US retailers hope higher pay will buy more efficient workers

WASHINGTON — America’s retailers, struggling to fill jobs, have been raising pay to try to keep and attract enough employees. Now, some stores want something in return: A more efficient worker.

To that end, retailers, fast food restaurants and other lower-wage employers are boosting investment in technology and redesigning stores. Walmart is automating its truck unloading to require fewer workers on loading docks. Kohl’s is using more hand-held devices to speed check-outs and restock shelves. McDonald’s is increasingly replacing cashiers with self-service kiosks to free up workers for table service.

Retail workers, though comparatively low-paid, have enjoyed some of the best wage gains in the past year. Their hourly pay rose 4.3 per cent in November from a year earlier — much faster than such higher-wage industries as manufacturing, where pay rose 1.8 per cent.

Walmart raised its starting pay to $11 an hour this year. Target’s minimum is $12, with plans to make it $15 by 2020. Amazon’s starting wage leapt to $15 in November. And more than 20 states have raised minimum wages above the federal $7.25 an hour. California and Washington state’s wage floors will reach $12 on Jan. 1. New York’s will be $11.80.

Even as they’ve absorbed higher labour costs, most retailers remain reluctant to pass them on to customers in the form of price increases. American consumers have grown increasingly insistent on bargain prices — in part a hangover from the Great Recession, in part a function of online price-comparison tools. Retailers are loath to alienate them and send them looking for alternative sellers.

“It’s extraordinarily hard for retailers to systematically raise prices,” said Jason Goldberg, chief commerce strategy officer at Publicis Communications NA, a digital consulting agency. “These days, everyone’s prices are way more transparent. It’s just one click away from your super computer in your pocket.”

So unless companies are willing to eat all or part of their higher labour costs, they need to increase their workers’ efficiency. A company’s wage increase of 10 per cent can be offset if its employees produce 10 per cent more.

“We need …meaningful improvements” in productivity, said Greg Foran, CEO of Walmart’s US division. “Pricing generally isn’t going up. It’s going to come down as competition intensifies.”

Though higher wages are driving retailers to make workers more efficient, cost isn’t the only factor. The companies are also under intensifying pressure to speed delivery times of online orders to compete with Amazon and please customers who expect fast delivery.

Walmart employees can now use mobile devices to check whether an item is in stock and avoid trekking to distant storerooms. The phones also send alerts when an item needs a price change and directs workers to those items.

And in a cluster of stores, Walmart has deployed robots that monitor stockpiles and can send photos of empty shelves to employees’ phones. The information is sent to a conveyer system that scans boxes being unloaded from trucks. Workers then organize the boxes for delivery to the sales floor. The system has slashed the number of people needed to unload trucks.

“When I first started working for Walmart, we would unload the truck and you would have associates running all over the backroom trying to find out where to put things,” said Ty Ford, who has worked at Walmart in Houston for eight years. “It wasn’t organized in any way.”

One technology being tested is “smart glasses,” which display information on the lenses so workers can identify items from online orders for curbside pickup. The glasses can identify which items to pick, thereby saving time that would be spent looking at phones.

To try to raise productivity, retailers are turning mainly to technology rather that hounding employees to work harder. But pressure does creep in: At Target, workers who carry online orders to shoppers’ cars now hear a honking horn on their devices, instead of a generic bell, to signify that customers are waiting.

Jaana Remes, an economist at McKinsey Global Institute, noted that after the Great Recession, stagnant pay reduced the incentive for employers to invest in labour-saving technology. Now, that’s starting to reverse. Remes pointed out that labour-saving technology is more common in countries where pay is higher. Self-serve restaurants, for example, are more prevalent in Scandinavia and Japan than in the United States.

“When have you seen grocery baggers in Europe?” Remes said. “We still have them in the U.S.”

But perhaps not for long. For this year’s holiday shopping season, some Target employees began using mobile devices to check out shoppers. Under pressure from online retailers, Target is also investing in technology to transform its stores into shipping hubs to cut costs and speed deliveries.

