Re­tail­ers hope bet­ter pay draws more ef­fi­cient work­ers

The Progress-Index Weekend - - FRONT PAGE - By Christo­pher Ru­gaber and Anne D’In­no­cen­zio AP Busi­ness Writ­ers

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 per­cent in Novem­ber from a year ear­lier — much faster than such higher-wage in­dus­tries as man­u­fac­tur­ing, where pay rose 1.8 per­cent.

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 la­bor 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 la­bor costs, they need to in­crease their work­ers’ ef­fi­ciency. A com­pany’s wage in­crease of 10 per­cent can be off­set if its em­ploy­ees pro­duce 10 per­cent 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 la­bor-sav­ing tech­nol­ogy. Now, that’s start­ing to re­v­erse. Remes pointed out that labor­sav­ing 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 per­cent 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 la­bor 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 la­bor — 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 cen­ters 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 la­bor 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.”

[AP PHOTO/JULIO CORTEZ, FILE]

In this Nov. 16, 2018, file photo, em­ploy­ees demon­strate how air pil­low ma­chines work at a pack­ag­ing sta­tion in the back­room of a Tar­get store in Edi­son, N.J. For many re­tail­ers that have raised pay to at­tract and keep work­ers, an­other chal­lenge has arisen: mak­ing those work­ers pro­duc­tive enough to jus­tify the larger pay­outs.

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