Rethinking the Box: The 4% solution.
I’m about to present a whole slate of opinions, some of which run counter to ‘common business knowledge’ and practice, but which I heartily believe in and around which I can gather a few facts, half-proofs, and lies, damn lies, and statistics. Do not doubt: This is in fact how I’d prefer to conduct business, when the store belongs to me and I have no corporate overlords.
Others will say it makes no sense. Some might even say it’s no way to run a business.
I’d reply: Being fair to people, both customers and staff, is the only way to run a business.
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Rethinking the Box is a collection of ruminations on retail & bookselling, with an eye towards comics (as one goal of the exercise is to guage the viability of a graphic novel superstore).
Previously:
Study your History. Recognise your Motives. Location, Location, Location. Know your Customer Base, and your Staff. Find your Niche. Consider your Product Lines, Stock Your Shelves, Set your main-aisle displays, consider Alternative display strategies, take a second look at What the Customers Want and Why Even Annoying Customers are Important. Stare again in dismay at the Profit Margins. Try calculating your upper-limit affordable rent and the revenue from inventory (with a side of coffee) and compare your numbers to average industry per-storefront sales.
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Companies are not made of IP, patents, rights & licenses, manufacturing plants, retail outlets, buildings, websites, or products.
Like Soylent Green, Companies are made of People.
Your first, best, second best, and in the end the only asset that positively impacts your bottom line, are your employees. Hm, that sounds awfully familiar… who said that?
Oh yeah, I said that.
Say you own a diamond mine: you likely think that your greatest asset is the mine.
Sure it is.
…Have fun digging.
I’m not joking. Anything else — patents, concepts, business models, venture capital, great product lines and beautiful facilities — it’ll all just sit there, unless you have good employees.
And I’m going to ask you to keep that one point in mind, while I discuss some history and business (and yes, retail crap) that may distract you temporarily from that one truth.
Remember the 60 hour work week?
Of course you don’t: most workers haven’t been required to work 10 hour days, 6 days a week since 1850 or so; and even at the height of Dickensian Industrial Revolution excesses, there were folks like, well, Dickens there to call us on it, and deplore the way we treat our fellow human beings.
What we do for ‘work’ has changed a lot over time, from paleolithic hunter-gatherers to modern internet, um, hunter-gatherers [though we prefer the term ‘blogger’] and in the roughly 12,000 years from pre-history to the launch of the iPad, there have been at least 4 revolutions — agricultural, industrial, transportation, and information. You can pick your own, of course, and assign your own dates, and spend quite a bit of time debating the points on Wikipedia if that is your particular kink, but I’ll boil it down to this:
For 11,850 years we kept working more and more, with less leisure time — right up to that 60 hour work week — and only in the last century and a half have we been able to work less. (see also, workweek and labour and employment law) Technology has finally reached the point where we could all work just 20 hours a week, and still earn a living wage, even one sufficient to raise a family — but of course the increases in worker productivity have instead been diverted into corporate profits, and we’re all still working 40hrs plus overtime, or two jobs, or limp by on part-time or a minimum wage job while seeking a job that will appropriately use our skills — or do what we can while going to school to acquire the right skills.
I’m not against profits. Responsible corporations use profits to expand, to innovate, to invest in things that lead to more production (& more jobs) or to a better product at a lower price: and this sort of thing increases the standard of living for us all.
But if all we’re doing is paying top executives tens to hundreds of millions, funding war chests for political lobbying or irresponsible corporate take-overs, or paying out dividends to stock holders instead of and in place of making investments in the actual business: now, this is where I have a philosophical difference with the way most corporations are run.
And of course, we can all work more if we want to — for example, one could spend 20 hours a week on a blog after working a full 40 hours at the regular job — and many of us do. There is value in work, even in tasks considered ‘menial’ by folks who don’t know better and what many of us call ‘hobbies’ were either employable jobs not more than a few decades ago, or remain viable means of employment even given the number of amateurs who also ‘work’ in the field.
And there is the myth of the ‘perfect job’, one that is fulfilling personally and spiritually as well as financially; it is indeed a western luxury to reject work merely because it provides nothing except money.
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Wow. Deep breath. That aside takes of far afield of my topic, and I recognise it might take some a mo to readjust.
So. OK? back to retail:
Running the store.
For every hour your store is open you need someone to run a register. Not: “run a register and answer questions” or “run a register and help customers” — I don’t care if they’re standing around bored out of their skull 6 of 8 hours a day: if a customer wants to spend money we need someone to take their money (quickly, politely) before they change their mind.
This is retail: money for goods.