CEO Brian Cornell said in November that the company wants to achieve efficiencies to help offset the cost of higher pay and other investments. So Target has redesigned the back rooms of most of its 1,800 stores to shave seconds off picking and packing and to accelerate online shipments.

During a recent tour of a Target in Edison, New Jersey, workers undertook specialized tasks in assembly line operations in a space the size of about 12 of its parking spaces. Once filled, carts are placed on marked spots within arm’s reach of workers who pack shipments. Apps reveal how much tape to use for each box. Packers use foot pedals to dispense inflated air pillows to cushion items when boxed.

It’s unclear whether retailers’ efforts will be enough to boost the overall productivity of America’s workforce, which has been mired in anemic growth since the Great Recession. Productivity — output per hour worked — is critical to rising living standards. An economy can expand only as fast as its working age population and the growth in worker productivity.

Though U.S. productivity has picked up a bit this year, it grew just 1.3 per cent in the July-September quarter from a year earlier. That’s only about half the pace of the 1990s and early 2000s.

Economists have suggested several theories to explain chronically weak productivity growth. Some say the U.S. is just less innovative than in the past. Others think the government has trouble measuring the impact of free or low-cost inventions, like search engines and music streaming services, and that workers are actually more productive than we think.

Many economists also note that it can take time for businesses to determine how best to capitalize on new technologies. Retailers are still experimenting, for example, with mobile devices, which have been in use for at least a decade. Personal computers began appearing in offices in the 1980s but didn’t accelerate productivity until much later.

Kohl’s is just now stepping up its use of mobile technology to help employees restock shelves more efficiently and equipping some with iPad devices for faster checkouts.

“We know that there will be continued headwinds from wage pressures,” Bruce Besanko, Kohl’s chief financial officer, told industry analysts last month. “And so we know that we needed to find more ways” to cut costs.

To save on labour costs, McDonald’s has installed self-service kiosks in 4,000 of its U.S. restaurants this year. All told, about half its roughly 14,000 U.S. restaurants now include them.

“When you’ve got your two major lines — food and labour — both with inflationary increases, that puts pressure on the bottom line,” McDonald’s CEO Stephen Easterbrook said in October.

Mooyah, a hamburger chain with 80 restaurants mostly in the South, is responding to higher wages by reconfiguring its new restaurants to enable cooks to function like basketball players — pivoting on one foot when necessary but mostly remaining in place. During peak hours, this system is intended to enable five employees to do work that now requires up to nine. (Mooyah is owned by the private equity firm Balmoral Funds.)

“They need to do everything without steps,” said Michael Mabry, Mooyah’s chief operating officer.

Mabry said that because the store has had to raise pay in recent years, “we’ve got to offset that somewhere, and it can’t all flow through to the guest, because they’ll push back on pricing.”

How all this affects most workers isn’t quite clear.

Eric Hoffman, who worked at Walmart distribution centres for 13 years, is all too familiar with a darker side of companies seeking to boost productivity. Hoffman, 33, used to enjoy his job loading cases onto a shipping dock for Walmart, most recently in Winter Haven, Florida. He earned $21.90 an hour and received bonuses for exceeding production quotas.

But over the past year, he said, managers raised quotas and shortened the time available to do tasks. And there was an added pressure, too: Management, Hoffman said, told workers they had to “beat Amazon.”

“You guys don’t want to become like Kmart,” his bosses would say.

Hoffman quit his job five months ago to take an apprenticeship at an electrical company, installing equipment that pays about $10.50 per hour.

“The stress is gone,” Hoffman said.

In response, Walmart said it’s been testing ways to increase production in light of rising competition, online demand and higher labour costs.

“We are focused on making our operations more effective and efficient while innovating to make work easier and more engaging for our associates,” said Michelle Malashock, a spokeswoman, who declined to address Hoffman’s specific complaints.

Transitions to new technologies and business processes, Remes noted, can be difficult and disruptive for employees.

“The good news is that tech-enabled productivity gains help make workers’ time more valuable and could lead to wage gains,” she said. “They also incentivize companies to invest on worker skills, opening up better opportunities in the future.”

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