Lonely Aisle

If shopping feels more like a hassle than it used to, that’s because it probably is.

More American stores are doing with fewer employees and many have locked items up to keep them from being pilfered. With slowing sales and rising theft eating into profits, the risk is that retailers’ countermeasures will make in-person shopping even more miserable than it already is. In the best case scenario, that will shift sales to their own e-commerce sites, worsening margins. But it could also just shift shoppers to better-staffed competitors or pure online retailers like Amazon.

It doesn’t help that retailers have faced the steepest annual wage growth since the 1980s. Average wages for nonsupervisory employees in the retail sector rose about 24% in July compared with the same period in 2019 to $20.54 per hour, according to the Bureau of Labor Statistics.

The retail industry slashed head count in 2020 and has never returned to prepandemic staffing levels. While the number of U.S. retail establishments was 1.5% higher in 2022 than 2019, the number of retail sales workers fell 12% over that period, according to data from the Bureau of Labor Statistics.

The number of total employees per store was down by about a fifth at both Macy’s and Kohl’s last year compared with 2019, for example. Apparel retailers Abercrombie & Fitch and Gap reduced their head counts per store by 25% and 14%, respectively. At Best Buy, staffing declined 22%. A spokesman for Gap said the measure isn’t representative of service levels at its stores and that the change in its head count included meaningful reductions in corporate staffing. For most companies, employee counts include corporate and warehouse staff, so it isn’t a perfect picture of how in-store staffing has changed, but store workers make up the majority of most retailers’ workforces.

Some jobs are gone for good: Many retailers have installed self-checkout systems or have closed large stores in favor of more productive, smaller-footprint ones that require fewer employees.

In many cases, though, understaffing might be even worse than those numbers imply. Lorraine Hutchinson, retail-sector equity analyst at Bank of America Research, said store employees are spending more time fulfilling online orders, leaving them less time for helping customers. While off-price retailers such as T.J. Maxx and Ross Stores were historically understaffed compared with their department store counterparts, Hutchinson notes that the staffing gap has narrowed. Notably, employee count per store at T.J. Maxx parent company TJX, rose 8% in 2022 compared with 2019. The company saw revenue grow at a healthy compound annual growth rate of 6.2% over that period. Other pandemic-era winners have also managed to bulk up staffing: The number of employees per store has increased 32% and 15% at Costco and Target, respectively, between 2019 and 2022, for example. Lululemon and Nike have also managed to up their staffing levels.

Less help isn’t the only thing that has made shopping less pleasant. Retailers, including Target and Best Buy, have started locking more items up or moving them off sales floors altogether to deter theft, or “shrink.” Ulta Beauty said in its latest earnings call that it has locked up fragrances at 50% of its stores and said it is investing in labor at the same time so that employees can help customers access products.

Indyme, a company that sells loss-prevention products to retailers, expects its 2023 sales of help buttons linked to locked cases to be up more than 50% this year compared with 2019, according to Chief Executive Joe Budano. Locking up products has additional costs: Budano notes that locking up items reduces sales by 15% to 25%, depending on how discretionary the purchase is. Each locked case results in about 500 hours of labor a year. The company has rolled out a new locked case that a customer can unlock with some form of identification—whether it is through a loyalty card, the retailer’s app or their phone number.

“Unfortunately, we’re facing a situation where shrink is a CEO topic. It used to be a store-manager topic,” said David Bassuk, global leader of the retail practice at AlixPartners.

The look and feel of a store matter too. Industry analysts said understaffing and poor store conditions at Dollar General were partly to blame for its worse-than-expected performance last quarter. The retailer said during its latest earnings call that it plans to invest in retail labor to “further elevate the in-store experience and better serve its customers.” Neil Saunders, managing director of research firm GlobalData, said in a note following Macy’s latest earnings that its weak results are due to an “incredibly sloppy attitude to retail,” noting that there was a “complete breakdown” in how merchandise was displayed in the company’s stores.

Of course, in some cases, smarter staffing decisions might make up for lower head count. Best Buy, which employed 35,000 fewer people in 2022 compared with 2019, has beaten Wall Street expectations on revenue for eight of the last 10 quarters. The retailer has encouraged its staff to train up and wear different hats, whether that is answering customers’ questions or fulfilling online orders. In its latest earnings call, Best Buy also said virtual agents were answering 40% of customer questions without a human.

Head count reductions will become even more tempting in the quarters ahead. High interest rates, depleting savings cushions and the resumption of student-loan repayments are likely to dampen consumers’ appetite for shopping. Prof. Marshall Fisher at The Wharton School of the University of Pennsylvania, who researches retailing and supply-chain management, said retailers frequently reduce head count because “you immediately see the savings in payroll but you don’t necessarily know what damage that does to the top line.”

Once retailers do notice it, diverting business to their website isn’t ideal. An AlixPartners study of listed retailers found that as online penetration of sales more than tripled between 2012 and the first three quarters of 2021, margins on the basis of earnings before interest, taxes, depreciation and amortization halved.

That is still better than a frustrated customer at Macy’s going directly to a well-staffed Nike to buy sneakers or a former Target shopper ordering tubes of toothpaste from Amazon instead of waiting for an employee to unlock it.

When a retailer boasts about improving margins in coming quarters it could be a sign for their investors to take their money elsewhere—as their shoppers probably already have.

Source: WSJ.com September 8, 2023 | By Jinjoo Lee