyle center in Ohio during the busy holiday season. Sitting at the genius bar, I watch the sales floor and realize what’s surely a retail anomaly: Not a single customer is unattended. Next, I count employees: 36! And that wasn’t even counting Genius Bar folks.
Another retail setting: I’m at Whole Foods, contemplating a jar of pickles, a brand with three flavor options I’ve never tasted. “Can I help you with anything?” a store associates asks. I’m not sure if I like sweet or sour or classic dill?” He cracks the jar, just like that. We go through three jars. I find the one I like best. He hands it to me. “It’s yours.” I’ve never bought pickles anywhere else since.
Then there’s Nordstrom, notorious for trimming payroll at the last resort during recessions. The department store chain, known for its amply staffed shoe departments and fitting rooms, always understood its people epitomized the brand more than anything else. Cut people and diminish the brand.
The Whole Foods of the world have so much margin they can afford large store staff, the naysayers argue. For low-margin retailers, payroll cuts are a necessary evil.
This is a self-fulfilling prophecy. Devoted associates on the sales floor create margin – whether it’s a high-margin or low-margin business model.
When we talk to consumers about their desires and compare this against actual shopping behavior, we hear again and again a sense of loss for what retail once was, nostalgia for a time when customer service wasn’t called customer service, just service. At WD, we recently finished a quantitative survey of 1,200 consumers. Store associates ranked dead last out of a list of 12 features, when we asked consumers to rank in-store features by appeal and influence over purchase intent (other features included ownership, touch and feel, experience and inspiration.) At first, the finding confused us: Why wouldn’t store associates be appealing and drive purchase intent? And then we probed further, talking with consumers in a series of six focus groups across three generations.
Consumers expressed sadness for struggling chains, sympathy that some chains couldn’t get it together to beat Amazon. Yet there was no lack of desire for a human-driven store experience, nostalgia for retail’s more glamorous past. Store associates ranked last because consumers had been disappointed so many times. The expectation wasn’t even there anymore. And that’s where the opportunity remains for stores. Consumers said again and again the one thing that trumps the utilitarian, lifeless transactions of online shopping, was human-driven interactions within the store.
The finding reflects a deep truth: Human beings are, and will always be, socially driven. It’s time for retailers – at least those that want to survive the coming rationalization the industry faces – to invest in the one asset online can never trump: people.
Lee Peterson is executive VP of creative services at WD Partners, Dublin, Ohio.