MIT Sloan Executive Education Blog

Cutting staff is not a good operations strategy for retail

Retailers often resort to making HR changes in order to lower costs. They simply cut staff, which is only a temporary fix. As Zeynep Ton, Adjunct Associate Professor of Operations Management at MIT’s Sloan School of Management, commented to ABC’s “Good Morning America,” “retailers who cut staff to cut costs are succumbing to a vicious cycle, where the staff reductions result in lower customer satisfaction,” which then negates the financial gains from the initial staff cuts.

The issue of retail staff reductions and its impact on consumers has come to the forefront of consumers’ minds due to recent issues at Walmart. The New York Times detailed the issue in “Walmart Strains to Keep Aisles Stocked Fresh,” April 3, 2013, and states that some employees and industry analysts feel that Walmart “no longer has enough workers to stock its shelves properly.”

When consumers can’t find what they are looking for, as the cliché goes, they “vote with their feet.” Walmart customers can easily become Target customers.

Fundamentally, when any retailer is faced with stockouts, it’s a result of a larger operational issue, not just a staffing issue.  As we cover in the MIT Sloan Executive Education course, Developing a Leading Edge Operations Strategy, 25–30% of all stockouts happen because of misplaced products, and “phantom” stockouts can make up as much as 60% of all stockouts for some retailers.

Walmart’s current stockout issue goes back to some operational decisions the retailer made in 2010: it reduced the number of products it carries. Customers complained, so Walmart added back the products. But the retailer was also reducing staff, so as the company brought back the products, it didn’t have the staff to shelve them.

Neither of these solutions—cutting staff or cutting product selection—has worked for Walmart. But having a smaller selection of products does work for Trader Joe’s. As Ton informed “GMA,” Trader Joe’s carries approximately 4,000 items, compared with an industry average of 39,000 items.

Every retailer has its own value proposition to its customers; the key is to develop an operational strategy that supports its customers’ expectations. Walmart offers many products at a lower cost; Trader Joe’s offers “unique” products, but is not a “one-stop shopping” store.

A successful, leading edge operations strategy for retailers avoids the “vicious cycle,” and instead generates high customer and employee satisfaction and more profits.

And of course, it keeps the shelves stocked.
Zeynep Ton teaches in the MIT Sloan Executive Education course, Developing a Leading Edge Operations Strategy.