"Not all retail messes are created equal" reported WSJ yesterday. The article describes the messy shelves and tables at a retail store and comments that this is probably the result of the retailer's staffing cuts. Long lines at the cash register, messy or empty shelves, and expired products still lingering on the shelves are all problems that we have learned to live with as customers in this country. And as WSJ predicts, one reason why we have these problems is understaffed stores.
Let me start by saying that having just the right amount of staffing levels at all times is often very challenging in retailing especially during Christmas season. There is a lot of variability in the demand for labor (customer traffic, promotions, etc.) and there is a lot of variability in the supply of labor (employee availability, absenteeism, etc.). And having too many or too few employees are both expensive. But what I have found in my research is that when faced with this challenge of matching labor supply with variable workload, many retailers err on the side of having too few employees. So retailers are systematically understaffed. Here's why this happens:
For most retailers, store payroll is the highest operating expense. So retailers watch this expense very carefully. There is constant pressure for store managers to reduce their payroll expense. Many retailers I've worked with put great emphasis on managing payroll expenses in their store manager evaluations. In addition, the cost of having too many employees is quantifiable and felt immediately while the cost of having too few employees is difficult to quantify and not immediately felt. Messy shelves, expired products on the shelves, or long lines might not affect profits immediately, but they do in the longer term. So if you were a store manager operating in this environment, what would you do?
What is interesting about understaffing is that retailers lose a lot of money because of it! In a recent article, using four years of data from stores of a large retailer I find that increasing staffing levels can substantially increase profit margins. I'll write more about this article in a future post.
As the WSJ reports, understaffing is a problem now because we live in difficult times. But I have seen this problem for more than ten years. In fact, the data I use in my paper come from 1999-2002.