It takes a human being to pick, sort, pack and ship box after box of inventory – and increasingly, the data shows that companies treating those human beings well see the highest level of success.
It used to be a truism that employees of big box chains worked long hours for low pay. Retailers assumed that they needed to keep employee costs low so they could defray the high cost of intensified logistics. As it happened, however, this approach made logistics — and even basic retail operations — costlier, less efficient, and less likely to earn customer loyalty. Here are two stories about how big-box retailers, Costco and Walmart, were able to succeed in the marketplace by investing in their employees.
Do Rising Wages Equate to Corporate Success?
In an age where service workers across the country are going on strike for a $15.00/hr minimum wage, Costco employees make $20 on average (before overtime). The starting rate is lower, but it was recently raised — from $12 per hour to $13.50 for entry level employees. Commensurate with the pay increase, Costco also announced that it was opening 30 new warehouses, that it has acquired 1.3 million new cardholders, and that it had registered a 4% increase for in-store sales. Clearly, Costco isn’t hurting too much.
Without a comparison, however, it’s difficult to separate correlation from causation here. Does Costco’s focus on employee investment directly link to stronger sales? One could perhaps argue that Costco’s strength as a retailer has nothing to do with their treatment of employees — that Costco succeeds in spite of treating its employees well, not because of it. Fortunately, we’re able to examine a sort of counterfactual in the form of Walmart.
The Wal-Mart Experiment
Walmart has not been renowned as a great place to work or shop for the last several years. Even though the retail giant has kept its crown as the world’s biggest store chain, falling revenues and dismal customer service scores have made executives worried for the future. As such, last year Walmart announced that its employees would be paid more — up to an average of $13.38 for full-time workers. It’s not a lot, but it’s helping to make up the difference.
From the linked New York times story, one of the biggest deficits with Walmart’s customer service effort was the fact that underpaid workers lead to empty shelves. This represents an employee efficiency, morale, and training problem that extended from the store to the distribution center. That problem has been effectively resolved, with Walmart now meeting customer service targets in 75% of stores.
Top Performers Know That Training and Incentives Make a Difference
The success of Walmart and Costco in this arena can be predicted by research from the Aberdeen group. Top performing retail companies put a heavy emphasis on training, with 91% of top performers training their employees in multiple logistics capacities. They also do a better job of tracking and recognizing individual performance.
The recognition of good performance — with appropriate incentives — is critical to a productive workforce. Top-performing companies know that all the data in the world won’t motivate an underpaid and undertrained workforce to be successful. By raising wages and training standards, retailers can master increasingly complicated logistics and cement customer loyalty. For more information on how this works, check out the Aberdeen report, “Store-Level Workforce Scheduling for Profitable Omni-Channel Fulfillment.”