Customer service is different from retail, and you shouldn’t ask the same employee to do both at the same time. In fact, many retail ‘jobs’ — merchandising, community relations, sales associates, product specialists, customer support; even your back office staff taking care of the ordering, receiving, and stocking and your front-of-store management who keep the sales floor organized and your entire staff on task — are all secondary to the cashier:
The cashier puts money in the till, and everything else supports that.
Yes, even if you’re the owner, running your own small retail business (bookstore or otherwise) you’re role as owner and sole proprietor is secondary to the cashier. For store-front retail: nothing else makes money.
I belabour the point because in many stores, the cashier is an after-thought. She’s the part-timer, or the entry level position. He’s the student taking classes who can only work nights 3 days a week, or maybe the stay-at-home parent who can only work weekends. And with training, any of these folks would be fine — or more than fine, as it takes a special skill to smile and be friendly to a never-ending stream of customers while the job itself is actually a bit boring.
But the final service contact with your customers is the point-of-sale — and it’s the most important because money actually changes hands: you don’t get paid until the register rings. Always remember that, and when you’re hiring staff and setting schedules, always keep it in mind.
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So at a minimum, you have a cashier; if it’s a really small store you as owner are the cashier (and if helping customers takes you from behind the register often enough that someone with money is left waiting, there’s your tipping point: hire help)
Of course, we’re not discussing the mom-n-pop storefront in this series, we’re considering a multimillion dollar bookstore. So staffing is bit more complex:
- You need at least one, and often two, dedicated cashiers all day. Don’t skimp. The register pays everyone’s paycheck
- (If you need more than 2 cashiers to handle your sales volume, why are you reading my blog? you should be giving me advice.)
- Bookstores, like libraries, have an information desk. So you need at least one person to staff this desk all day. This is also non-negotiable.
- If you have specialty departments (kids books, music, DVDs — whatever you want to run) then each dept. also needs to be independently staffed — maybe you don’t need a kids bookseller from 9pm to Midnight, but otherwise: yes, an additional person per dept. all day long. If you’re not staffing it, what’s the point? It’s just another set of shelves else.
- If you run a café, then in staffing terms you have to run it like a separate business: it’s own cashiers, management, and dedicated employees.
- Depending on sales volume, you may also need dedicated staff to receive product, sort and shelve it, and process damages and returns.
- You need a manager (or “key-holder” — most likely also known as managers) to open the store, and close it. If you’re open more than 8 hours a day, that means you likely need two.
- You need to give everyone breaks. I’m not just being nice: it’s the law. So on top of everything else, you need to figure out how to give people lunches and shorter breaks — unless you go the Walmart-Evil route and just hire everyone part-time: but even there I think you have to give folks at least one 15min. break every four hours. [Your state & local employment laws may vary.] On top of slotting a warm body into each designated role, you need at least one extra staffer every day just to cover breaks.
You can run a store with less (minimum 2: one cashier and one everything-else) but once again, if you’re open more than 8 hours a day, suddenly you’re looking at two shifts (maybe three: open, mid, and close) and while over-lapping work shifts means it’s suddenly easier to figure out the lunch and other breaks for each employee, it’s still twice as many employees minimum every day.
Say it’s a smaller, and/or slower, store: only does $1 Million dollars a year. And you’re only running 2 shifts, and just 3 employees (cashier/associate/manager) for each. And for simplicity’s sake, we’ll consider full-timers — 8 hour shifts — without throwing part-time and evening-and-weekend-only staff into the mix. (Realistically, you won’t be able to do that: students, people otherwise working full time, parents, and slackers are going to be a large portion of your retail workforce, but I’m looking for a minimum number in a mathematical model in this case, so this level of real detail has to be set aside)
So, two eight-hour shifts, three employees per, seven days a week. Absolute bare minimum: 336 payroll hours each week (3 roles x 2 shifts x 8 hrs x 7 days) — this excludes a café, and glosses over niceties like checking in any new product or stocking shelves.
We’re already talking about a staff of 9 people, of whom a third have to be ‘managers’ or at least those trusted with keys to the front door (and the safe combination, since this is a cash business) — and at most, given an hour before open and an hour after close to set up and close down and all the other associated crap the shopping public doesn’t think of (and the previously mentioned overlap of shifts so folks aren’t working 8 hrs in a straight shift) we’ve established 10 operational hours for our hypothetical storefront.
[Yes, there is math. I’ll spare you, unless you really want the breakdown]
10 hours is something like 10am-8pm daily; not bad. And 9 employees is manageable, if everyone can always work the same shifts and no one needs flexible scheduling or vacations or sick leave or whatever: like I said, this is a bare minimum and a mathematical model besides, and if nothing else your weekend (or Wednesday) crowds will necessitate at least one extra body on the schedule; there is no way your staff will actually look like this.
