Did you know that 42 million people in the U.S. currently work in a service industry, such as retail, where the average hourly wage is less than $15 an hour? These workers endure low wages, poor benefits, schedules that change with little—if any—notice, and few opportunities for advancement. The conventional wisdom is that many companies have no choice but to offer bad jobs—especially retailers whose business models entail competing on low prices.
But according to MIT Sloan Professor Zeynep Ton, who has been studying retail operations for more than two decades, companies can design and manage their operations in a way that satisfies customers, employees, and investors simultaneously.
Why investment in employees is not antithetical to low prices
Earlier this month, at the 2019 NACS Show highlighting convenience retail innovations, Zeynep Ton spoke to a packed room of hundreds of convenience store executives and operators about the true value of good jobs. Ton, who is co-founder of the Good Jobs Institute, author of The Good Jobs Strategy, and professor of the MIT Sloan Executive Education program Achieving Operational Excellence Through People, offered an impassioned look at why retailers should invest in their employees.
“Unfortunately, people are not on the balance sheet,” said Ton in her NACS Super Session. “They are an expense in the income statement. You have a whole strategy on reducing those costs. But that assumption leads to low investment in people, which leads to leads to sales problems. The bottom line is, if you can’t meet employee needs, you can’t meet customer needs. It creates a vicious cycle that is not sustainable.”
Ton then presented several examples of highly successful retail chains—such as Quik Trip convenience stores, Mercadona, Trader Joe’s supermarkets, and Costco wholesale clubs—that not only invest heavily in store employees but also have the lowest prices in their industries, solid financial performance, and better customer service than their competitors.
“Costco is the poster child for low-cost retail,” said Ton. “Their hourly wage is slightly over $23. And they won’t mark up anything more than 15%. Mercadona, Spain’s low-cost leader, has an employee turnover of 3.8%. It’s true! They offer four weeks of training for each employee, and 80% of their staff members are full time employees who work in shifts and get their schedule one month in advance.”
The companies Ton cited in her session and in her research are breaking the mold—and thriving as a result.
An operating system that drives high performance and revenue
So, what’s the secret?
“It’s not as simple as just increasing wages,” explained Ton. “These companies have a totally different operating system than their competitors. Operational choices are made across the board that increase the productivity, contribution, and motivation of their workforce.”
Ton boils down these operational choices into four categories:
Focus and simplicity: Mercadona is a chain of neighborhood stores that offer great value and a great customer experience, but they don’t offer a lot of variety—8,000 products compared to the typical 40,000 supermarket options. By virtue of the more limited selection, they keep their prices as flat as possible. Fewer products also means their employees can more easily become product experts and advocates.
Standardize and empower: “Top down doesn’t work,” says Ton. “You need employee involvement. Empower people to improve the standards and to customize the shopping experience for customers. Crushing someone’s dignity only serves to increase inefficiencies.”
Cross Train: Ton advises not to silo employees but instead balance their role and their training between customer-facing and non-customer facing work. This way you reap the benefits of both job mastery and flexibility.
Operate with slack: “Err on the side of too many people,” said Ton. “Understaffing is too expensive. There are too many mistakes. However, you can’t operate with slack if you have slackers. This requires maintaining high expectations of your employees.”
Ton ended her session with an impassioned call to action and a moral imperative for the audience.
“Retail has been the largest employer in America for a long time. Your sheer economic power can make a difference in our society. If you want to build a strong middle class in this country, we can’t do that without improving these jobs. There are too many of them. We can’t see these jobs as a steppingstone to good jobs. The country needs these jobs to be good jobs.”
Ton also suggested an even larger role these retail leaders can plan in the future of America. “165 million customers come to your stores every day, from all walks of life and backgrounds. The interactions that occur in your stores could be the ones that magnify our differences—or the positive interactions that bring us together. It’s 165 million opportunities to practice decency and grace. We need your courage and commitment to be able to do so.”
MIT Sloan Executive Education is working with NACS to provide a week-long
innovation leadership program November 3–8, 2019. Focused on building an innovation culture, the program combines research-based management frameworks with practical hands-on experiences and offers networking opportunities for top-tier convenience industry leaders.
While this custom learning engagement is designed for NACS members only, you can learn more about Ton’s research and operations strategy in the MIT Sloan Executive Education program Achieving Operational Excellence Through People: Delivering Superior Value to Customers, Employees, and Shareholders.
Note: “NACS” is the acronym for the Association for Convenience & Fuel Retailing, originally founded as the National Association of Convenience Stores.