How Many Workers Is the Right Number for a Retailer? Stories from Trader Joe’s, Michaels, and Whole Foods

A reader named Quinton White points us to an interesting article by Jim Surowiecki in The New Yorker about how retail firms are succeeding by hiring more workers and spending more money training and rewarding them. Surowiecki writes:

A recent Harvard Business Review study by Zeynep Ton, an M.I.T. professor, looked at four low-price retailers: Costco, Trader Joe’s, the convenience-store chain QuikTrip, and a Spanish supermarket chain called Mercadona. These companies have much higher labor costs than their competitors. They pay their employees more; they have more full-time workers and more salespeople on the floor; and they invest more in training them. (At QuikTrip, even part-time employees get forty hours of training.) Not surprisingly, these stores are better places to work. What’s more surprising is that they are more profitable than most of their competitors and have more sales per employee and per square foot.

The entire article is worth reading. It made me think of a retail experience I recently had in the opposite direction, and what that experience may say about that retailer’s prospects.

(Photo: Alisha Vargas)

Are you familiar with the Michaels craft-store chain? No, I didn’t used to be familiar with it either. But I now have a 10-year-old daughter who loves to do crafty projects and as it happens, a Michaels opened up recently within walking distance. So we spend a lot of time there.

One problem: the checkout line is always really, really long. One Saturday I went with my daughter to buy something and the line was so long — maybe 40 people, moving slowly — that we left. Then, a couple of days later, I popped over by myself, on a weekday afternoon, to get the stuff my daughter had wanted.

And the line was still long! Maybe only 15 or 20 people this time but too long for me to wait. I did, however, seek out the manager. I told her I was happy her store had such huge demand but why, even on a weekday afternoon, do you make it so hard for people to put money in your hands? Isn’t that the objective of running a store?

I was surprised when, instead of offering a pro forma apology, she began to explain how frustrated she was with the situation. She said it drove her crazy to see that line of customers waiting to pay and to see people like me leaving because of the line.

She explained that the problem is rooted in Michaels’ corporate headquarters in Texas. She said that every store in the chain (there are more than 1,000) has a “payroll bucket” from which to pay cashiers and, if my memory serves me correctly, each store’s payroll bucket is based on the store’s square footage.

The problem with this store, she said, is that it takes in a lot of money per square foot because this is Manhattan, where square feet are scarce but where customers aren’t. In fact, she said, this new store had immediately become one of the most profitable stores in the chain. And yet she couldn’t shake free any more payroll money (yet, at least — she said she’d been trying hard) because of the existing square-footage/payroll formula. She said she wanted more money to not only hire more cashiers but also to build more registers.

I hope she gets her way. It seems a shame for a successful store in a chain to not be able to maximize its profits, and to best serve its customers, simply because of a formula that works in some places but doesn’t work in others.

Of course I have no way of knowing if everything she told me is accurate. But it was an interesting conversation especially in light of the bigger question that Surowiecki wrote about.

FWIW, critics — especially Democratic critics — may note that Michaels is a chain that went public a long time ago, expanded widely, and was taken private in 2006 when it was acquired by two investment firms: the Blackstone Group and, yes, Bain Capital.

Also FWIW: one of the reasons I find shopping at Whole Foods so pleasurable is that there are so many employees — who, it appears, are trained to physically escort you to an item if you can’t find it. So while I may pay a few pennies more on the dollar for something at Whole Foods (or maybe not), in part because of higher labor costs, at least the labor costs directly translate into a superior customer experience.

Leave A Comment

Comments are moderated and generally will be posted if they are on-topic and not abusive.

 

COMMENTS: 27

View All Comments »
  1. 164 says:

    Though provoking article. Possibly a third dimension is a central office that allows for local decision making in local markets. This may just be another way of looking at how TJs and Costco trust their employees and empower them to make decisions. That’s always a good thing.

