As any business owner or manager knows, labor cost is a big factor in the success of your enterprise. If labor is too high, it either eats up unnecessary dollars or can put you out of business. If labor is too low, vital tasks (including taking care of your customers) are left undone. Both can lead to a slow spiral toward failure.
One of the retail experts that I follow is Zeynep Ton, a professor at Harvard. Her research is a great and rare combination of being insightful and useful. In her article "The Hidden Risk in Cutting Retail Payroll," Dr. Ton came to conclusions that I didn't expect. She analyzed four years' worth of data from more than 250 stores and supplemented that with more than 50 in-person interviews.
Increases in labor didn't affect the appearance or the restrooms; they stayed clean. An increase, however, had a very notable and positive effect on profitability because more goods were on the sales floor and more returns were processed. The profit increase? How do 4 percent due to the replenishment and an additional 3 percent due to the returns sound to you?
Some older, but still relevant, research by Professor Marshall Fisher and some colleagues from the Wharton School showed that for every dollar increase in labor spent, there was a sales increase between $4 and $28! Most of the increase came from stocking products from the back room to the sales floor.
Allocating hours is tricky. They have to be tied to things like sales and customer count in some way. They also have to be tied to "major events." I recall being in a small retail store in the Midwest when their weekly distributor truck arrived. For the next several hours, everyone worked! Their back room was smaller than most modest bedrooms. They had to check merchandise in and move it out front because they had nowhere else to put it.
When the right staff mix goes wrong
If natural products stores are going to offer a customer and service-focused shopping experience, they need to keep the right amount of labor in the store. Staff not only stocks the shelves, but answers questions, helps find products and completes the sale.
Stephen Dubner, of Freaknomics fame, also recently read an article by Dr. Ton and shared a story about a shopping experience that went very wrong, mostly due to staffing problems. The article is very revealing and closes with a paragraph about shopping at Whole Foods Market. The most striking line t refers to consistently long check outs: "Why do you make it so hard for people to put money in your hands? Isn't that the objective of running a store?"
Most independent natural products stores have limited resources. They can't afford to spend huge sums on payroll, but they have to take care of basic retail functions (stocking, cleaning, cashiering, etc.) while still providing excellent customer service. Most also don't have sophisticated software tools to help them automate the process. They also, for the most part, do an incredible job.
So how many employees should you have?
It would be quite a stab in the dark to give you a universal guideline on which to base your labor costs. If you sell mostly supplements, for example, your sales (and sales per customer) will be higher than a store that sells mostly food. To support those supplement sales, you will need more staff and your staff will need more specialized training. Therefore, you would have a higher payroll. However, labor as a percent of sales may be lower due to the higher sales.
Two methods that can bring good results: As long as you have minimum staffing always covered, allocate labor to sales or your hours to customer count.
What processes have you developed in your store regarding staff? Leave a comment and share your insight.