Fix Operations Before Fixing the Labor Hours

Retailers in today’s climate are wrestling with the “right” amount of labor to supply to their stores to drive the experience and returns expected.  This too often becomes a paradox between what stores really need to fulfill the brand promise and what the company can afford. Comparing top down financial labor budgets and bottom up operational based budgets is and apples to oranges activity. Attempts to reconcile the dichotomy are often compounded by operational problems at the store level.  Most companies are unable to articulate the root cause and associated impact of what is driving the disconnect, which leads to addressing the wrong issues. 

 Top down financial budgets are primarily calculated using historical data, such as labor as a % of sales (with some store specific influences), most often compounded by some arbitrary improvement goal.  Financial budgets tend to not only ignore the actual labor required, but also do not provide operators with insights into how they should spend their labor. Bottom up labor is calculated based on the actual task work that occurs in the workplace and are rooted in the service expectation levels defined by the brand promise. Bottom up labor budget models too often tend to be raw labor, and the full picture of required labor hours is not revealed until scheduled shifts are applied and staffing factors kick in (minimum shift lengths, wage rates, meals and breaks, utilization, etc.). This causes many bottom-up labor budgets to be understated, which further complicates the comparison to financially-driven budgets.

 Where most retailers come up short is ensuring that the stores are not only funded correctly, but also that they are doing everything they are supposed to be doing with the labor. It’s often an effectiveness question, rather than a quantity question. If stores are performing poorly, increasing their labor budget will not necessarily have a positive impact on their results. But reducing their labor hours when they perform poorly certainly increases the problem. 

Forcing store managers to determine how to apply labor cuts, when they too often are struggling to be effective with enough labor, yields unpredictable results. The first activities to be “cut” are usually the ones that are least tangible; customer service, cleaning and visual presentation…However, the decision on what to “cut”, when left up to the store managers to decide, will be highly inconsistent and dependent on personal priorities and experiences. The darkly ironic impact of these decisions is that they almost always degrade the top line, which only forces the company to exert more pressure in the next round of budgets.

This is the danger in starting with technology and engineering without addressing the execution element first. Chronic underfunding, without guidance on which operational standards to relax, will deteriorate any returns that are expected from fixing the funding. After stores have become accustomed to managing their operations in a constrained labor environment, if relief is provided it will not go where it is intended because stores have become used to a “new normal” and often don’t recognize where the relief is needed. Applying a mathematical “fix” by giving stores increased labor budgets, even when founded on an activity-based labor model rooted in engineered labor standards, may only compound underlying execution problems.

The most-successful retail leaders are taking a step back and understanding that transforming their operations first — then building their labor model on top of this now solid foundation – is the only way to effectively recapture the customer experience and deliver the brand promise that made them successful in the first place.

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Ty Law

Ty Law is the Director of Retail at Connors Group, and brings a rich perspective on the benefits of workforce management and labor modeling.
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