With the current U.S. unemployment rate at 4.0% in June 2018, the economy has reached and exceed full employment. Full employment means that the unemployment rate is equal to or below the “non-accelerating inflation rate of unemployment (NAIRU),” or in layman’s terms, the lowest rate that won’t cause inflation. The Congressional Budget Office identifies the current NAIRU at 4.6%, so by that measure, the U.S. economy is well below that.
Thanks to the strong economy and businesses’ confidence that it will continue, American workers are finding it easier to land a new job. From May to June this year the job rate actually rose from 3.8% to its current 4.0%, as people left their disappointing old jobs with renewed confidence they will quickly land a better one.
What is great news for Americans may not be so great for American retailers and the consumers which they serve. Job openings in the retail trade are going unfilled. This sets up a downward spiraling circle of too few people on the sales floor resulting in lost retail sales. Instead frustrated customers turn to Amazon and other online retailers where a day or two wait for delivery makes up for the hassle and frustration of going to a store only to leave unsatisfied.
The lack of retail employees is reaching critical proportions. The Bureau of Labor Statistics Job Openings and Labor Turnover survey, JOLT for short, reports that through the first five months of 2018, retail job openings averaged 704,000 positions monthly, which is 25% more than the 561,000 jobs available on average each month in the same time period in 2017. Further the pace of retail job vacancies picked up during the last seven months of 2017.
Retail is the labor market ghetto, where its denizens are often low-paid, over-worked and under-valued. More Americans who had been forced to slog away in its confines are now taking the opportunity to break out and find a more financially and personally rewarding job. Those fleeing retail workers are leaving their retail employers in the lurch.
One strike, you’re out!
Retailers’ future growth is made vulnerable by understaffed stores, both those with obvious staff vacancies, as well as those with missing-in-action sales clerks or zombie staffers, who are even more frustrating to customers. A new study about the customer experience in various service industries, including retail, from Medallia Institute and conducted by Ipsos, surveying some 8,000 consumers, or 2,000 each in the U.S., U.K., France and Germany, finds that nearly two-thirds of consumers (64%) claim to have avoided a brand because of a bad experience they had within the last year .
“Today’s customers have more choices, and more power over brands they interact with, than ever before,” the report states. “It is no longer enough to simply provide a high-quality product or a competitive price. Instead, in the ‘Age of the Customer,’ brands are built – or broken – on customer experience.”
The Medallia/Ipsos report is called “The Customer Experience Tipping Point,” and I couldn’t agree more with the idea that retail is at a tipping point. While retailers argue amongst themselves about the “retail apocalypse” narrative, they face another apocalypse caused not by too few customers, but too few qualified, trained and motivated retail employees to deliver the personalized customer service on which their future depends.
Fumbling in the last 100 yards of retail
For too many years, retailers have focused on getting the right product at the right price into the right locations to meet the customers’ need when they show up at the store. But those supply-chain operational efficiencies aren’t going to get retailers to the next level, says Rogelio Oliva, professor in the department of information and operations management at the Mays Business School, Texas A&M University. Retailers must deliver a superior customer experience to complete the journey.
“Retailing is the critical last 100 yards of the supply chain. Completing those last 100 yards takes a combination of logistics and service,” Oliva explains. “To be a successful retailer not only do you have to have the stuff at the right price and right time, you need to manage the whole customer experience. The employees are going to be the ones delivering that experience. Of course, everything can go wrong in the last 100 yards.”
Delivering a customer experience in those last 100 yards is more critical for specialized categories in retail, like fashion, home furnishings, department stores and luxury, than for other retailers like fast food or grocery where a new employee can master 90% of their job in a week of hands-on training. In the later case, keeping the shelves stocked, helping the customer find what he or she wants and getting them in and out of the store smoothly is the customer experience expected.
For more specialized areas of retail, like fashion, a well-trained and motivated employee is worth their weight in gold. They provide the personalize service that is critical to creating customer loyalty. “The way to achieve customer loyalty is to provide excellent service. The way to provide excellent service is to have a loyal employee,” Oliva stresses.
“The loyal employee knows the customer and develops the relationship with the customer. The focus for retailers is to develop and invest in your employees. If your differentiating position is service, as it must be in so many areas of retail, then that service must be provided by a personal touch,” he adds.
Penny wise, pound foolish
Observing that retailers have long been under staffing their stores to save money, Oliva argues that they are rather losing sales and profits by not providing the kind of customer service that will build customer loyalty. “The value of the employee is much higher than minimum wage. If you are going to keep well-qualified service staff, it comes down to developing them and giving them a career path,” Oliva says. “Without providing a long term career path, retailers are at risk of losing them to the store next door that offers 50 cents more an hour.”
While technology can fill some of the gaps traditionally provided by sales staff, it cannot provide the personalized touch on which in-store retail’s future depends. “My research on retail and service operations proves how important the human component is on the sales floor. A retailer might be doing right for the customers, but they might not be doing right for the employee. They need to do both. Happy employees make happy customers and retailers make money in the process ,” Oliva concludes.