Almost 2,800 national retail chain store closings by mid-May, 2017 – more than in all of 2016. Credit Suisse forecast more than 8,600 brick-and-mortar stores may close in 2017, worse than in the height of the Great Recession. Department stores alone have cut almost 100,000 positions since last October, and have lost more than 18 times as many jobs as the coal industry since 2001.
The implosion of brick-and-mortar retailing has consequences for the economy. Retail is one of the largest employers of workers in the U.S. and is often the place where young people first enter the job market, as a clerk at a shop. When retail locations close, jobs disappear and blight from abandoned storefronts and deserted shopping centers decreases nearby property values and reduces local taxes.
But this story is not just one of technological change and of Amazon taking over. For a long time, many retailers themselves have disinvested in their employees, and in their physical stores. The in-person shopping experience has become something to be avoided. No wonder retail is dying.
When New Balance discontinued the shoes I had been using, I went to a nearby mall. I thought I was in luck to arrive in a store to discover two sales people and no other customers. Did they have any suggestions for my flat feet? They did: Both sales people told me I should go online to find a replacement for my old model.
Retailers are in a death spiral. For decades, they have hired relatively unskilled people who they pay terribly. The recent median retail hourly wage of $10.90 is only about 60 percent of the average wage of $16.71. Most retailers provide virtually no training to a workforce they expect to have high turnover – the industry average is 67 percent annually. As numerous studies show, high turnover means that people are not going to be very competent at their jobs because they aren’t there long enough to learn from experience. This leaves underskilled, under-trained, poorly compensated people in understaffed stores.
But companies cannot cut their way to success. Consider the recent Best Buy turnaround; it was built on increased employee training. At casino company Harrah’s, Harvard Business School professor Gary Loveman used better service – driven by improved hiring – to drive exceptional returns.
In virtually every business, long-term success doesn’t come from continuously cutting costs, but boosting revenues. Service excellence leads to better financial performance. Marketing professor Claes Fornell, originator of the American Customer Satisfaction Index, has conducted research showing a connection between customer satisfaction and shareholder returns.
Next time you see a company trying to slash its way to profitability, consider the feedback effects. If the result drives customers away, it’s a path to disaster. Retailers themselves have hastened their own demise.