Thursday, April 26, 2012

Some Retail Therapies More Effective Than Others

By Ellen Cutter, Director of Research.

In my household, there are two distinct groups of magazines that arrive at our house. The first group belongs to my husband and includes *serious* reads like The New Yorker, Harpers, and assorted literary journals. The second group is mine and includes less serious reads things like Vanity Fair, People, and Cooking Light. On a recent foray into the less illustrated world of my husband’s preferred reading, I discovered why the simple thing of purchasing a magazine at a store, or groceries, or gas, or tennis shoes, can sometimes be a maddening experience while other times it is so painless and easy it’s barely a blip on the radar of my day.

In the March 26th financial page of The New Yorker, James Surowiecki noted the ascent of Japanese retailer Uniqulo:

Its success is due in large part to the fact that it has found a way to sell basic stuff that is not only affordable but also stylish and durable. And there’s something else that makes Uniqlo distinctive: it hires a lot of people, and spends a lot of time training them. When the company opened its flagship Fifth Avenue store, last fall, it hired six hundred and fifty people, and pledged to have four hundred people working there at any one time. This is not the way most retailers do business. The general dogma in recent decades has been that, in order to compete on price, you need to keep labor costs down—hiring as few workers as you can get away with and paying them as little as possible. Although leanness is generally a good thing in business, too much cost-cutting turns out to be a bad strategy, not only for workers and customers but also for businesses themselves.

For all of us who have, as I have recently, wandered around aimlessly at a big-box hardware store looking for something as simple and small as clamps, nearly gone Office Space on the automated grocery store checkout kiosk for removing your items from the bagging area before the appropriate time, or could not be assured by the attendant-in-training, alone on duty, at the shady gas station that her credit card machine flub was actually reversed and credited back requiring a follow up visit three days later to have it out with the manager…we say AMEN. It seems that to many retailers customer service is a thing of the past while others are investing in providing superior customer service to help drive profitability.

Surowiecki references a study done by researchers at University of Pennsylvania which found that among retailers with more than five hundred store locations, every dollar in additional payroll induced between $4 and $28 in new sales. That is incredible! And, it is seemingly why no one I know can get out of Costco or Target without spending more than intended. He also points to retailers like Trader Joe's and QuikTrip (a shout out to this fantastic Tulsa-based company, one of our client regions) that invest heavily in their employees, in terms of pay, training, and staffing on the business floor,  often have happier workers, which drive up retention rates and drive down retraining and hiring costs.

While it is doubtful my husband, a writer, was able to draw inspiration for his next blog for The Kenyon Review from the celebrity “who wore it best” pages in People magazine, I thank him for this good read. I suggest you check it out too.