Any expansion of your business also necessitates more staff: additional operating hours, additional sales volume, specialty departments and the all-important coffee — you’re spending more on staff. Maybe even three to four times as much as that ‘keep the doors open’ payroll number.
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Of course, at a corporate level you’re not going to think of payroll as actual ‘people’ responsible for actual roles and work in your chain bookstore; it’s just an expense, and one that can be managed — even cut, willy-nilly — because nothing matters but margins and profits.
And payroll is the first thing to be cut when times get even a little tough…
or some other bet didn’t pay off and now the corp. is in trouble— no fault of the employees at the store level of course, it was some idiot at corporate HQ who made the mistake, but store payroll is the easiest thing to squeeze and gods forbid any vice president be cut, or have his salary cut
And this is part of a longer aside and also the main point of my argument: If your business is retail, the money comes in the cash register. ALL PROFITS come in through that cash register, at the local store level, and cutting back the support staff in store that generates those profits should be the last thing you do.
I’m lucky: I still have a job & my company is doing well. My store isn’t necessarily hitting all of it’s arbitrarily determined performance goals but we’re still making money and also positively contributing to the megacorp’s bottom line.
And there’s another point: sales can be up, sales can go down, but so long as you’re making money what’s the hassle?
Anyway, if one is an independent you don’t have to worry about goals, targets, and annual reviews: just pay the rent and other bills, and make your payroll, and maybe a little extra to re-invest in more inventory, nicer chairs, and the usual upkeep and you’re golden
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I know at least three ways to calculate payroll:
- by sales: there is one school of thought that says each payroll-hour (that is to say, each hour worked by an individual employee) needs to generate X dollars in sales to justify it’s expenditure. Needless to say, this is a favourite of corporate accountants. The problem is that X is a variable, and even among similar stores in a large bookstore chain, the value of X will change based on location, sales volume, and the whim of some blighter at corporate. I know all about Sales-per-Payroll-Hour numbers and the related math, and I hate ‘em as intimately as I know ‘em.
- by role: you need a certain minimum number of booksellers just to keep a store running, and to keep it running in such as way that no customer is more than momentarily inconvenienced. The staffing levels in this case are proscribed strictly by your store layout and departments, and have very little to do with that all-important sales number. —If there are too few hands, the ship won’t sail. Hopefully the payroll graciously allotted to a manager at a chain bookstore is enough to cover this minimum, but if it isn’t, well: it’s the customers who suffer. The next time you can’t find anyone to help you at a bookstore, I hope you remember this last point.
- bare minimum: by my math, just 10 people can run a store, 10 hours a day, 7 days a week: and they’re going to be tired, bitchy, and more than a little strung out; they’ll have to work while sick or while their kids are sick, they’ll occasionally snap at customers, and nothing extra will get done, not even the standard replenishment of books that have sold, because there really isn’t the time.
Since accountants don’t work retail, they look at the first number [payroll by sales] and try to squeeze it. And they can squeeze it [though they shouldn’t, really] to the point where we’ve an ‘optimal’ number of employees to run the store — and the customers won’t really notice. More and more, though, retailers of all types are squeezing past that point, and much much closer to the ‘bare minimum’ (and occasionally beyond) because they look only at numbers, payroll spent vs reciepts taken in, and don’t even know about the other intangibles of retail that occasionally require a person to be present, and to smile, even if no dollars are immediately generated by that interaction.
Of course a rising tide raises all ships, and a lot of this will improve if the economy improves. In the lean years, though, figuring a clear way to navigate one’s corporate-outpost-store past all this bullshit is just grating. and tiring. And the lack of perspective on the actualities of retail by those who purport to run a ‘retail’ corporation is exasperating.
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If you run your own store, how can you beat the majors?
They have more square footage, more affiliates, more books, more amenities; they have a website and warehouse and distribution chain. They pwn you.
OK.
We can work with this, actually.
I’ve covered this before: First and foremost, if you want to run a bookstore and compete with the chains, you need a defined niche and you need to actively compete in that small segment. If you cover those bases, even a 2500sq.ft. strip mall storefront can hold their own against a 25,000sq.ft big box: pick your battles, and only fight the ones you know you can win. (and of course, compulsively plan and prepare for those battles, so you can and will win them on a regular basis)
Where else can you compete? What one thing do customers cite when they profess a preference for their local independent over the charms and wiles of Big Box Books?
