The retail sector is a labor intensive industry. Labor costs are not only high in absolute terms, but they also consume 50-75% of gross margins. Since net margins of retailers are in the range of 2-5%, 5% reduction of costs will double net profit!
Your toolbox for labor cost management has three levels of productivity drivers:
- Strategic level: the marketing mix of the store format drives the activities in the store
- Tactical level: productivity planning and human resources drive the standard time per activity and labor costs per hour
- Operational level: store management executes the plans in a dynamic environment of fluctuating sales, customer and employee demands, logistics problems and other deviations from plan.
Retailers must use the best productivity planning method. Internal Benchmarking is such a tool.
Objectives of a successful productivity project are:
- Measuring and analyzing labor productivity and labor cost ratios of a retail chain, in particular the relative performance of individual stores in a multi outlet retail chain
- Optimal productivity standards for each store and department (sales per work hour)
- Optimal labor cost standards (costs per work hour)
- A functional labor cost planning system
- Minimal 3% decrease of total labor costs
For a retailer with 500 million turnover per year and 12% labor costs, the potential savings are 1.8 million per year. A project costing 200.000 will have a pay-back period of 2 months.
A productivity project will focus on control of labor “cost drivers”:
- The right activities for optimal customer satisfaction (no weakening of the store format)
- High productivity standards per department and per activity
- Tactical planning of working hours in line with turnover fluctuations
- Prevention of “idle time” (service departments)
- The right activities executed by the right employees
- Control of costs per hour per function
The project will take into account all external factors that have an effect on labor costs: service or self-service, turnover shares of product groups and departments, average price per article etc.
Suggested project approach:
- Discussion of suggested project plan with company leadership
- Informing the organization
- Detailing the plan with operational managers
- Defining departments and activities
- Measuring and analyzing present situation
- Setting new standards for productivity and costs per work hour, using our efficient “Internal Benchmarking” method
- Assessment of deviations of standard per department per store
- Implementation of productivity improvements and cost reduction in the stores
- Implementation of planning system
- Organizing continuous improvement
Each retail company should do this work every three years, to keep the organization lean and sharp. We are glad to help you with this profitable action.
Please contact RetailEconomics for your Productivity Improvement.
You might also be interested in:
- Retail Marketing: Category Management workshop
- Retail Logistics: Automatic Store Replenishment
- Store Operations: Productivity Planning
- Profitable Action: Direct Product Profitability
drs Joost van der Laan
J.W. van der Laan Marketing & Logistics BV
Prins Clauslaan 3
3852 DA Ermelo, Netherlands
Chamber of Commerce 320 56641, VAT number NL802737213B01