Six Steps to Optimize Retail Labor

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Six Steps to Optimize Retail Labor

By Tammy Stern, ShopperTrak - 08/01/2012
From specialty outlets to chain stores, labor is one of the largest out-of-pocket expenses for apparel retailers. Companies that manage labor most effectively convert that expense into an asset. To maximize the value of every labor dollar and minimize any labor-related loss of sales, retailers must employ every possible means to optimize labor in each store they operate.

Both the amount and type of labor deployed in individual stores can have a profound effect on the success or failure of a retail operation. Adopting a labor optimization model based on retail foot-traffic intelligence can give retailers the edge they need to succeed in a competitive marketplace. And while managing and leveraging the model can be an ongoing, iterative process, retailers would do well to focus on six foundational steps.

Count foot traffic. Retail foot traffic is a simple, but powerful, metric. When retailers install comprehensive people-counting systems in their stores, they are frequently impressed by two findings. First, more customers enter the store than they previously thought. Second, fewer shoppers make purchases. Only by carefully measuring and monitoring this key indicator of retail health can apparel stores improve their bottom lines. With automated, accurate people-counting data, a retailer immediately is able to establish baseline values to begin analyzing its workforce and its individual store performance.

Hire with purpose.
Labor optimization starts well before an employee’s first day on the job. During the hiring process, look for employees who are familiar with foot traffic and have been measured by traffic-related performance metrics in the past. Hire based on the store’s scheduling needs, not the potential employee's availability. Further, be sure to use foot-traffic data to determine the peak hours when labor is most needed, and look for the skill sets necessary to capture sales during those periods.

Maximize existing labor. Most retailers can identify hourly fluctuations in shopper-to-associate-ratio (STAR) within a few days of installing a people-counting system. STAR is the correlation between the number of potential buyers in the store and the number of associates who are able to meet those buyers’ needs. When the STAR climbs too high, the store risks losing customers. When the STAR drops too low, the store risks over-spending on labor. Finding the perfect STAR for each store is both an art and a science but, once determined, it becomes the cornerstone of labor scheduling.

Managers can also monitor shopper conversion rates, or the ratio of sales transactions to the number of shoppers in the store, and schedule the most productive selling agents during peak periods of shopper opportunity. Generally, a 1 percent to 2 percent improvement in conversion can yield a 4 percent to 10 percent increase in sales revenue. By scheduling the appropriate amount of labor during all operating hours, and syncing the best sales staff with the hours of greatest opportunity, retailers can transform labor from an expense into a strategic sales tool.

Schedule sales support activities based on traffic. Retailers that are not equipped with traffic-based insights into their peak hours often make the critical mistake of allowing non-selling activities, such as inventory, stocking and delivery receipt, to occur during these times. Scheduling these activities appropriately can allow retailers to better meet their customers’ needs, which can translate to higher satisfaction and sales.

For example, one retailer analyzed its traffic data to discover that its conversion rates consistently dropped one hour before closing each night. Further investigation led the store managers to realize that many employees were starting their non-selling closing duties, such as cleaning and restocking, during this time. This behavior directly and negatively affected sales. Using hard data, the managers brought the issue to their associates’ attention and worked to keep employees focused on maximizing sales opportunities, even near the end of their shifts. After just a few weeks, conversion rates toward the end of the day improved.

Reward employees based on conversion. While many retailers offer sales incentives based on average dollar sale, units per transaction and overall sales, those that want to optimize their workforce should add incentives based on shopper conversion rates. While sales-based metrics indicate how much value was realized within each store each day, only conversion gives retailers insight into missed opportunities. If a store had 23 sales transactions from 23 potential customers in an hour, there would be no room for improvement. A store with 23 sales transactions and 100 potential customers, however, lost 77 potential transactions.

Get everyone on board. Using traffic and conversion as performance metrics and tools to guide labor scheduling is a cultural shift that must be managed through continued employee education efforts. From the chief executive officer to the dressing room assistant, each person in the company needs to understand foot traffic. Successful education methods may include integrating a retail operation's people-counting system into new employee training and making traffic reports available to all members of the organization.

Traffic-based workforce optimization is a tool every apparel retailer must have to excel in an increasingly competitive industry. A successful workforce optimization program doesn’t have to attract more customers or require management to slash prices. It simply allows stores to utilize existing resources most efficiently, convert more browsers into buyers and ultimately increase profits.

Tammy Stern is the manager of client services at ShopperTrak, retail technology company that anonymously counts people, analyzes data and identifies opportunities to increase revenue for retailers, mall developers and entertainment venues.