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.

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  1. Bob says:

    I always hate shopping at Trader Joes because their stores are always far too small and cramped to accommodate the amount of customers they attract. Everyone is constantly in each others way.

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  2. sandy says:

    The “escort the customer to the product” was used by WalMart when I first shopped in one somewhere in the south about 25 years ago. I went into one while we were traveling to buy some forgotten thing and came out in awe. I told my husband that if they ever went public that we should buy their stock. Sadly, he didn’t listen to me so we aren’t multimillionaires. Now you can’t find an employee in a WalMart store no matter how hard you try.

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  3. gradys_kitchen says:

    Now explain the logic of the Apple retail stores? Despite a plethora of seemingly happy employees, the ‘controlled’ chaos that ensues in a cashier less environment seems to leave a significant portion of store goers confused and angry. This is all anecdotal and possibly easily refuted by market studies that show an endless supply of happy retail customers but count me amongst the flock who like to be herded to defined checkout areas.

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  4. Shelby says:

    This is imcredibly true about Michaels. I work at one during the day as a sales associate. No one is on the floor in our store until 5PM, and there’s only one cashier at a time during weekdays. It blows my mind. Yet they hire a bunch of employees so I rarely get more than 20 hours. And I only make $8.50 an hour. I’m lucky of my bi-weekly checks are $200. Almost everyone I work with has a day job just so they can live. Michaels doesn’t want to pay employees or give them hours. They would rather have a giant pool of employees where some only get 4-8 hours per week.

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  5. If cvs knew they would fire you says:

    If you want to have some real fun go into a CVS! There you are lucky to see more than one cashier and a manager. CVS will tell you they are custoner focused however they put labor bugets to sales per hour (sph). Yet having been a manager I can tell you my sales budget was adjusted for tobacco sales yet my sales per hour goal jumped up $50 an hour! If your customer focused and reduced the sales budget then how does the SPH go up! Labor cuts… As a manager I went from working 55+ hours to 70+ work week to try to ensure service and store readiness. After many months if promisses I decided to walk away. Now I don’t bother shopping at CVS I’d rather support stores that understand and show they value their employees and customers

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