Success Stories from San Francisco Prove That Retailers Profit More When They Treat Their Workers Fairly
Every month the federal government issues a new jobs report. The stock market gyrates, pundits pundify, politicians politic. Whether employment expands slowly or fast one central fact remains. The fastest growing occupations all pay low wages: retail salespersons, cashiers, food preparation and food service workers such as waiters and waitresses.
Since February 2010 industries whose jobs pay between $9.48 and $13.33 an hour have accounted for 44 percent of job growth. The salary of many full-time workers in these industries keeps them in poverty. And even this miserable situation is getting worse. The average retail worker earns about 12 percent less, adjusted for inflation, than a similar worker in 1979, according to the Economic Policy Institute (EPI).
It gets worse. An increasing number of retail jobs are part time. “Over the past two decades, many major retailers went from a quotient of 70 to 80 percent full-time to at least 70 percent part-time across the industry,” Burt P. Flickinger III, managing director of the Strategic Resource Group, a retail consulting firm told the New York Times. Their hourly wages are almost 35 percent lower than those of full-time employees. They often do not receive health benefits and are scheduled too few hours to earn a living.
Part-time jobs are no longer the domain of the young. Many are adults in their prime working years—25 to 54. Part-time employment used to be voluntary. Today involuntary part timers total 7.5 million, up from 4.4 million in 2007.
Retail employment, especially for part timers, is an uncertain situation. A University of Chicago study found part-time schedules fluctuated between 17 and 28 hours per week. Many employers schedule shifts as short as 2-3 hours. Some 47 percent of part timers received advance notice of only a week or less on their work schedules. Many are on call, finding out just hours ahead of time if they have to go for work.
From an employer’s perspective this is efficient. Computer algorithms successfully used to pare the need for inventory by matching the supply of products and parts to the demand are now used to allocate work hours. But as Marianne Levine at Politico writes, “Trouble is, getting moved around at the click of a mouse is more disruptive to human beings than it is to refrigerators and automobiles”.
The human cost in disrupted lives is enormous. Uncertain schedules undermine workers’ efforts to fulfill their caregiving responsibilities or maintain stable childcare or pursue education or training or juggle a second part-time job.
The unfettered market brought us below poverty level wages, uncertain part-time employment, and the disruption of tens of millions of lives. Clearly the market needs a little help. Congressional Republicans will have none of it, stalling several federal bills that would alleviate the hardship. So state and local Democrats and Republicans and Independents have stepped in.
After November’s elections in which four red states—Alaska, Arkansas, Nebraska, and South Dakota—passed minimum wage increases in 2015 a majority of states will have minimum wages higher than the federal rate.
In 2006 San Francisco was the first city to enact a paid sick leave requirement. Today 15 other cities and 3 states have such laws.
On November 26th San Francisco again led the way by passing a bill that will require retail stores with more than 20 locations globally to treat their workers more decently. Employers must give employees at least 2 weeks advance notice of work schedules changes. If notice is less than a week they must pay up to 4 hours at the worker’s regular hourly rate. If an employee is required to be on call and is not called the employer must provide 2-4 hours of pay. Employers must offer any extra work hours to current part timers before hiring new workers or subcontractors. Employers must provide equal treatment for part timers compared to full timers, including starting hourly wage, access to time off and eligibility for promotions. If the business is sold, the successor employer must retain for at least 90 days all employees who had worked there at least six months.
The San Francisco law will apply to 12 percent of all retailers that employ almost half of all retail workers in the city.
Retail laws do not apply to much beleaguered retail managers. The federal Fair Labor Standards Act did help supervisors by limiting the percentage of the day he or she could spend on non-managerial duties and still be exempt from overtime. Until 2004 that was understood to be no more than 50 percent. That year President Bush’s Department of Labor changed the threshold under which supervisors qualified for time and a half overtime pay. According to EPI, in 1975 65 percent of all salaried workers fell under the threshold and were thus entitled to overtime. By 2013, just 11 percent of salaried workers were automatically due overtime pay. Adding insult to injury, under the new rules people could be defined as managers exempt from overtime, for example, while doing grunt work and supervisory work simultaneously.
Overworked store managers often are evaluated based on whether they meet monthly (or weekly) targets for payroll as a percentage of sales. Managers don’t have much control over sales but they do control payroll. So when sales decrease, they immediately reduce staffing levels.
The Chamber of Commerce railed against the SF law as many business associations across the country have railed against municipal and state minimum wage or mandatory paid sick leave laws. They argue that retail is cut throat competitive with small margins and customers who demand the lowest price. But the evidence reveals that good management can make a business competitive and profitable even while treating workers humanely.
Treating workers poorly has its costs: lower morale, higher absenteeism and tardiness and turnover. Studies have found that hiring and training a replacement employee costs between $3300 and $6000. Untrained or poorly trained employees are less productive and make more errors. On-site management becomes even more difficult.
Zeynep Ton, associate professor at MIT’s Sloan School of Management describes a study she and Ananth Raman of the Harvard Business School conducted for Borders, a major bookstore chain. Analyzing data from 1999 through 2002 from more than 250 Borders stores, “We found that there was a huge variation in operational performance among stores that used the same information technology and offered the same incentives to employees. The performance of the best store was a whopping 43 times better than that of the worst store.”
Ton’s book, The Good Jobs Strategy offers many examples of highly successful retail chains—such as QuikTrip convenience stores, Trader Joe’s supermarkets, and Costco wholesale clubs—that complement higher investment in store employees with investments in operational practices. The combination makes work more efficient and more fulfilling while it lowers costs, boosts sale and profits and improves customer satisfaction.
Costco employees earn 40 percent more than those working at Sam’s Club and sales per employee are almost double those at Sam’s Club. Full-time employees at Trader Joe’s earn more than twice what competitors offer and sales per labor hour are more than 40 percent higher while sales per square foot are three times higher than those of an average U.S. supermarket. And turnover among full-time employees is less than 10 percent. QuikTrip’s wages and benefits are far higher than those of other comparable stores but its sales per labor hour are 50 percent higher. Its 13 percent turnover rate among full-time employees is remarkably lower than the 59 percent average rate in the top quartile of the convenience store industry.
Local and state government intervention is helping tens of millions of workers while forcing retail corporations to up their game. Those who continue to operate inefficiently will go out of business. Those who treat their workers (and customers) with respect will increase sales, reduce operating costs and increase profits. That’s a private public partnership I fully endorse.