Business Leadership Lessons from Retail

To thrive in this sector, HR professionals need to look at the big business picture.

By Eric Krell Sep 1, 2013
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Considering the economic uncertainty, staffing issues and regulatory compliance requirements facing the retail industry, HR professionals in this sector need to find pragmatic solutions to HR problems that frequently also qualify as strategic business challenges. Hands-on knowledge of the business—what L.L. Bean Inc. HR Director Sarah Cox describes as "really understanding what it takes to actually do the job of every employee"—helps produce innovative solutions to thorny HR predicaments.

One of the retailer’s manufacturing managers recently called the HR department to request skills training for new employees who were hired to keep pace with rising demand for an improved Maine Hunting Shoe.

The request seemed to create a quandary; all postrecession HR investments, including training, need to be made cautiously and only after careful consideration. But because Cox’s team understood the importance of the training, and because the team has "figured out how to do a whole lot more with less," it was able to respond resolutely by developing a highly visual training program delivered via tablet computers.

"By understanding the key drivers of our competitive advantage, we can make HR investment decisions much more easily," Cox says. L.L. Bean promotes itself as one of the last U.S. multichannel merchants to still own and operate a U.S. manufacturing facility. That competitive positioning requires employees who know how to make the Bean Boots, Maine Hunting Shoes, dog beds and other items that this one Maine factory produces.

By delivering the content via tablet computers, the HR department equipped the diverse workforce—many employees speak English as a second language—with the knowledge they need to support and extend the legacy Leon Leonwood Bean began building 101 years ago.

"We don’t have the luxury of doing anything outside of pragmatic solutions," Cox explains. "And we don’t know what those pragmatic solutions can possibly be unless we are embedded in the business."

This anecdote explains why Cox ranks having "deep knowledge of the business" and of business strategy as the most important way HR professionals can address the retail sector’s slow economic recovery, shifting demographics and regulatory uncertainty.

Working through these challenges "is all about being strategic," confirms Beth Patrick, director of human resources and risk management for Ace Hardware Home Centers Inc., which owns and operates five Ace Hardware stores in Colorado and Wyoming.

Strategic Hurdles

HR executives point to several unique strategic challenges in the retail industry:

Economic uncertainty. The retail sector was hit particularly hard by the recession because consumers worldwide have moderated their spending. U.S. retailers shed 1 million jobs from December 2007 to June 2009, a 6.7 percent reduction.

Since the recession began, in late 2007, many retailers have taken other cost-cutting measures in addition to layoffs, including hiring freezes and reductions to HR budgets, according to John Orr, senior vice president of retail strategy and execution at Ceridian Corp., an HR products and services company based in Minneapolis. Most have "already cut to the bone," he says.

Part-time workers in particular are affected. More than one-third of the U.S. retail workforce consists of part-time employees, most of whom are paid by the hour, according to the U.S. Bureau of Labor Statistics (BLS). The slow economic recovery forced many retailers to cut part-time workers’ hours as a way to reduce costs in response to tepid revenue growth, which "placed greater pressure on employees and their families," Cox says.

The ongoing economic uncertainty is driving HR executives and managers to "be unbelievably tight in the way that we manage our budgets," Cox explains.

For example, when the need for new training arises at L.L. Bean, Cox and her team focus on the most valuable content that needs to be delivered while looking to strip other costs, like those related to travel. Additionally, employee time pressures have driven L.L. Bean’s HR professionals to create more computer-based and video training so that employees can study in between job tasks rather than devoting full days to training.

"We just have to continually revise," Cox says.

Staffing. "Our number-one challenge is staffing," says Becky Raguso, HR and payroll manager at A World of Tile, an Englewood, Colo.-based retailer that operates 14 stores and employs 75 workers. In late 2011, amid the uncertain economic recovery, the company decided to "increase the quality of our new hires," Raguso says. "It has been difficult. When I came into retail a few years ago, I thought it would be easy to find people who can sell."

During the run-up to the holiday shopping season, L.L. Bean’s workforce doubles from roughly 5,000 to 10,000 employees as it adds manufacturing and retail workers to meet demand. HR professionals in retail continually deal with high annual turnover ranging from 30 percent to 200 percent, according to Orr.

