First Response - Cut Hours/Wages at Store Level

Retailers often respond to a financial problem by cutting hours and wages being used at store level.

One has to wonder what the result would be if the retailer first examined applying this cost cutting measure at the Head Office level? What would happen if they stopped hiring full time people with decent salaries and benefits and, instead, filled head office with part time people who could be cut down to 3 or 6 hours a week if that is what the current situation called for? Imagine the loss of continuity in the head office due to skyrocketing turnover, a lack of motivation, increased tardiness and absenteeism. Who could be counted on to take care of an important task when needed? Some Managers and clerks would have to work many more ‘voluntary’ hours than they do now; many more hours than a reasonable person would expect. And even under these conditions, the head office must perform if the business is to survive, and thrive.

The lack of human beings available to offer service to customers in some stores is reaching epidemic proportions. Take a look at some department stores, for example. They occupy huge spaces in malls; they offer a great variety of merchandise but absolutely no customer service. Well, at least not the kind of customer service which would influence the buying decision and encourage the customer to buy more. The only service seems to be at the check-out point. Some department stores have become self service stores and they don’t even do that well. Some are badly merchandised, terribly maintained and the signage, which is supposed to help the customer serve him/herself, is often woefully inadequate even when overdone.

Of course, there are always exceptions. There are some retailers who do an incredible job of providing the customer with a positive shopping experience and still more who do a fair job. My comments are provoked by the other retailers – the ones who do a lousy job.

Getting back to the hours and wage cost issue. I really do want to understand what it is that motivates retailers to seek the answer to almost any crisis by downloading the problem to store level. There must be a mindset that is at play and it must be fairly straight forward because so many retailers do it. But what is it? Is it a lack of sophistication? Is it due to the out-dated business model being followed by so many retailers today? I prefer to think it is, plain and simply, a lack of understanding; a failure to really think it through. We’re not here to argue the position of the store staff against the position of the Head Office staff. The point is to try to illuminate the consequences of Head Office actions to the very individuals who are making the critical decisions; the individuals who are, perhaps inadvertently, doing the downloading.

Let’s look at possible outcomes of reducing paid labor hours in a retail store:

1)     Fewer sales.
2)     Wage cost percent increases due to drop in sales.
3)     Fewer customers enjoy a quality shopping experience in your retail store.
4)     More customers feel that there time is wasted while waiting in line ups.
5)     The store is not properly maintained.
6)     Loss of market share to competitors.
7)     The Manager is overburdened and is, basically, set up to fail.
8)     The employees that are still working are working fewer hours and making less money which makes it difficult, or impossible, to cover even the barest necessities.
9)     Merchandise may not be out on the floor because, alas, there was not enough time to do it.
10)   Customers feel the lack of morale in the store
11)   Increased turnover results in a somewhat inexperienced team who are perpetually ‘in training’.
12)   Recruiting and training costs skyrocket due to high turnover.
13)   Reputation sustains a lot of damage – examples abound.
14)   Fewer sales. It is worth repeating.

This is not an all inclusive list by any means; just the ones that come to mind instantly.

And how do we know that all of these are possible outcomes? How do we know we weren’t overstaffed before we made the cuts? Well, one has to assume that the homework was done, previously, to determine what the optimum hours/staffing level would be to achieve all of the operations goals, sales in particular. And one has to go further and assume that, if we knew what the optimum hours/staffing level were, we must have been operating at that level; why wouldn’t we?

Now, maybe we weren’t operating at that optimum level; that scientifically proven level.
And maybe that is why we now find ourselves in a situation where we need to find ways to cut costs. It is surprising how logical this all seems.

There is a very important “question” that we must ask ourselves. I call it “the question”. In this case it is: How will reducing paid labor hours in stores affect our customers and our store level employees? By simply asking this question and working to find the answers, most leaders will be guided to the right decisions. In fact, “the question” should be asked every time an operational change is proposed. Just change part of “the question” and insert the proposed idea, or plan, in place of “reducing paid labor hours in stores”.

Above I mentioned exploring the possibility of cutting hours at Head Office. This was not intended as a slight or offence to Head Office employees. Not at all. Retail stores can not run properly without great support from the people at their Head Office. I simply want to point out what is being done at store level and to explain it in a way that will make it easily comparable.

As strange as it sounds, it is necessary to work through an example in order to fully understand what it means.

A Head Office with 150 full time employees equals 6,000 paid labor hours per week. (150x40). A 10% reduction would mean that there would be 5,400 paid labor hours per week. That would mean we reduce staff levels to 135 full time employees, from 150. As is done at store level, we can ask some to leave and ask others to stay on but work fewer paid hours – essentially move from full time to part time. This would likely mean a loss of benefits as well as a loss of income. Taken further, the new part time people may not work the same number of paid hours each and every week, resulting in instability. Now, granted, Head Office is not open to the public, so they may be still be able to accomplish a great deal in the shortened working hours. However, in our example, they all will be expected to continue to do the same amount of work, probably more, and they will be expected to be perfectly satisfied with the new arrangement; motivated to make money for the company, in fact. Wow. Does that make sense to you? Of course it does not.

I do not advocate any form of payroll slashing as a first response to financial problems. At some point, it may be the only thing left to do. And, I should add at this point, that it is a necessity that all businesses continuously make improvements in processes and look for inefficiencies that can be corrected. There can be no opposition to that as any healthy business requires it. However, we should look at the whole picture first; find out what outcome our, supposedly, corrective actions are likely to produce.

There is a lot of discussion, and controversy, about the idea of minimum wage going up in unprecedented jumps. It will be interesting to watch how retailers respond to this. My guess is that a lot of them will take the total dollars they want to spend on wages and then divide it by the new minimum wage rate and, whatever the number is – that will become the number of hours that they can ‘afford’ to use in a store. That is just wrong. There has to be a lot more thought put into it than that. For an expense item of such great significance on the P&L, one would expect it to be paid a lot more attention.

The cost of doing business most definitely includes wages paid at store level. It doesn’t make sense to cut that cost if it will be detrimental to that business.

It is only a matter of time before the competition - store or internet – captures the market share of those retailers who are not always asking “the question”. If you are lucky enough to have a significant market share, protect it. Figure out how many hours or wage dollars you need to spend to make your business work profitably, and then spend them. Don’t let anyone change them unless you are having a “going out of business” sale.

 

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Last modified:4/28/2008

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