Retailers' dilemma: Top-notch customer service is expensive

Brick-and-mortar retailers hoping to fend off Amazon.com need to deploy the one weapon that could set them apart: top-notch customer service, provided by actual humans.

But making that goal a reality relies on something they've not really invested in - well-trained employees with the kinds of wages and regular hours that make them want to stick around.

This illustrates traditional retailers' dilemma. In the face of existential threats such as e-commerce and declining mall traffic, more generous pay might improve service. But it comes at the risk of spooking skeptical investors, who are already closely monitoring costs and margins.

"It's obviously a delicate tightrope, where retailers that are watching their profit squeezed need to figure out where to cut," said Simeon Siegel, an analyst at Instinet LLC. "Looking at the people who drive that business as an asset instead of a liability is difficult."

As they boost payrolls during the crucial holiday shopping season, chains are mostly sticking to low-wage and part-time positions. With unemployment at an almost 17-year low and a broader shortage of workers, it's a tough time to change the long-established model.

While some major players, including Wal-Mart Stores Inc. and Target Corp., have announced plans to increase pay, low wages persist. Workers say they can't get the flexible hours they want, and hiring part-timers remains a common way out to avoid spending more on benefits and perks.

"It's definitely a tighter job market, but the wage power is all with the employer," said Scott Brown, chief economist at Raymond James Financial Inc. in St. Petersburg, Florida. Chains don't see the need to increase compensation or add more full-time positions, he said. "Retail is usually seen as being low on the food chain, so you're not going to see much pressure, even during the holidays."

S. Mahmud, who works two part-time retail jobs in New York, sees the industry as a temporary stop before moving on to something better. She had hoped to earn extra cash this holiday season, but so far has been unable to do so.

"They don't want to give you full-time," said Mahmud, who asked that her first name not be used. "Although they need people, they're distributing the hours."

Neither of her two employers is willing to move her up to a full-time position with regular benefits. Her wages have barely changed. The only concession she's been able to secure is more predictable hours. She's in a management-training program after having completed her four-year degree and doesn't expect to always work in retail.

"Retailers say they're trying to staff up, but the easiest thing to do would be to offer their part-time workers full-time jobs," said Stuart Appelbaum, president of the Retail, Wholesale and Department Store Union.

Forty-seven percent of frontline employees - such as sales associates and cashiers - work part-time, according to a survey from the Fair Workweek Initiative. Part-time workers reported an hourly wage of 32 cents less than their full-time colleagues, with hours fluctuating from 16 to 29 per week. One in three workers said they hadn't received a raise in the last two years.

That may need to change, and soon, if retailers mean what they say about creating memorable experiences to win over shoppers. This often requires a bigger workforce, such as an initiative by Macy's that deploys 250 stylists to help shoppers create outfits. Nordstrom, meanwhile, has opened a store with no inventory: Customers work with fashion experts to build a wardrobe that is then shipped to their homes.

Some of the largest retailers, such as Target and Wal-Mart Stores, are also bumping pay higher to improve customer service and public perception. Others, such as the Container Store, are already known for comparatively higher wages, while Home Depot shares profit with workers and offers extensive training.

But these aren't indicative of a broader trend for the industry. Average hourly earnings in retail are now lagging behind overall worker pay by a record amount, according to Labor Department data. Even though some companies are boosting pay, the median U.S. retail sales employee salary was only $22,900 in 2016, according to the figures.

The industry also faces an unstable workforce: Retailers' September turnover rate was 4.2 percent, indicating they lose about 50 percent of their sales staff over a full year.

Lauren Johns, 31, a visual merchandiser who creates window displays and arranges outfits at the H & M in New York's Times Square, is one of the few who have been able to turn retail employment into a steady gig. She's worked in the field since she was 21.

Now a member of the Retail, Wholesale and Department Store Union, she has been with H & M for four years and makes $22 an hour with regular, full-time hours. The ease with which retailers can bring in part-time workers is part of what keeps staff from being able to ask for more, she said.

"That's a way for retailers to hold you hostage in a sense because everybody needs a job," Johns said. "If you're not willing to do it, there's the door because someone else will. That's the mentality in retail in general, if not at H & M specifically."

At H & M, Johns says she's never seen an external applicant get the "handful" of full-time positions that open before someone already working there: "There's so many people who want them."

This dynamic drives the "take it or leave it" approach to worker pay, Raymond James's Brown said.

He pointed to the loss of more than 100,000 retail jobs this year due to store closings and bankruptcies. So experienced workers looking for higher pay must contend with this pool of people looking for employment.

The flip side is that workers have come to expect so little from these jobs.

"When you have employers who don't invest in their workforce, either through training or providing sustainable hours, you are not going to have a workforce that's really invested in the work that they do, and they're not going to have the skills to do their job well," said Nina Terhune, the operations director of the Center for Frontline Retail, a New York-based nonprofit.

Looking forward, H & M's Johns said she'd like an office job - maybe at the corporate level of a retailer. Moving up is also on the mind of part-time worker Mahmud. But she predicts retail will be in the rearview mirror before long.

"Right now it's for survival," she said. "I like the job because it's fun, but I don't see myself staying here for long, unless they give me an opportunity to grow."

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