News

Researcher: Retailers investing in employees will profit

June 18, 2012

Although the economy is starting to bounce back, wages and benefits are still low when it comes to many low-skill service jobs, such as employees of retail outlets. Some experts, however, think viewing retail labor as something to be cut may be backward, according to a story in Time.

By underinvesting in employees, retailers are making their operations much more inefficient, which leads to lower profits, said Zeynep Ton, a professor of operations management at MIT's Sloan School of Management, who has been researching the topic for the past 10 years.

"Highly successful retail chains — such as QuickTrip convenience stores, Mercadona and Trader Joe's supermarkets, and Costco wholesale clubs — 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," she wrote in a paper published in the Harvard Business Review.

Some in the industry were skeptical and told Ton that investing in employees only makes sense for retailers who differentiate with products or services, not for those in the low-cost sectors. Ton's research proves otherwise.

The reason? Retailers who invested in employees and had low prices were able to do so because they were able to save in areas by having a "highly trained, highly motivated workforce," Ton said in the story.

"In my field visits, I consistently found that with so many products, promotions, and storage areas, a task that ought to be simple—such as shelving toothpaste—is not," she said in the story. "Such a surprisingly complex operation requires something uniquely human: judgment. Poorly paid, poorly trained, and poorly motivated employees have to monitor which products have sold, decide what to keep on the selling floor and what to move to and from backrooms, and remember which backrooms contain which items."