Home » Amazon, Bookstores » If Retailers Want to Compete with Amazon, They Should Use Their Tax Savings to Raise Wages

If Retailers Want to Compete with Amazon, They Should Use Their Tax Savings to Raise Wages

12 January 2018

From The Harvard Business Review:

Walmart announced today that it is raising its starting wages in the United States from $9 per hour to $11, giving employees one-time cash bonuses of as much as $1,000, and expanding maternity and parental leave benefits as a result of the recently enacted tax reform. It is part of Walmart’s broader effort to create a better experience for its employees and customers. The new tax law creates a major business opportunity for other retailers as well — if their leaders are wise enough to take advantage of it.

The U.S. corporate tax rate is dropping from 35% to 21%. Retailers, many of whom have been paying the full tax rate, are going to benefit substantially. Take a retailer that makes 15% pretax income. Assuming its effective tax rate goes from 35% to 21%, it could save the equivalent of 2.3% of sales. Specialty retailers with higher pretax income will save even more.

. . . .

Retail executives have a choice in how they use these savings. I believe the smartest choice — one that will help them compete against online retailers like Amazon — is to create a better experience for customers and to achieve operational excellence in stores. For most retailers, doing both requires more investment in store employees — starting with higher wages and more-predictable work schedules. My research shows that combining higher pay for retail employees with a set of smart operational choices that leverage that investment results in more-satisfied customers, employees, and investors.

Retailers that do not provide a compelling draw for their customers may not make it. In 2017, according to Fung Global Retail and Technology, there were nearly 7,000 store closing announcements, the second-largest number since 2000.

. . . .

[T]wo of my MIT Sloan MBA students analyzed store openings and closings from 2015 to 2017, looking at department stores with more than 50 stores and over $100 million in revenues, and found a positive correlation between customer satisfaction, as measured by Yelp ratings, and the net change in the number of open stores.

. . . .

Many companies can no longer grow profitably just by adding stores — they need to get more out of their existing stores. Operational excellence makes that possible by ensuring that merchandise is in stock and well displayed, checkout is efficient, stores are clean, and employees are responsive to customers.

. . . .

Creating a great customer experience and achieving operational excellence both require a capable and motivated workforce. You need knowledgeable employees who are cross-trained to manage customers’ needs wherever they arise. You need employees who can empathize with customers, are empowered to solve customer problems, and can spot opportunities to improve operations. You also need a capable and motivated workforce that can embrace and leverage new technologies.

Yet most retailers are far from having that kind of workforce. In 2016 the average employee turnover in retail was 65%.

Link to the rest at The Harvard Business Review

Amazon, Bookstores

22 Comments to “If Retailers Want to Compete with Amazon, They Should Use Their Tax Savings to Raise Wages”

  1. Strip out the irrelevant Amazon bait and he’s saying that B&M sales are dependent on operational excellence and that excellence is more expensive than mediocrity.

    (Wow! That’s new?)

    Of course, he also assumes higher wages will magically lead to that operational excellence…

    Somebody ought to remind him that correlation is not causation. Simplistic thinking.

  2. Of course, he also assumes higher wages will magically lead to that operational excellence…

    Yes, that struck me as well. No mention of the competence of leadership and the deployment of resources under that leadership (direction, communication, inspiration, employee training, etc.) that must be part of excellence.

    1. Pay higher wages.
    2. A miracle occurs.
    3. Excellence results!

    ::JM lifts eyebrow::

    • Furthermore, merely paying a higher wage does not suddenly gift existing employees with superior customer skills. Might encourage those who already have the skills to stick around, though.

      It also assumes all customers are “satisfied” just by polite, competent staff. Sure it is much more pleasant, but for an awful lot of things I look at price and quality of goods FIRST. Costco, for example, has never been known for its ambiance…

  3. Some years ago in Australia there were high profile failures of businesses which were lead by Harvard MBA’s. Those failures were not held against the people concerned, who seemed to have no difficulty getting new similarly high profile positions. One in particular seemed to be the kiss of death to more than one company. Either that or just terribly unlucky. This article comes as no surprise to me.

