Inventrak Blog

For retailers, labor cost represents a large portion of operation cost. Operating at the critical front lines of the operation, a retailer’s employees are a crucial component of the customer’s shopping experience. Optimizing your staffing satisfies your customers and adds value to your ROI (return on investment). However, it requires careful staffing planning/adjustment and effective labor performance management.

Staffing Planning/Adjustment

Are you afraid of losing potential sales because you are understaffed during peak periods? Do you want to avoid being overstaffed?Here is a solution: Based on your sales reports by hour, calculate your labor cost budget and keep staffing levels at optimum levels.

·          Have your sales report by hour on hand.

·          Set your labor cost budget for each hour. Many large chain store managers set their labor cost budget as a percentage of sales.  You can use your industry standard as a reference, for example, 10% of your sales in the hour.

·          Then schedule your employees for each hour based on your hourly labor cost budget. Ultimately, adjust your staffing based on weekly sales reports by hour.

Performance Management

Every employee’s productivity is different. To increase your whole team’s productivity, your labor performance management needs to be effective. The first step for effective labor performance management is accurate labor performance evaluation.  You can calculate every employee’s performance ROI to evaluate his performance.  For a sales clerk, his performance ROI can be calculated by gross margin he contributes over his wage. For a store manager, his performance ROI can be calculated by gross margin at store over his salary. Then, you need to create motivation (e.g. compensation) to retain your best employees and keep their passion for your business.

Given the short-term market uncertainty, growth investments are still going to be difficult to justify. Here are some tips for retailers to drive profitability and cost efficiency:

1. Customer Centric Merchandising:

• The key to driving profitability as well as minimizing cost is to invest in products that would be of most interest to your customers.  Here are the steps for accomplishing this goal: read your customers’ recent buying history, find out what products or what attributes of products are popular, assort your merchandise based on these trends.  Remember, always start with low inventory, and adjust the quantity based on your short-term sales.

2. Dynamic Pricing:

• You should look at your most profitable products. What was the initial retail price? How much was the markdown percentage or discount rate that increased the margin earned? Why not try to use a similar pricing strategy for other products?
• Every customer’s sensitivity to pricing is different. Some people are willing to pay more than others for the same product. If you own stores at different locations, you can set up different pricing for the same products to maximize your profit. 

3. Store Workforce Management:

• Planning your workforce based on your sales by hour or by day is cost effective and efficient. You should schedule more people during the peak time and less in other time. In order to continue labor cost minimization, you should adjust your workforce based on your daily or weekly sales reports.

Careful planning and swift adjustments to changes are very important to your business. In this dynamic economic environment, they can help you sustain and ultimately thrive.

One of important tasks of a merchant is to schedule employees. Merchants are seeking a balance between labor cost and scheduling enough employees to handle sales.  Do you want to know whether you schedule your employees efficiently and effectively? Let us evaluate your labor cost first.

Evaluating your labor cost

How much money should you allocate to employees’ payroll budget? You may use retail industry standards to see whether your pay too much. In retail industry, average payroll is near 10% of sales (according to Census). That means, if you have a $300,000 sales per year and your payroll is 20% ($60,000), your pay way to much more than your peers do.

If you pay more than your peers do, do you want to reduce labor cost?

Are you afraid of losing sales because of understaffed in peak periods?

 
Scheduling enough employees in peak periods

Having enough employees in peak time means keeping customers satisfied. However, you do not want to overstaffed during these periods, too. For stores using a POS system which compiles sales reports by hour, it's easy to spot the busiest times of day and ultimately add extra staffing during these peak sales periods.

If you are in a fashion industry or seasonal retail segments, when busy season is coming:

You may start with looking at your last year sales in the same season, to find sales peak time and sales peak day;

Then schedule your employees based on last year’s sales;

Plan and adjust scheduling based on labor cost against sales during hour and day.  

Do not waste labor in not busy hours

Same logics can be applied to scheduling employees to not busy hours. Based on labor cost against sales reporting during hour and day, your will find you do not need so many employees during some periods.