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Study: In Retail, Higher Payroll Leads to Higher Profits

  • In Retail, Higher Payroll Leads to Higher ProfitsThe Find: With the economy ailing, retailers are doubtless worried about the coming holiday season, but recent research warns that cutting staffing may amount to cutting profits rather than cutting costs.
  • The Source: New research from Harvard Business School via The FT Management Blog.
The Takeaway: Assistant Professor of Business Administration Zeynep Ton looked at extensive data from one large retailer in an effort to get a handle on how staffing levels impact profitability. After crunching numbers, she found something a little surprising: more staff meant more profits.

Why did the extra money thrown into payroll lead to higher profits? Not for the reasons you might assume. Rather than improving customer service, higher staff levels meant more 'process discipline' - basically nuts and bolts functions like making sure stock makes it from the storeroom to the shop floor and making sure displays don't get messy. In bad news for shoppers, but perhaps good news for hard-pressed retail managers, better customer service had no impact on profitability.

The Question: Ton examined only one retailer: do you think her findings are likely to hold true across a broad swath of companies?

(Image of retail staff by Yoshimai, CC 2.0)
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This post first appeared in BNET1.

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