Interesting concept: retailers paying their employees well

Time Magazine has an article, "Future of Retail: Companies That Profit By Investing in Employees," based on the work of MIT professor Zeynep Ton.  From the article:

But what if the logic behind viewing retail labor as an expense to be cut, rather than as an asset to be invested in, is unsound? Zeynep Ton, a Professor of Operations Management at MIT’s Sloan School of Management, argues just that. Her research has shown that by underinvesting in their employees, retailers are actually making their operations much more inefficient, and therefore much less profitable.

This is an area that Ton has been studying for ten years, and what she has consistently found is that companies that buck the status quo and invest heavily in their workforce actually are able to not only compete with their competitors on service but on price too. In a paper she published in the Harvard Business Review earlier this year, she writes:

“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.”

Increased Expenses, But Lower Prices?
When Ton first started talking about the results of her research to retail industry executives, they were skeptical. “What I kept hearing from industry people was that investing in employees makes a lot of sense if you differentiate based on the products you offer or service, but it wouldn’t work for low-cost retailers,” she says. “That’s why I specifically studied low-cost retailers. If you can do it in low-cost you can do it anywhere.”


The reality is that it's not just about investing in employees--a full-time Trader Joe's employee makes $40,000 to $60,000 annually, whereas most retail workers make half that or less and a significant proportion of retail workers receive some public assistance--it's also about the business model.  For example, each of the companies studied also has a narrower range of products, a higher number of private-label products, which results in simpler logistics and higher profit margins.

From the article:

When workers are well trained and a retail operation is fully staffed, operational failures like missing merchandise are severely mitigated. And when employees are paid and trained well, they are much less likely to leave. Indeed, turnover at all the stores Ton studies in her report are much lower than the industry average, which reduces the need to invest in training new employees.

So the article is interesting especially in terms of some cities (such as DC) and their embrace of big box retailers such as Walmart or other chain operations, such as McDonalds.  At one level, these establishments do hire people ("jobs"), and there is something to said for entry-level jobs and learning "how to work"--to be on time, to perform your duties, etc.--the issue is the capacity to "move on up" within those companies or the field generally.