The Knowledge and Attitude of the Staff.
You might think this is the sort of thing that can only be developed over years. And it can be, if you’re lucky — just as often, you’ll be a retail-employment revolving door for a never ending string of almosts and moving-ons.
The only way to secure great staff is
[drumroll…]
[wait for it…]
Pay for it.
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Minimum wage is $7.25 an hour, at least until legislators who care about people & their quality of life can get around to raising it again, given the opposition by other legislators who just hate seeing ‘poor’ people ‘get ahead of themselves’ or whatever their stupid argument is.
And I think this is just fine, actually, as a introductory or training salary — but if you find someone you like, who does a good job, even if it’s ‘just retail’ (and retail is in fact a skill, & one even more difficult than many ‘corporate sales’ jobs — but that’s a different rant) then you really should be looking at $10 an hour, and maybe more depending on the cost of living in your area.
I’d like to think my home town (Atlanta) is in the low-to-average-but-really-average band for rent, food costs, and other factors that make up the ‘cost of living’, and $10 an hour isn’t much, really. (It’s a damn sight better than minimum wage though, and can mean the difference between one full time job or having to work two, or between getting food stamps, or not.)
Minimum wage is also a good base rate for baristas (or wait staff, if you run a restaurant) who also earn supplemental income via tips; I’ll ignore for the moment that current federal law allows employers to pay as little as $2.13 an hour in this case, as that is just insulting and I’d be embarrassed to pay so little to the men and women in these fields who work much harder than the job description might merit, and certainly work harder than I do for much less. Yeah, I know, you’ve had a bad experience with a waiter or waitress and I’m sure you can’t wait to share that with us in the comments (along with your proud refusal to leave a tip) but no one deserves $2.13 an hour, particularly for the crap the vast majority of us will put restaurant staff through.
I personally tip generously and as an employer, even if I could pay less I’d never go below actual minimum wage. $7.25 plus tips is hardly generous; actually, it’s the least I can do.
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My expectations as a potential business owner are… unique. Most entrepreneurs are looking for a get rich quick scheme a reasonable return on investment, and my thoughts on compensation will fall on deaf ears.
Let me pitch it as an investment:
So, you’ve overall sales of some multiple millions, and [minus the known cost of stock, call it 60% of MSRP] your Gross Profit is also in the millions, and after accounting for fixed overhead (rent, utilities, payroll, cost of servicing debt) you’re still making a cool million (with the lovely zeroes: $1,000,000) and the only costs left are additional employee pay, and taxes.
If I’m paying money to employees as wages, that’s an expense, not a profit. I don’t pay income taxes on it (though I do have to pay FICA and other payroll taxes, as part of my employer contribution) — FICA is a cost split with the employee, however; as an employer my end is only 7.7% — a good bit lower than the tax rate on corporate income (25-35% depending on current tax law, which changes frequently.)
So as an employer, if I channel more money to my employees it affects, and lowers my ultimate tax bill.
Also, expenditures on employees is an investment, and if your employees have to deal with the public on a daily basis, keeping employees happy is only good business sense. (actually, it’s a good idea no matter what, but the folks who deal with the shopping public need a little extra consideration)
Instead of cashing out, I can share the company ‘profits’ [which were, in fact, earned for the company by our employees] and the small investment will reap dividends over years: employee retention, increased sales, community goodwill,
and what am I going to do with the money anyway? I just want to run a bookstore; the best damn bookstore I can and a Graphic Novel superstore besides. This isn’t a scalable idea – there is no chain, no national plans, just one really excellent bookstore. Of course profits are going to be plowed back into the operation, and part of that is making sure employees get paid what they’re worth, and maybe a little extra.
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just 4% of that $1,000,000 is $40,000 a year. If I have the ‘bare minimum’ 10 employees described above, all working full time, I can afford to pay them $2 an hour more above and beyond what I might otherwise be paying them (obviously, rates will differ depending on experience and capabilities)
just 4%: hell, why don’t I pay them more? Instead of calling that the bare minimum to run the store, consider these 10 employees to be the core of my working staff — they do the most work; they are in fact the employees I’d miss most if any one of the 10 were gone — say, they left to take a job that they didn’t like but that offered an extra $2 an hour.
Why wouldn’t I pay that 4% to retain my best staff? If these dollars represented profits I’d otherwise have to pay taxes on, I should spend that 4% five times over: to pay 10 employees $4/hr over the base, and to keep the next 30 best employees by paying them $2 an hour more? Why the F*<# not?
