Why wage growth is helping to make us uncompetitive

“Nowadays people know the price of everything and the value of nothing.” – Oscar Wilde.

It’s getting harder for many of our retailers; fighting the fight, lacing up for another battle against these retail heavyweights, ducking and weaving, sharpening the point of difference, opening at all hours, battling one of the highest rental levels in the world, suppliers demanding, customers demanding more and then there’s high taxation rates, and then to top it all off there is staff, one of the biggest management challenges a business can face.

In fact, at least 50% of the operating cost for retailers is typically wages, and here’s the point, in FY13 retail wages rose 4.4% whilst non-food retail sales rose only 0.6%.

So how have many retailers reacted to this dilemma?

Well, simply to cut people on the staffing hours, reducing direct wage cost, in many cases worsening true productivity and, in most if not all cases, worsening customer service levels.

Compounding this topic is that it is staff and stock that drive sales; so reduce either or both and sales will suffer. Through our mystery shopping business, we see evidence that as times get tough investment in staff training programs reduces and, regrettably, we also see great variability in service levels and staff productivity.

The difference in staff productivity is very real and it is no surprise that JB Hi-Fi has twice the sales per staff member of the department stores and many retailers have up to double digit sales increases to achieve in order to cover the additional costs of this inflated wage rate. And herein lies the rub, a flat to marginal sales environment will not, regrettably, create the “business fit” environment required, yet the costs continue to increase.

A retailer with flat sales and 3-4% wages growth has to take some “business fitness” steps to better their position including:

1. Firstly, all retailers need to make sales, and profitable sales are best, so look at what makes your business offer different and focus strongly on that.
2. Invest in people, training, coaching and measuring. Interestingly some of our fittest retailers never reduced staffing and training even in the difficult periods.
3. Measure sales per man hour (and or margin per sales hour) and you will start to see a pattern quickly identifying your best salespeople. This is the key to retail productivity.
4. Measuring average sales and items per sale is also critical as it shows the influence of your merchandising strategies and in-store tactics.
5. Reduce non-selling tasks in the business – the classic “what the store can do” to offload head office duties in the quiet times is a panacea for reducing sales.

Really understanding the productivity of your income and expenses against simple ratios starts to produce operational insights necessary to ensure that your sales stay ahead of the curve and your costs behind it.

Happy fit retailing!

Brian Walker is founder and CEO of retail consulting company, Retail Doctor Group. Brian specialises in the development and implementation of retail and franchise strategies. Brian can be contacted on 02 9460 2882 or brian@retaildoctor.com.au.