Retailers are leaving money on the table by understaffing – Rogelio Oliva

MIT Sloan Visiting Professor Rogelio Oliva

From Marketwatch

If you’ve gone shopping this holiday season, you may have had the following experience.

You go into a store looking for a gift but need help from a salesperson. Maybe you need more information on the product, or perhaps you need help finding the right color or size. You look around the store, but you can’t find anyone. Giving up, you leave the store without making a purchase.

If that sounds familiar, you aren’t alone. The proportion of customers who typically leave a store because of poor service is not negligible. Prior research shows that 33% of customers who experienced a problem were not able to locate sales help when they needed assistance, and 6% of all possible sales are lost because of lack of service.

Help wanted

Effective management of store labor is clearly important, as it impacts sales performance. However, labor-related expenses also constitute one of the largest components of retailers’ operating costs. As a result, there is a widespread tendency to understaff to save on those costs.

But what is the right number of employees? This is a complex question, as retail environments are characterized by volatile store traffic, making it hard to determine the correct staffing levels and often leading to inconsistent service.

The traditional method for determining staffing is sales-driven and depends on store budget allocation. A typical sales-based staffing rule is to match a constant ratio of expected store sales to the number of store associates. However, that rule ignores the fact that retail sales are also affected by store traffic and might result in labor-to-traffic mismatches, which can hurt sales revenue. Retailers can’t reach their full potential in sales if they follow that staffing practice.

Another problem is that shopper demand may be different from past sales, as past sales include only customers who purchased and not those who had an intention to purchase but left the store due to lack of service. As noted above, this is a fairly common scenario.

Matching staff to shoppers

To address this challenge, my colleagues and I developed a method to match store labor with incoming customer traffic in an efficient manner to improve sales performance. Our method is unique, as it goes beyond the focus on past sales at individual stores to leverage performance data across different stores within a retail chain. It enables retailers to derive aggregate labor requirements by using traffic data, point-of-sale data and labor data across stores with similar attributes like store format, product mix and market demographics. Read More »

Visiting Prof. Zeynep Ton on why more retailers should invest in their employees

MIT Sloan Visiting Prof. Zeynep Ton

It’s no secret that the labor market is tough these days. But the issue isn’t just the number of people who are unemployed. It’s also income inequality and the low pay of retail employees that’s concerning. Retail employees represent close to 20% of the U.S. workforce.

In retail, conventional wisdom holds that if you want to offer the best prices then you can’t afford to invest in your employees. Typical retail workers receive minimal training, irregular hours, and no benefits for part-timers. Turnover is high with understaffing common.

Wages are so low that retail workers tend to rely more on public assistance than workers in other industries. If companies actually invested in their employees by offering better jobs, many of these people could move into the middle class, which is critical in our economy.

Read More »