Engaged Employees: The Solution to Rising Retail Labor Costs

02.10.2016 by Ken Claflin

The majority of U.S retailers are no strangers to rising labor costs. Many cities and states have raised the minimum wage for all associates, some as high as $15 an hour. This is partially in an effort to attract premium talent and keep current employees happy. Starbucks Chief Operating Officer Troy Alstead wrote in a letter to all U.S. employees, “The new rates will ensure we are paying a competitive wage that better positions us to attract and keep the best partners (employees).” 

The increase in wages is also an effort to prevent high employee turnover, which can be just as expensive (if not more) than increasing wages. According to a white paper from Sage accounting solutions, replacing an entry-level employee costs an average of 30% of their salary. For middle management employees, the average cost jumps to 150% of their salary.

The solution to the labor costs issue isn’t to reduce staff or raise product prices. Both would negatively impact the customer experience and neither would provide long-term business stability. Retailers must find a way to control labor costs long-term while improving the bottom line—and that involves creating an engaged workforce.

By definition, an engaged employee is one who is “fully absorbed by and enthusiastic about their work and so takes positive action to further the organization's reputation and interests.” Studies show that companies with engaged employees see a 22% increase in profitability, 21% increase in productivity, and 10% increase in customer satisfaction. For more information, check out our employee engagement infographic.

The numbers speak for themselves. Creating an engaged workforce is the foundation for improving your bottom line while managing rising labor costs. When it comes down to it, an engaged workforce consists of three main elements:

Empowered Employees
Virgin Group founder Richard Branson—known for his focus on employee satisfaction, rather than customer satisfaction—told Inc., “It should go without saying, if the person who works at your company is 100% proud of the brand and you give them the tools to do a good job and they are treated well, they're going to be happy.”

Empowering employees is the first and most important step in creating an engaged workforce. This means relinquishing the reins and trusting associates with more responsibility. Giving employees decision-making authority encourages them to own their roles and enables them to deal with problems and develop creative solutions on their own.

Effective Communication
Effective communication entails being transparent with employees. It’s essential to hire employees that are a good culture fit, so they will be excited about the company vision and on board with strategic goals. Employees also experience greater content when they are valued as contributors and recognized for excellent performance.

“We feel we have to enrich [our employees]. If people are happy, the retention rate is high. If not, the retention rate is low.”
— Larry Meyer, CEO, Uniqlo USA

It’s also important to create an environment in which employees are comfortable voicing their opinions. If they’re under the impression that their feedback isn’t valued, you’re going to have a hard time motivating them to take care of customers. SmartCEO recommends leaders ask each employee three simple questions a week: “What do we need to start doing, stop doing, and keep doing?” This gives employees the opportunity to share their thoughts and gives leaders insight into how individual employees are performing. 

Workforce Engagement Metrics
Implementing an analytics solution is another important element in creating an engaged workforce. By tracking key performance indicators (KPIs) to discover employee performance anomalies, solutions like Spark Analytics are able to recommend changes such as additional training or closer monitoring of individual employees to improve engagement. These actionable directives reduce labor costs by giving retailers the insights needed to make operational changes. 

Building the foundation of an engaged workforce will allow you to curb the effects of rising labor costs and ensure long-term business stability—but that’s only half the battle. There’s still the matter of how to manage rising retail labor costs, which you can look forward to in our next blog post.

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