Think the best retailers pay their employees peanuts in order to operate at the leanest level possible? Think again. As reported in The New Yorker, a Harvard Business Review study finds that profit margins and sales can be improved the more a retailer spends on its employees.
Looking at data from the now-bankrupt Borders, the study found that an increase in labor levels increased profit margins by 10%. Additionally, another study quoted "shows that for every $1 increase in payroll, a store could see a $4 to $28 increase in monthly sales." However, this doesn't mean a retailer should constantly hire employees. After a certain number of employees, profitability declines with every new employee. But, it shows that the usual thinking of profit maximization through slender labor costs may not be the best model to follow.
High employee satisfaction doesn't mean that a company spends the perfect, profit-maximizing amount on employees, but it does represent companies that can depend on their employees to perform the best.
Of course, Costco was one of the highest-rated retailers to work for, according to employee reviews from Glassdoor.com. But who joined it? Of the top ten, only two other publicly traded companies: Nordstrom
The Buckle's revenue per employee is an astounding $462,000, with a net income per employee of $65,850. Nordstrom compares with $192,000 in revenue per employee and $12,000 in net income per employee.
Spend, and cut, wisely
This study suggests that the top retailers won't be the ones who have cut expenses and cut corners on labor. And the ones who do take the time to train and support their employees will prosper, even in this era of online shopping.
Of course, this isn't a foolproof way to hunt for top retailers. There are exceptions, like web giant Amazon.com
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