Outside the Cigar Box: The Power to Make or Break Your Business

“No matter how you slice it in the retail business, payroll is one of the most important parts of overhead, and overhead is one of the most crucial things you have to fight to maintain your profit margins”.

Sam Walton, founder of Walmart

After the cost of goods sold, the expenses related to hiring, training and employing staff constitute, by far, the largest component of a retailer’s costs. Payroll often accounts for 10–20 percent of sales and for more than 50 percent of operating costs. But not just in hard costs.  What about costs of sales lost and customers leaving dissatisfied?  

Not only that: Payroll and staffing have significant impacts on inventory management. We are looking not just at staff levels appropriate for traffic flow through your stores, but also the right type of engagement your staff offers to your customers.  Knowing our customers, therefore, helps inform effective inventory control.

According to a 17-month study on retail execution by Wharton professors Marshall L. Fisher and Serguei Netessine, with doctoral student Jayanth Krishnan, it was determined that sales and customer satisfaction were not driven merely by product availability and customers’ ability to find products. Instead, “customer perceived in-stock”—a metric the Wharton experts used to describe the number of customers who answered “yes” to the all-important question of “did you find everything you need?”—was driven not only by actual in-stock products but by how well the customer rates employee knowledge about the store and the products they are looking to purchase.  

In other words, the study found that lower customer satisfaction with their shopping experience is a result of too few employees and the lack of accessible, knowledgeable employees. Sounds simple and straightforward, but the research points out some compelling findings about how small investments into adding some additional staff and ensuring staff are properly trained and fully engaged can add real numbers to your bottom line.  

Most retailers could significantly boost their revenue simply by paying closer attention to two planning metrics: linking planned staffing levels to store traffic rather than revenue, and allocating the right number of staff to the right places at the right times. The research suggests that a “modest reallocation of the payroll budget” could yield a 2–3 percent increase in sales with no increase in cost. This is a clear signal that adequate numbers of knowledgeable staff help drive customer satisfaction, sales and retail execution success.  

Consider the many cases where your customers really rely on store associates to help them decide which cigar, tobacco or accessory to buy. While you may have correctly forecasted demand and meticulously planned just-in-time deliveries to your store, the sales associate is the final link in the chain of events ultimately getting the products into the hands of the customers. And their money into your registers.  

How to Determine Customer Satisfaction

The researchers noted that, for many years, retailers have been asking customers to measure both their overall level of satisfaction and their opinion of various details of their store experience. However, while many retailers ask if the customers were able to find what they were looking for, there is rarely a deeper dive into what factors influence the quality of staff execution. Here are some questions the researchers asked that you may consider asking some of your customers:

  • During your visit, did anything get in your way that was put or left in the aisles?
  • Did you need assistance, but were unable to find it?
  • Was your checkout quick and efficient?
  • Did you see any product which you were interested in purchasing that was too high for you to reach?
  • Did you look for anything that turned out to be out of stock or not carried by the store?
  • Did you have any difficulty finding the price of an item?
  • How knowledgeable are employees about what they sell? About everyday prices?
  • Based on your visit to our company that day, will you come back?
  • Do you feel you got your money’s worth on this visit?
  • Taking everything into account, how would you rate your visit to the store that day? (scale of 1 to 10)

However, the study also found that while understaffed stores increased sales by adding staff, and that even adequately staffed stores increased sales by reallocating employees to key sales areas, there is a diminishing return to adding or tweaking the staff.

Engaged Employees

Once your staffing needs are addressed, the next obvious question is: How do you get staff fully engaged in the customer experience? 

First, scheduling is a key factor. Research has shown increases in sales productivity when staff schedules are stabilized. Instead of viewing staff as expenses, employees may be the key to overcoming any preference for online buying.

According to an article in the Harvard Business Review, “Research: When Retail Workers Have Stable Schedules, Sales and Productivity Go Up,” practices such as bare-bones staffing in stores and unstable scheduling have flourished in the guise of enabling better profits for retailers. In study after study over the past decade, operations researchers have found that retailers understaff during peak hours even as the research tells them sales and profits would increase if they just did the opposite.  

In this research,  Joan C. Williams, Saravanan Kesavan and Lisa McCorkell conducted a randomized controlled experiment at Gap. They shifted retail associates to more stable schedules by:

  • Eliminating on-calls, where employees are scheduled to work shifts that can be canceled anytime up until two hours before they are scheduled to begin.
  • Requiring employee schedules to be posted two weeks in advance.  

Plus, once the experiment began, managers who chose to participate committed to trying out five additional changes:

  • Giving a core team of associates a “soft guarantee” of 20 or more hours a week.
  • Establishing standard start and end times for shifts.
  • Giving associates a stable core schedule (meaning that associates will have consistent schedules week to week).
  • Using the mobile app Shift Messenger, in which associates could swap shifts on their own without getting a manager’s approval.  
  • Adding more staffing during understaffed periods, which were identified based on analysis of store traffic and conversion rate data.  

The results were striking. Sales in stores with more stable scheduling increased by 7 percent.  Labor productivity increased by 5 percent. The researchers estimate that the retailer Gap earned an additional $2.9 million as a result of more stable scheduling during the 35 weeks the experiment was conducted.  

Data from QuickTrip and Trader Joe’s also demonstrates that stabilizing schedules delivers not only greater employee satisfaction, but also higher customer satisfaction.

At QuickTrip, employee onboarding and training are seen as critical to employee success. (Staffers regularly attribute their success to their trainers and the culture.) QT clerks could pass for some of the hardest-working folks in the convenience-store industry. They must be able to count change in their heads without relying on the register. They must do store upkeeps every 30 minutes, which involve everything from keeping the restrooms clean and stocking coolers and filling coffee and tea dispensers to making sure hot dogs are on the grill. During the training process, new hires learn in explicit terms what the culture is, what is expected of them, and how important customer service is. As one QT employee notes: “I even learned how to find nutritional information on a food item in case a customer asks.”

Employees learn from the outset that every customer is important, and QuickTrip ties bonuses to customer service and regularly sends in secret shoppers to evaluate merchandising and staff interactions. These evaluations factor into employee performance reviews.  

At Trader Joe’s, employees are encouraged by their managers to take ownership of their work and are given the responsibility to do so. As one former employee writes, “Crew members are trusted to make decisions for and take the lead on various tasks.” 

She says that crew members are encouraged to take ownership of their success and mistakes, but managers are always on hand to offer guidance or help when necessary.

“[Staff] maintained an attitude of ‘there are 1,000 right ways to do something,’ which made employees feel safe about making suggestions or changing up methods,” she writes.

There is so much to dive into about staff development that can be noted here, but as the above research points out, the right staff at the right time who are 100 percent bought in and engaged will undoubtedly increase your revenues and your customer satisfaction. And having the proper staff in place will also help with inventory turns as you sell through products at increased rates resulting in more sales, lower overhead, and happier staff and customers.