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1-Page Summary of The Good Jobs Strategy

Cutting Labor Costs Backfires

The two most common jobs in the United States are cashiers and salespeople. However, their wages are less than the median wage for US workers. Salespeople and cashiers earn below the poverty line for a family of four. Part-time employees have it worse; not only do they earn lower wages, but they also get scheduled to work so few hours that they can’t make a living. Their schedules fluctuate without warning; day shift one week, night shift the next – so people with these jobs cannot go to school or hold another job at the same time because their employers won’t give them enough hours to survive on.

The United States is experiencing an increase in low-wage jobs. These are among the fastest growing employment sectors, and this has a lot of implications for society. Low-paid workers have to deal with these problems, as do their families and customers who encounter retail workers with too much to do or not enough training to help them. Taxpayers feel it when underpaid workers require public assistance. The companies that offer low wages create their own problems: falling employee engagement and rising turnover rates.

Caught in the “Vicious Cycle”

Retailers don’t invest in their employees because they believe that it doesn’t help them make money. Discount retailers, especially those who are trying to offer the lowest prices possible, tend to focus on keeping labor costs low and many of them argue that Walmart’s success proves this point. Some discount stores have even been accused of not having enough people working there so they can save money and some have even been sued for unpaid overtime. Walmart’s practices influence other retailers everywhere.

Companies that embrace a “bad jobs strategy” create a vicious cycle. Stores understaff and don’t train their employees, which leads to poor store performance and lower profits. Underperforming companies slash labor budgets, which perpetuates the cycle of having an overworked, underpaid workforce. Having an overworked, underpaid workforce may lower labor costs but it has many other disadvantages as well. One disadvantage is phantom stock-outs—customers can’t find what they need even though it’s in the storeroom because employees aren’t trained or motivated enough to bring those items out to customers who need them. Employees may also ring up incorrect prices if they’re pressured by managers to get people out of checkout lines quickly so there are several consequences when stores have poorly paid workers: inventory data becomes unreliable and strategic planning suffers from inaccurate information about sales trends at different times of the year (Holmes & Meyer).

Circuit City Short-Circuits

Poor staff behavior affects customer perceptions. Think of how frustrated you become when a retail store’s staff can’t or won’t find what you need, and they don’t care to help. That’s what happened at Circuit City in 2007, which lost customers because Best Buy invested in its workforce. The company went out of business the next year.

Home Depot, Operational Excellence and the Virtuous Four

Some retailers choose to invest in their employees by providing good wages, stable schedules and opportunities for growth. However, investing in your workforce is only half of the equation; you also have to invest in operational excellence (the work that happens behind the scenes), which includes increasing efficiency and reducing waste while involving employees.

Home Depot initially invested in its employees but not in operational excellence. From its founding, Home Depot focused on customer loyalty by hiring knowledgeable plumbers and electricians to work at the stores. However, it failed to invest in disciplined operations and consistency of execution across stores. In 2000, a new CEO instilled operational discipline but cut labor costs by using more part-timers and slashing the number of employees per store. This led to lower levels of customer satisfaction than Kmart’s for Home Depot by 2005. Lesson learned: Investments in employees and in operations must go hand in hand.