At the same time, annual salary increases are expected to remain small—an average of 2.9 percent in 2014, according to the results of Mercer’s 2013/2014 U.S. Compensation Planning Survey, which collected responses from more than 1,500 midsize and large U.S. employers across a range of industries, including retail. As a result, retailers struggle to prevent their best employees from being lured away by other retailers offering even slightly better pay, notes Mercer principal Bill Strobl, who is based in Louisville, Ky. For management-level employees, this challenge is complicated by the fact that pay can vary significantly by region and city, Strobl adds.

Retailers also have to contend with recruiting challenges, one of which is perceptual: "We need to be able to convey a message that retail is not a dead end," says Patrick, whose company employs between 160 and 200 people, depending on the season. "Retail is not necessarily what people think of as a long-term career."

Once workers sign on, they need training that is specific to the industry. For example, retail employees need to be prepared to address what Mike Thompson describes as rapidly changing customer expectations. A principal with PricewaterhouseCoopers in New York City, Thompson says the success of Amazon.com’s low-cost online retailer model and the top-notch customer experiences that Apple stores deliver have influenced what shoppers now expect from retailers. They want to be wowed by the touch and feel of in-store experiences while getting the lowest prices, which they can easily track down on their smartphones.

"One of our employees spent more than an hour with a customer who brought $300 worth of sneakers to the cash register," recalls Robin Snaden, a former Fortune 500 HR executive who now owns the Virginia Beach, Va., franchise of Fleet Feet Sports and employs eight. "Her friend said, ‘Come on, let’s go. We can buy all of this stuff cheaper online.’ They walked out without buying anything, and employees get extremely frustrated when that happens."

Significant training and one-on-one coaching can help retail employees meet customer expectations and alleviate some frustrations.

Training about workplace expectations may be needed as well. Because of high numbers of part-time workers and relatively low pay, retailers frequently serve as people’s first employers.

"My new hires can grasp biomechanics and other technical selling skills," Snaden reports, "but no one has ever taught them what they can and cannot say in the workplace." She says she has been shocked by how surprised some of her recent new hires were to learn that they should not, for example, discuss religion with customers and colleagues.

Regulatory compliance. HR professionals in the retail sector face heavy demands for regulatory compliance. Child labor laws as well as wage and hour rules vary across states. Employee classification—full-time vs. part-time, employee vs. contractor, nonexempt vs. exempt—is an ongoing issue. And two new, large compliance challenges are being added to this mix: a possible minimum-wage hike and health care reform.

President Barack Obama advocates a plan to boost the minimum wage from $7.25 per hour to $9 per hour in 2015—a nearly 25 percent increase.

"Labor costs already represent approximately 60 percent of a retailer’s operating expense," Orr notes. To offset higher wages, retailers may need to increase their use of part-time workers, whose benefits packages generally cost less, and decrease hours for some full-timers, Orr explains. Businesses with higher concentrations of minimum-wage employees, such as grocery stores, will be harder hit. Some likely will respond with layoffs, hiring freezes or staff reductions and, possibly, price increases, Orr predicts.

Meanwhile, health care reform will force retailers to rethink, and possibly alter, crucial components of their HR strategy. For example, should they decrease the number of full-time employees while increasing the number of part-timers to lower the number of employees they will be required to provide health insurance benefits to? Or should smaller retailers keep head counts below 50 full-time equivalents to avoid being subject to the law?

There are going to be increased costs, Patrick predicts. To remain profitable, some retailers may have to significantly adjust employee hours and change the current mix of employees who receive health insurance benefits. Roughly 45 percent of retail employees receive health care benefits from their employers, according to the Kaiser Family Foundation’s Employer Health Benefits 2012 Annual Survey report.

Knowledge, Innovation and Engagement

Addressing these challenges, HR professionals say, requires novel solutions tied directly to their companies’ overall strategies.

Know your business. Cox and Patrick say deep knowledge of how the business works can help HR make difficult decisions amid uncertain economic and market conditions. At L.L. Bean, Cox emphasizes the importance of her team treating the workforce in a caring manner. They do this, in part, by working side by side with employees during peak shopping seasons, "living in the business" and speaking the language, Cox says.

Knowing your business, she continues, helps you "know how to respond as an HR person to all of your people."

Patrick uses a similar approach. "HR manages the largest controllable expense—payroll—and the ultimate key to our success as a business—the workforce," she says. "It’s the responsibility of HR to also know all aspects of the business."

Patrick fortifies her knowledge by constantly monitoring financial performance, industry trends, relevant retail-related technology, and developments at competing companies. "People sometimes say, ‘Well, that’s not HR-related,’ " she explains. "It doesn’t matter to me; I need to know."

