How this retailer increased profit by $8.9m from rostering more hours
There has been a lot of speculation on why we are losing retailers so fast. An interesting research piece from the US presented an alternative hypothesis that generalises the issue down to rostering for profit rather than rostering to control costs.
For context – If you were given the choice of increasing revenue by 5% or reducing costs by 5% in order to create the most profitable outcome, what would choose?
A “back of the hand” calculation would show that reducing costs increases profit more than the equivalent uptick in revenue.
Accordingly, most retailers choose option two.
This makes sense if you assume the two scenarios are independent of each other, but what if the cost was your employees?
This is where the problems arise. For industries like retail, where staff have a direct impact on sales, it’s not as simple of a question as cutting costs to increase profit.
In a study led by Professor Marshall Fisher from Wharton, he and his research team constructed a conceptual model from historical data to identify stores within a US-based retail chain that had the highest potential to benefit from increased labour spend.
Importantly, the strategy was actually implemented at 168 retail sites over a 26-week period to validate the model, with the retailer electing to implement the strategy further.
The result: A near $8.9 million increase in profit of the stores included.
The labour cost challenge
The challenge in allocating labour budgets lies in the tradeoff between the known immediate payroll cost and the less certain increase in sales that could be achieved with more staff on hand.
The researchers point out that retail managers have a tendency to overweigh the decision to reduce the known payroll cost than the less certain increase in sales which could be achieved by allocating additional labour spend.
The labour budget death spiral
The study highlights the limitation of the most common retail strategy — setting labour budgets as a portion of sales. Fisher points out that this approach creates a circular problem by failing to take into account how store labour spend can positively impact sales, with the worst case leading to a spiraling effect of reduced sales forecasts reducing labour spend which reduces sales further and so on.
Quantifying the impact of labour spend on revenue
Creating labour budgets that are designed to maximise profit requires retailers to know on a store-by-store basis the correlation between labour-spend and sales. One way to do this is by looking at times when staffing levels deviate from the original schedule.
If ten staff were scheduled on a particular day, but on that day only eight turned up, did sales also decrease by the same portion? If not, by how much?
If the answer to the above is that sales didn’t decrease at all, the store is likely overstaffed. If there is a measurable impact, the inverse scenario is likely true and the store may be losing sales by being understaffed.
This is the same approach used in the study, which found the relationship between random staffing deviations and impacts on sales was statistically significant. Results showed an increase in labour spend pointed to increased sales at varying degrees, depending on known store attributes.
Implementing the strategy for profit
The study identified stores in a US retail chain which had the highest market potential, making them good candidates for an increased labour spend. The market potential factored in attributes like average basket value and proximity to competitors, which would create scenarios that allow workers to have the highest impact on converting sales.
In the study, 168 stores were selected this way, then allocated a 10% increased labour budget over a 26-week period, of which 75% of the increase was actually consumed in practice by the stores.
The outcome was a 4.5% increase in revenue at the impacted stores and resulting in a near $8.9 million profit increase.
Learning from the strategy
The study shows empirically why the common practice of setting labour budgets as a fixed proportion of forecasted revenue is often self-defeating when applied in a retail setting.
An opportunity exists to all retailers to leverage this same profit-centric model for defining labour budgets. The data required is available to all retailers however, it may just be a matter of leveraging that information with the right systems.
An integrated forecasting strategy that integrates foot traffic, sales, and employee scheduling data is a practical opportunity afforded to retailers of any size to optimise their labour resource allocations.
The interesting part is, Fisher’s research is readily available to all retailers who are looking to drift away from the traditional method of fixing labor budget rosters. The next step is to get this method of labour resource allocation battle tested in the Australian markets.
Time Theft: Top 3 ways employees steal time and how to stop it
The loss of productivity and profits due to time theft has been an enduring problem for many employers across industries. It can come in many forms, from clocking out too early to slacking off at work. While it can be hard to determine exactly how much it costs, a 2017 PollFish survey revealed that the U.S. economy loses approximately $373 million to time theft every year. This is true everywhere else, not just in the US. Paying unproductive employees for their time can make companies lose millions. Below are the top 3 ways employees steal time, and what you can do about it. 1. Buddy Punching The Problem: Buddy punching occurs when one employee clocks in or out for another as a favour. Employees do this to avoid being reprimanded. They often believe that this act is not inappropriate, as it only affects a few minutes of the total hours. But some employees use buddy punching to get paid for hours or even days they didn’t work. This is more prevalent in off-site locations where monitoring systems are lax. A 2008 Nucleus Research report showed that 19% of employees admit to buddy punching. The Solution: Confirming the identity of the person clocking in or out is the easiest way to solve buddy punching. Previously, employers opted for fingerprint clock in technology but this has become less popular with increasingly strict biometric privacy laws. In fact, a data privacy complaint was filed in Illinois against a biometric equipment provider. Because of this, photo-verified clock ins are the safest way to confirm an employee’s identity. A manager can monitor if a clock in matches the employee via cloud data, regardless of where they are working. Read more: Why Fingerprint Scanners Don’t Work for Time and Attendance 2. Time Clock Deception The Problem: Time clock deception, or timesheet falsification, happens when an employee inflates the hours they worked. A 2015 American Payroll Association (APA) study found that 43% of hourly employees surveyed admit to exaggerating the amount of time they work during their shifts. Further, a shocking 25% of employees surveyed report more hours than they actually worked more than 75% of the time. APA estimates that a business that pays out $1 million in annual payroll could be losing up to $70,000 each year due to timesheet falsification. The Solution: Manual forms of timesheet monitoring is the most susceptible to deception. Companies who allow employees to write down their own clock ins and outs will often have no way of knowing whether the information is accurate or not. Even 30 minutes of falsified timesheets can already cost money for businesses. The only solution is to invest in a program that accurately records clock ins and outs, and generates timesheets at the same time. Tanda’s workforce compliant timesheets even calculates precise shift costs using either a managed award or EBA. Read more: The Digital Workforce Success Revolution: Why you need to shift to cloud-based HR today 3. Extended Breaks The Problem: Employees can sometimes take breaks longer and more frequently than they’re supposed to. For many companies, a 30-minute break extension, or five 10-minute smoke breaks, may not seem much. When done large-scale however, it can have a real impact on productivity. Smoke breaks in particular accounted for the highest cost in lost productivity, according to a 2013 Ohio State University study. The study further suggested that U.S. businesses pay almost $6,000 per year extra for each employee who smokes. The Solution: Enabling employees to clock in or out for their breaks is one way to shift responsibility for their time to them. Because automated time clock solutions can be programmed to accommodate breaks, this will come at no extra cost, and will enable businesses to monitor employee breaks better. But because this affects compensation, employers should take care to abide by laws that apply to breaks. They should also ensure that they are not deducting pay illegally. Conveniently, Tanda’s system is able to flag anomalies in breaks, and makes sure the pay interpretation is always legally compliant, wherever you are in the world. Read more: Only a Matter of Time: Punctuality and attendance in multicultural workplaces To eliminate time theft, it is essential to create a work environment with the resources to monitor and prevent it. Investing in the right software will take care of many of the administrative issues that contribute to letting time theft slide by. After these systems are in place, it is also important to increase employee engagement by making sure your onboarding process is effective, and rewarding attendance the right way. These strategies will enrich the work experience and drive productivity to benefit both the employees and the business as a whole.