Business Strategy
Enhancing Retail Stores' Performance: Managing Compensation Costs with Optimal Retail Workforce Sizing

Article Details
Pub. Date : March' 2021
Product Name : The IUP Journal of Business Strategy
Product Type : Article
Product Code : IJBS10321
Author Name : Pankaj M Madhani
Availability : YES
Subject/Domain : Strategic Journals
Download Format : PDF Format
No. of Pages : 15

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Abstract

Retail workforce optimization keeps store employees happy, improves customer service, and reduces opportunity costs of lost sales. As workforce compensation costs constitute one of the largest components of retailers' operating costs, there is a widespread tendency to understaff to save on those costs. In the case of workforce undersizing, when a retailer decides to increase the size of the workforce, the additional workforce not only generates incremental revenue with better sales conversion but also has a positive impact on workforce morale, as the workforce is not overstretched. It also results in higher retention of the retail workforce. Improved retail workforce retention leads to lower hiring and training costs and improved store performance. On the other hand, retail workforce oversizing results in higher payroll costs and decreased engagement of retail employees. Hence, there is a need to find the right number of store employees to provide consistent customer service even during the period of volatile store traffic and still manage compensation costs favorably. The research provides various frameworks to investigate whether retail stores are properly sized and studies the impact of optimal workforce sizing on retail workforce compensation costs and ultimately on store performance.


Introduction

The retail workforce is a critical component to the overall success of the traditional Brickand- Mortar (B&M) retailer's goals and objectives. The role of frontline store employees is, more than ever, crucial to the success of retailers. Workforce-related expenses (i.e., compensation costs) account for a significant portion of a retail store's operating expense. Labor is the biggest component of Selling, General, and Administrative (SG&A) expenses for 10 of the largest US grocers and estimated at 14% of sales on average (L E K Consulting, 2017). Deciding on the proper size (i.e., number of employees) of the retail workforce is a strategic management issue because it has an important impact on retailer's performance in terms of revenues and profits. By effectively deploying a strategy of retail workforce management, retailers identify the appropriate size of the retail store workforce. There is a positive association between store workforce and profits as store employees are an important contributor to the retail sales process (Ton, 2009). With optimal retail workforce size, workforce is challenged but not overworked and connects with customers effectively. Optimal retail


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