    Thumb up 0 Thumb down 0
  2. curiositykt says:

    I’ve been working on building a chicken coop for the last few weeks so I’ve been spending a great deal of time and money at Home Depot. Most of the time I have had awesome customer service with people taking the time to talk to me, discuss different options and then lead me to the exact thing that I need. However this weekend I went in to get some paint for another project and I wanted some help understanding the difference between the 5 similar yet different versions and there was no one to help me. The store was considerably more busy than the one I normally drive to, but there seemed to be many fewer sales people. It made the entire trip much more frustrating than it normally would be and made me very annoyed at the store.

    I also went to Kohls this weekend to buy a sweater, and got so frustrated with the messy displays and clearance section that I left without buying anything – went across the street to dress barn and had a sales woman helping me so much that I bought 2 sweaters!

    Thumb up 2 Thumb down 0
  3. mannyvel says:

    The checkout problem is a chronic Michaels problem. Whomever The owners need to update their model. I suspect that they don’t realize that the lines are that long. With lines that long, the marginal cost of the extra cashier will be offset by the lack of lost sales due to people leaving the store.

    Well-loved. Like or Dislike: Thumb up 5 Thumb down 0
  4. Ken says:

    Having to wait in a long line to part with your money has always struck me as on of the biggest sins a retail outfit can commit, worse than not being able to flag down your waiter when you’re looking for the check. Over the years, I’m sure I’ve bailed on, in aggregate, over a thousand dollars worth of transactions because of the length of the check out line.

    I am loyal to Whole Foods, and the check-out experience is a sizable contributor to that loyalty. Even on Thanksgiving Eve, I can get through check-out in minutes, when a 1/2 hour (or more) back-up can be expected everywhere else. Not to sound like a snob, but my time is value; once I’ve made up my mind on what to buy, I’m want to pay and leave post haste — and I will pay a little more to be able to do that.

    Thumb up 4 Thumb down 0
  5. boomerartist says:

    Used to buy some art supplies at Michaels, but prices were always higher (with or without coupon). Stop going and haven’t been back. No customer loyalty here. None. Zero. Nada.

    Thumb up 2 Thumb down 0
  6. Psychohistorian says:

    This same corporate formula applies, sadly, to Chipotle. I lived in Charlottesville, VA and I now live in Manhattan; Chipotle closes at 10 p.m. sharp in both cities. By contrast, most Starbucks in Manhattan are open past 10 p.m. Amusingly, a Five Guys opened next to my local Chipotle. It originally posted hours until 10, but changed them to 11 soon after opening. How is it that these businesses leave money on the table like this, and how is it that Starbucks is smart enough to adapt to the local market when they aren’t?

    Thumb up 1 Thumb down 1
  7. Gregg L says:

    I live in Utah and Michaels is no better here. Actually, all the craft/fabric stores in my part of Utah have long and/or slow lines. In the past I have wondered if they trained them to be slow:)
    I think lack of training and corporate obtuseness are more likely explanations.

    It seems that this would present an opportunity for a company that actually knows how to provide customer service to get into this market. I know they would get my family’s business!

    Thumb up 2 Thumb down 0
  8. Jason says:

    My local Safeway checker was telling me that he has to work at multiple stores to get his 40 hours a week and that this is policy for all but a few employees. Our store will only give him partial shifts, e.g., 4 hours, and then he drives to another store for 4 hours. As far as I could tell, when he leaves our store, another checker comes in for 4 hours. Not sure if that other checker came from the other store and they are just switching?

    Anyone have a theory about why Safeway would have this policy? My theory is that they promised the city they would hire X people (instead of FTEs) in order to get a tax break and that they have to have people work at multiple stores to get to X.

    Thumb up 2 Thumb down 0
    • Winnie says:

      Because their scheduling software schedules staff to correlate with “peak” – i.e. they are very busy during those 4 hours so need more staff then and only then, and local labor laws would probably require a longer, possibly paid, break if they work more than 4 hours. So they are scheduled to work during a very busy time, and that’s it.

      Thumb up 0 Thumb down 0