Solving The Labor Equation For Next Generation Retail
Labor. It’s a major, common theme across retail and one of the top obstacles for retailers for the next three years.¹ Workforce management and labor optimization will increasingly be a focus for retailers across all retail channels. With rising wages and plenty of competition for talent, retailers will need to be hyper-focused on making sure they get labor right. That means having the right people, with the right skillsets, in the right amount, at the right time to most effectively serve the customer.
In 2021, 25 states are scheduled to raise their state minimum wage an average of $0.63 per hour. This comes after 27 states and Washington, D.C. implemented average increases of $0.72 per hour in 2020. For a 300-store small format chain that could easily equate to a $8-10 million increase in labor expenses in just two years. That’s a straight hit to operating margin and retailers need to figure out how to offset that. Adding to the challenge, the current push for a $15 federal minimum wage as well as hourly increases from Costco, Amazon and Walmart create even more upward wage pressure.
With labor costs rising and the customer experience changing, the time is now for retailers to revisit labor strategy. Retailers have a few options to offset this expense:
- Raise prices
- Cut labor
- Improve efficiency
- Replace labor with technology
In this competitive environment, sweeping price increases or labor cuts are likely not good choices. Improving efficiency is always a good idea and replacing labor with technology should be looked at in the broader context of optimizing the customer experience. Deploying the right technology in the right situations can improve service levels, sales, and profits. However, technology is expensive, and rising labor costs can cut into technology budgets.
Plus, areas of the shopping experience—particularly checkout and fulfillment—are undergoing significant changes. The traditional centrally located checkout isn’t as necessary as it was before. Self-checkout has been widely deployed. Mobile checkout is also increasingly available. And Amazon’s Just Walk Out technology has provided a glimpse of the future as those capabilities become a functional and economic reality for larger stores. Customer adoption of curbside, pickup, and delivery has grown dramatically and is reshaping retail. Once deemed interim solutions, the following are becoming core expectations:
- Scan & Go
- Smart Shopping Carts
- Order Pickup Lockers
- Pickup Only Stores
As the customer experience continues to evolve, shopping patterns change. That means the expectations of store employees also need to change. As a result, retailers will need to revise their labor model to get the right labor in the right amount to best meet the needs of the new customer experience.
Many retailers continue to choose the minimal coverage route to reduce labor expense. However, as upward wage pressure continues, retailers will need to invest both in the customer experience to drive sales as well as tools to optimize labor.
To guide retailers more effectively, workforce management solutions are recalibrating their algorithms to appropriately handle the increase in store activities – curbside, in-store pickup, delivery, etc. All these activities require different skillsets and varying amounts of time. And all need to be accounted for in labor optimization modeling. As the solutions are recalibrated, retailers must consider their current labor tools.
For those without tools or only rudimentary tools (like Excel) – the time is now to start defining your requirements and invest in a software solution that can help.
For those with in-house solutions – it makes sense to see what’s available in the marketplace and how it compares to your solution. Has your team kept up with changing shopping patterns and new store activities? Does the cost of an in-house development and maintenance team still make economic sense given the advances in workforce management solutions?
For those with existing solutions – evaluate your current tools to determine if it still meets your evolving needs. It may be time to explore new, more robust options. Has your software kept up with the changing landscape? Does it offer all the features and functionality that your business requires?
Impact 21 is well equipped to help guide all retailers through these processes of defining current and future workforce management requirements. Not only can we aid in the decision process, but we can also help foster true partnerships with your current and future workforce management vendors.
Lexington, KY, 9/26/2023 – Impact 21, leading global consulting firm dedicated to helping convenience, retail, and energy clients thrive in […]
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