Jonathan Reynolds

By Jonathan Reynolds

Productivity and skills in retailing

The Institute has recently completed an update of its pioneering work on retail productivity back in 2004. This time, the work was undertaken for Skillsmart Retail, which was particularly interested in the effects of the recession, e-commerce and internationalisation on retail productivity and skills. The full report will be available from Skillsmart shortly. In the meantime, you can read some of the findings below in a short article produced for BRC’s magazine The Retailer.

“Retailing is simple, but it ain’t easy.”

Most retailers will probably identify with the words of Sam Walton, the late, perhaps great, founder of the shopping juggernaut that is Wal-Mart. Whatever stance you wish to take on the merits of the US retail giant, one thing cannot be questioned – the world’s largest retail chain has almost singlehandedly made the United States the most productive retail country on the planet – and by quite a considerable margin.

In fact, figures published this year by Euromonitor on the scale of global retailing, reveal that the US accounts for approximately a quarter of the world’s retail worth of £6.5 trillion. To put Wal-Mart’s contribution into perspective, it would be placed 7th in the global league table, ahead of Italy, Spain, Russia and Canada, and, perhaps most worryingly, only just behind the UK. It is this question of productivity which is addressed and in some cases answered in a yet-to-be-published research paper, commissioned by Skillsmart Retail.

The initial draft of Productivity and Skills in Retailing is a fascinating read, with in-depth research carried out by Dr. Jonathan Reynolds from Oxford University’s Saïd Business School, and punctuated with the candid views of retail leaders on both sides of the Atlantic. The wide-ranging report covers areas from skills issues and the economy to e-commerce and retail internationalisation. Indeed, the paper is filled with sub-plots and suspense. Not many reports of this nature contain reference to philosophy, low-hanging fruit, alchemy and gut instinct.

As the Sector Skills Council, Skillsmart Retail has focused the report on the link skills have to productivity across the sector. Despite retail firms’ growth over years in terms of scale and complexity, retailers have also had to think about the changes to their human capital. The relationship between a company’s efficiency goals and its deployment of staff has been complicated for most.

In the report, Dr Reynolds states: “Whilst a retailer’s people are arguably the biggest assets in securing and retaining customers, what kinds of people the industry requires into the future and what skills they should possess is a critical part of what turns out to be a complex equation of efficiency, effectiveness and competitiveness.”

Not content with merely gazing over the Pond, the report also looks to Europe for comparisons and contrasts in productivity and the way skills are viewed and valued.

So, to what extent is the UK retail sector an exemplar of productivity performance internationally? The natural instinct of us Brits would be to fear the worst, but in truth, the results are favourable. Apart from periods in the 70s and 90s when UK retail productivity fell back, the data shows relatively consistent growth. For the full 37 years, we have been staring at America’s back, but by moving closer to our ‘special’ friends and distancing ourselves from mainland Europe; in the past ten years we have drawn sharply away from our European neighbours, placing ourselves firmly ahead of France and Germany.

One reason put forward for America’s continued dominance and our recent surge in productivity, is government regulation and institutional intervention.

In 2010, the McKinsey Global Institute, already quite hard-lined on the subject, stated: “A regulatory environment that allows the expansion of more productive modern supermarkets and convenience stores raises productivity because larger chains can profit from scale benefits in purchasing, merchandizing and store operations. Yet many countries have chosen to protect small-scale stores through barriers to foreign direct investment, zoning laws, or restrictions on the size of stores.”

It was in the early 2000s that the UK Government loosened its regulation in this regard, realising its intervention in the retail market was preventing modern retailing from reaching its full potential. This deregulated potential can be seen in many ways, perhaps most notably the huge increase in large retailers creating smaller town- and city-centre metro and express stores.

With regard to the globally-perceived link between productivity and skills, Dr Reynolds looks to the governments of the world.

“[They] remain preoccupied with making the business case for investment in skills as one of the ways of improving economic productivity and performance at the level of the firm, sector, region and nation. Increased productivity fosters economic growth and, in the context of higher employment, leads in turn to improved living standards and prosperity and to growth in a nation’s international competitiveness.”