  4. It’s got to be a curve of diminishing returns, where x level of wages and excellence has a maximum profit potential of y. But beyond basic competence, their problems are more fundamental.

    All (new product) retail stores are variations of “Bringing the world to you!” Amazon and online stores have simply found a better way to do that. One that offers more variety and less travel/shopping time, at a cost of a delay in getting your hands on it.

  5. A zillion years ago when I was doing HR work, I tried (in vain) to explain this concept to upper management.

    They too believed if they gave Billy a raise from $10/hr to $12 he would suddenly be 20% more efficient, motivated and satisfied. (not sure how you measure the last 2 but you get the idea)

    My point to them was that Billy was who he was. If you hired a good guy who wanted to work hard, that raise might make him grateful and he would work harder for you.

    If he was average, you might get a tiny bump in performance.

    If he was barely above the minimum standard, he would probably remain there.

    The bigger issue, I explained, was when you advertise you are hiring at low wages, you get low skill people, desperate people or kids that are taking jobs because their parents won’t pay for their car insurance.

    Businesses are banking on hitting the jackpot and getting the exception to the rule – the one guy or gal who has a strong work ethic, a fantastic personality, boundless patience and energy and also happens to be ok making peanuts at her job.

    The major issue is always that people of that caliber are likely to get a low paying job because they lack skills and experience. The result? They stay with you until they acquire those skills and experience and then they leave for a job that pays them what they are worth.

    At low wages, retaining these people is impossible.

    At middle and upper incomes, things get more complicated, but the OP seems focused on retail jobs.

    I used to fight with corporate (can you see why I left that job) about mid to upper income levels as well. Some fool would trot out a study from the 90s that stated that money was low on the list of priorities for most workers and did not have a great effect on job satisfaction or performance. This study was quoted over and over when ever we mentioned our wages were not competitive.

    The details of the study they kept referencing was that money was of low importance to workers at their job “one they were financially secure”. The quoted part never made it to the table during these meetings.

    At the time, the average wage for a U.S. worker was in the range of $45000/year. As I explained, if you gave that person a $10,000/raise, you’d make a serious change to his life and financial security. You could ask him to take on more responsibility and work harder (within reason of course!).

    Now consider Sally who is a mid to upper level manager making $125,000/year. Offer her a $10,000/year raise to work 30 extra hours per week, be on call 24/7 and work every holiday. Sally makes $125k and doesn;t have to do those things now. Money – short of huge, life changing money – is not a motivator here in all likelihood.

    Too many employers, however, don;t understand these dynamics. When the people at the table all make 250k+ at their jobs, they simply do not understand the dynamics at the 20k, 50k and 100k levels of wages and the work that surrounds them as a general thing.

    • +1,000,000

    • That’s absolutely true. The problem most businesses have is that they’re terrible at retaining the good employees that they already have, because they treat them the same as the terrible employees.

      I had a boss I worked hard for, but she insisted on making all her employees sign terrible contracts with awful, punishing, and likely illegal stipulations. I worked there for several years and had some of the most reliable clients. My last year, I asked not for a raise, but to remove the burdensome contract stipulations. She said no, because most of her employees were “itinerant” musicians and totally irresponsible–completely ignoring the fact that I’d worked for her reliably for years. I left that same year for a job that paid more and treated me with respect. You will never retain good, reliable people, the type of people your business needs, if you treat everyone horribly. She probably lost almost all of my studio within a year of me leaving.

    • Riffing off of that, there have been studies done that indicate that more money actually does make you happier–up to the point where you earn $75,000 a year. Then it plateaus.

  6. If Retailers Want to Compete with Amazon, They Should Use Their Tax Savings to Train Their Employees

    There. Fixed it for you.

  7. Perfect Antares.

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