Everyone connected to retailing knows that it's a huge business. As the National Retail Federation has pointed out with its "Retail Means Jobs" campaign, the industry is the top source for private sector jobs in the U.S.
While the quantity of jobs is without dispute, there is also the reality that most of the positions within the industry are low-paying. The rationale for many companies within retailing is that they need to keep labor costs down to compete more effectively in the marketplace.
Research from a number or sources, however, is not only questioning conventional wisdom on retail pay, it is rejecting it. A report on The New Yorker website looks at research done in recent years that shows retailers that offer higher pay generate greater sales per square foot and per employee than their more frugal competitors. These businesses are also more profitable.
A study by Wharton researchers found that a retailer with more than 500 locations was able to increase new sales between $4 and $28 for every dollar spent in additional payroll. The reason behind the success was pretty straightforward. Having more people on staff meant that customers got their questions answered more quickly, products not on the shelf could be located while shoppers were in the store, and checkout times were faster — all factors in creating a more pleasurable shopping environment and higher rings.
Zeynep Ton, an M.I.T. professor, has published a number of research reports about the dividends paid when workers receive better compensation and employers invest in training. Companies such as Costco, Mercadona, QuikTrip and Trader Joe's, she has pointed out, manage to have higher payrolls and still compete on price.
"You can invest in your people and offer low prices," Prof. Ton told HBS Working Knowledge. "And guess what? You'll have a service advantage too."