Various reports focus on individual countries, and the messages on the lack but need for skills are consistent.

In Australia: “The skills shortages are…largely the result of a deficit in the development of vocational and technical skills, rather than higher level university qualifications.”

In the US: “A productive and educated workforce is a necessity for long-term economic growth. There are disturbing trends in the United States today that indicate we are not developing nor using the skills of our citizens.”

In Germany: “Germany needs more highly educated workers with a broader set of skills to achieve higher productivity, higher income and longer employment.”

Across the EU: “The future of productivity growth in the EU will depend on the capability to make more productive use of skilled labour.”

Luckily for the UK workforce, and in particular for retailers, the Government is aware of the need for skills and the role these skills have already played in the growth of our economy in the past quarter of a century, estimating that skills improvements in the domestic workforce have contributed around 20 per cent of the UK’s annual economic growth in that time.

Along with investment, innovation, enterprise and competition, skills are one part of the ‘five key drivers’ of productivity. Taken on their own they are complex elements in their own right, but it is the combination of all five which inform and influence policy makers.

With the need for retail skills clearly being voiced by world governments, how can these skills be delivered and really enhance retailers’ productivity?

It is clear that some of the UK’s biggest retailers are coming together on the subject of retail training and at Skillsmart Retail’s recent Employer Conference, both Kingfisher Chairman Ian Cheshire and John Lewis Partnership Chairman Charlie Mayfield urged retailers to work together on skills for the sake of the sector as a whole.

Ian Cheshire said: “The danger is the skills agenda becomes a nice to have rather than a must do. If we don’t get across the idea of retail as a profession we will be disadvantaged.”

This brings to the fore the question of retail skills shortages. Dr Reynolds says: “Discussion of skills ‘shortages’, especially in economically important occupations or business sectors such as retailing, is often politically sensitive and open to debate. The concept of ‘shortage’ is itself an ambiguous one. For example, what may be described as a skills shortage by a firm or sector – leading to a call for more investment in external training and education – may be seen as poor recruitment and internal training practice by outside commentators. What we can say is that there is often poor alignment between the demand for particular kinds of skills and their availability (whether from existing employees or from prospective recruits). The demands of ever more productive retail businesses may work to shift this alignment.”

This lack of alignment can be shown in three ways:

•    Skills shortage – a recruitment need
•    Skills gap – a retraining need
•    Skills mismatch – a curriculum need

These misalignments can be broken down even further. Retailers find different skills deficits in different groups of employees – younger workers lack work ethic, verbal communication and customer handling skills, while older workers lack IT knowledge and relevant retail job experience.

One theme, however, is consistently referred to by retailers – customer service. It is clear that retailers struggle to square the circle on gaining efficiency without sacrificing customer focus.

One UK non-food retailer stated: “When we’re looking at efficiency and productivity, we have always got in the back of our mind customer satisfaction; customer service levels. We’ve made a conscious decision not to sack the customers’ experience.”

Another multichannel retailer added: “I think the biggest skills gap we have is the whole customer service skills gap.”

While training in this area is seen as important by most, one US retailer identied a problem which will never be cured: “You can’t train someone to want to give good service. You can teach them ways of product knowledge, selling, all that, but people either want to genuinely help others, or they don’t.”

With such a wide-ranging report and with the input of so many different retailers from across the globe, conclusions on the problem that is retail productivity are hard to reach.

Perhaps the conclusion we should draw is that looking across to the US will point us in the right direction. Their competitive intensity is such that they focus upon productivity more extensively and relentlessly.

And perhaps it is the American’s view of service industries that put them ahead of the game, as one UK retailer shared: “I had an American colleague over a couple of months ago for lunch and took him to the restaurant, and he left the waitress absolutely gobsmacked at the end when he said, “Thank you for your service.” She didn’t know how to react to that alien concept.”

As Sam Walton said, it can be so simple.

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