And that’s just $200,000, 20% of the hypothetical million in profits each year — or $200,000 in operational expenses on a store that otherwise brings in $5-10MM —
And if your storefront can’t manage that first mil – say you only earn $100,000: it only costs $2000 to pay one employee an extra dollar an hour. Can’t you find $2500 or $5000 somewhere for your best employee? Or best 2, or best 5, or best 20 employees? — In a bad year, if you had to fire everyone else, who would you keep? And in any other year: why aren’t you paying these same essential employees more? Don’t wait for a recession to make these decisions.
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Which employer couldn’t find 4% for staff? Which corporations already pay that annual 4% as dividends to stock holders? (and since when has a stockholder contributed anything to ongoing corporate operations – all they did was buy the stock)
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OK, if it were my store and I’m calling all the shots:
- Café servers only make minimum wage. Sorry, guys. But I encourage you to solicit tips, and provide the type of service that encourages tipping. And I hope the differential between actual minimum wage ($7.25) and what the gov’t laughably calls minimum wage for staff that otherwise earns tips (only $2.13) makes up the difference.
- Book sellers who make it through the first 3 months: congratulations, I’d like to start all you folks at $10.25 an hour. After those first few months of training: If I’m going to keep you then you’re worth the extra three bucks an hour — and if you’re not, then honestly I just need to fire your ass now. We don’t need to string it out. Not every job works for every person, and an employer is not a welfare agency.
- Booksellers who have been with us a year deserve the extra $2 an hour I found lurking in the corporate earnings statement above. At this point we’re up to $12.25 an hour, and that ain’t bad.
- Cost of living adjustments for veteran booksellers would obviously follow, along with considerations for management, booksellers considered key to specialty departments, and folks who always show up on time and can still manage to smile after years of working retail.
It’s not billable hours at a legal firm, so we can’t pay astronomical rates, but I have no problem with investing profits back into my staff. An investment in employees always pays off. Just because it’s “only retail” doesn’t mean you have to make do with constant re-hiring and students and part-timers and “whomever is left” — make a committment to pay the staff what they’re worth, and you will always have a staff that will beat the snot out of the competition.
Hiring.
Personally, I know in the first five minutes of an interview whether I’ll hire someone or not. I trust first impressions; I trust my gut.
It doesn’t always work out. But I find that’s true whether I spend 45 minute in the interview, or just 5. Most of what we’re looking for, most of what the store needs, is only going to be apparent after someone has worked with us for, say, 6 weeks.
Which is why I’m a big proponent of provisional hiring, and a training/probation period. Say I like you enough to offer you a job: what I’m going to offer is 3 months at minimum wage, and I’m going to pay that to you even if I ask you not to come back after the first week.
But to actually work for more than 3 months, you’ve got to earn it. This isn’t the interview, where a sunny personality and the right answers will get you by: I want to see you on the job and actually performing. Yes, this means the first interview is easy — but actually landing a job is going to be hard. I personally feel this is the best way to add members to your staff, as the longer introduction allows all sorts of things to come out that would never be revealed in an interview: Always 10 minutes late, no matter what the scheduled shift is? Calling out ‘sick’ three Friday nights in a row? ‘Stuck in Traffic’ or weird emergencies always coming up at the last minute?
Sure, that’s life. Everyone has issues. But when you should be trying to make a good impression on a new employer? I know retail doesn’t have the same urgency as, say, Emergency Room Medical Treatment, but some basics need to be covered.
Also, if an employee has a tendency to mouth off to customers, or take an hour-and-a-half for lunch to meet their girlfriend, or do things like steal — well, it’s nice to have the option to just part ways before it all gets too involved. So long as the probationary period is made known to all new hires, I don’t forsee any problems. [particularly with the commitment to pay the 3 months salary no matter what]
Obviously, this isn’t the way I’m allowed to run my store at present, as I myself am just an employee at Big Box Books, but when I run my own outfit, this is the way we’re doing it.
Benefits
And things like health insurance and paid vacation time: provide as much as you can to as many employees as you can – after all, like wages, this is a pre-tax expense and is also an investment in your staff. Don’t skimp. Sure, you can… but it’s just wrong
And I’m sure you can guess what I’m about to say:
Your first, best, second best, and in the end the only asset that positively impacts your bottom line, are your employees.
No matter how big or how small, your company isn’t made of products or things or ideas: It’s people who make the product, who sell it, who have the ideas, who keep going even in the face of set-backs. Your only real asset are your employees, and not just the parasites capable management at the top of the org chart but the whole staff, from CEO at the top to bottle-washer, nerf-herder, intern, and janitor at the bottom.
Your employees are the company. And don’t you forget it.