Patrick meets regularly with Ace Hardware Home Centers’ president and maintains a list of 20 to 25 items "that I’m working on that help us to become a better company. I always need to be looking three to five years down the road to monitor where we want our company to be," she says, adding "And then I need to take a step back and say, ‘What will it take to get there?’ "

Make training innovative. The need for training has increased as new technologies, such as tablet registers, are introduced and as customers become more knowledgeable.

These forces drive retail HR professionals to become innovative "in how we go about designing and delivering training," Cox says.

Aeropostale Senior Vice President of Human Resources Kathy Gentilozzi says the retailer of casual apparel, which employs roughly 25,000 workers throughout the year, constantly adjusts training for new, and typically younger, employees.

"We are challenged with providing information in a way that resonates with our employees [and] that is easily accessible, easily understandable and immediate," Gentilozzi says. "Our training classes embrace a more interactive approach and cover a broader number of topics. We typically have peers—or ‘experts’—teach these classes, so employees feel comfortable asking questions and more empowered."

In response to a strategic mandate to increase the quality of new hires, A World of Tile’s Raguso initiated a search for a full-time recruiter. Before that, however, Raguso considered a handful of the company’s top retail salespeople and identified skills that contributed to their track records. She revamped recruiting and training so that candidates are assessed for these skills and new hires sharpen them in an eight-week training curriculum.

Innovative training hinges, in large part, on having the right training manager and the right kind of accountability in place, Raguso notes. Her head trainer noticed that new employees struggled to pass inventory tests, "so she created a different, more hands-on approach to training and testing for the inventory," Raguso explains. "The incoming sales representatives were better able to learn tile inventory because they could look at it, touch it, feel it, pick it up and match it with other tiles; create designs with it; and really know the tiles well by the time they took their final exams."

The trainer also implemented a curriculum for store managers to follow once employees are transferred out of the training store and placed in their home stores at the beginning of their third week. Store managers are now held accountable for completing weekly curriculum requirements. "Our store managers are motivated to continue with their new hires’ training because it has only increased sales," Raguso says.

Each sales employee who joins Ace Hardware Home Centers is assigned a mentor to work with exclusively while serving customers on the sales floor. Patrick frequently creates pairs that span generations.

"Baby Boomer generation workers with years of specialty trade experience are a huge asset," Patrick explains. "They can help customers with complex home improvement needs and teach our associates who do not have as much experience." Similarly, Patrick finds that Millennial employees increase the use of store technology by assisting employees who are less tech-savvy.

Many retailers offer mentorships and other professional development opportunities, Strobl reports. Furthermore, results from Mercer’s 2012 U.S. Retail Compensation and Benefits Survey indicate that the use of international assignments, job rotations and webinars is increasing.

Engage the workforce. PricewaterhouseCoopers’ Thompson says retailers want to figure out "how to get employees fully engaged in their work."

At Aeropostale, "it is imperative that we provide a compelling and unique working experience," Gentilozzi says. "This is defined by providing a great culture and a collaborative working environment where everyone feels they are contributing to the overall goals."

Aeropostale held a companywide town hall meeting where managers shared the retailer’s 2013 corporate goals with employees. After this presentation, each department held a meeting so members could explain how they planned to contribute.

"Employees need to be engaged to ensure that the retailer improves upon its customer experience or reinforces what customers expect from the employee and the brand," Ceridian’s Orr adds.

Engagement activities can also help reduce turnover without breaking the bank. "People assume that engagement is all about the money and benefits," Thompson says. "But cultivating engagement is often more about the way people perceive they are treated by the organization."

Treat health care holistically. Leading HR professionals tend to place forthcoming health care reform requirements in the context of a more comprehensive approach to health care management.

Cox says L.L. Bean’s commitment to employee health and wellness has intensified. This includes making health risk appraisals available to employees and giving employees incentives for leading a healthy lifestyle.

It pays to invest in expertise, Patrick adds. "Many parts of the Affordable Care Act deal with tracking and trying to determine who is eligible for benefits as well as if and when you possibly owe a penalty if benefits are not offered," she notes. "From a compliance standpoint, the Affordable Care Act is going to require HR professionals to be absolutely at the top of our game. That means having great partnerships, including a strategic relationship with a benefits broker who specializes in retail and who can help you get your compliance approach in place."

Eric Krell is a business writer based in Austin, Texas, who covers human resource, finance and social marketing issues.

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