It is critically important for retailers to monitor the productivity of their associates. Labor productivity measures the output of store associates over a specific period of time. Tracking measures such as sales per labor hour or scans per minute will ensure that a retailer is getting the most of his/her labor dollars. Low productivity rates may be caused by inefficient associates, inadequate training or poor scheduling.
Developing a realistic labor budget is an important first step in improving labor productivity. Knowing what labor dollars are available by department will enable store and department managers to set work schedules that meet expense goals. Most retailers use expected revenue and planned labor expense goals (as a percent of sales) to determine the number of labor hours available. Avoid a flat labor goal for the whole store; instead consider service needs and labor requirements for each department. Produce and meat departments may require more labor hours that grocery, for example.
Sales per labor hour
Sales per labor hour is the most common metric of associate productivity. SPLH is determined by dividing total department sales by the number of hours scheduled. This metric helps retailers determine how many hours to schedule and measures the productivity of associates in each department. Low sales per hour results may be a result of poor scheduling practices, poorly trained staff and inefficient associates. Industry averages for major departments is noted below.
Independent retailers may use retail industry standards to estimate the amount of payroll dollars to spend. If a retail store has an annual sales volume of $250,000 and its business plan recommends labor costs not exceed 9% of sales, then the amount of payroll dollars is approximately $432 each week. As sales increase, so will the need to increase the total dollars spent on payroll, not the percentage. POS data will highlight the busiest times per day and can provide guidance as to when to schedule associates. Other factors to consider when creating schedules are special sales or events, holidays, timing of SNAP benefits and weekends. A good scheduler looks beyond POS data and considers the types of tasks that must be accomplished and when they should be scheduled as well as traffic patterns for each department (i.e., the bakery may be busiest on weekend mornings) and schedules accordingly.
If sales per labor hour goals are not being met, carefully review the schedule to determine if the right staff are in the right place at the right time.
Standard Operating Procedures
To assist with maintaining good labor productivity rates and ensure effective labor scheduling, retailers should develop standard operating procedures (SOPs) for each department and each activity as well as expected productivity measures for those tasks. For example, grocery would include receiving, stocking, back room management, inventory, facing shelves, etc. Understanding which tasks must be completed at what time will help managers create a schedule that has the right associate in store at the right time. Additionally, retailers should have specific productivity measures for those tasks to ensure they are complete in a timely manner.
SOPs are easily developed for some positions, such as cashiers. According to Grocery Retailing Payments Study 2015 (conducted by Balance Innovations for National Grocers Association), more than half of independent retailers track scans per minute by their cashiers. The average goal is 20 scans per minute. Other positions may require more observation over an extended period of time to develop SOPs.
Understanding the drivers of a productive labor force, and the development of standard operating procedures, will help a retailer better manage their labor expense and improve the overall store profits.
These best practices were provided by FMS Solutions Holdings LLC, which was founded in 1974 to help independent retail grocers by turning historic accounting activities into decision-support tools; fmssolutions.com.