June Hardware Retailing

Transcription

1 June 2007 Brothers Gary (right) and Jeff Katz, who operate Harvey s Hardware in Needham, Mass., believe in investing heavily in labor and inventory, which has helped them generate sales and employee productivity figures well above the industry averages. 28 Hardware Retailing

2 By Chris Jensen, Executive Editor AreYou Overstaffed? Determining the Right Number of Employees National Football League owners have it easy. League rules dictate that each team s roster be comprised of 53 active players (not counting practice squad players). No more, no less. Without such a rule, some teams would obviously try to gain an advantage by stockpiling 15 quarterbacks, 12 wide receivers and eight long-snappers. The NFL also has a salary cap that dictates how much teams can spend on player payroll. As a hardware retailer, you have no such helping hand. You must figure out exactly the right number of employees it takes to operate your business. You must also decide what percentage of your sales to devote to payroll. You can run with a lean staff in hopes of pumping up your bottom line, but that strategy might backfire by limiting your ability to offer outstanding customer service. Or you can boost your staff levels in hopes of impressing customers with your store s personal service. However, taking your payroll expense too high could negatively impact your store s bottom line. So how do you arrive at the perfect number of employees to have on your staff? Some retailers would argue such decisions are part art, part science. High-performance retailers, however, tend to devote more time and attention to the science end of the equation. Read on to see how to tackle this perpetual retail dilemma. Formula For Success The staff at Harvey s Hardware in Needham, Mass., consists of 22 employees both full and part time, which is above average for a 5,800-square-foot store. But then, everything is above average at Harvey s, from the 35,000 SKUs crammed into every nook and cranny of the salesfloor to the fanatical level of personalized service given each customer. Gary Katz operates the business with his brother, Jeff, and they have made a conscious decision to be overstaffed, at least by industry standards. By the standards of Harvey s, however, the Katz family is more inclined to believe they are understaffed if anything. June 2007 Hardware Retailing 29

3 June How Many Employees? (Summarizes the number of full-time and part-time employees working in hardware stores submitting data to NRHA for the 2005 Compensation Study.) Full-Time Employees Part-Time Employees Owners/Officers Managers/Assistant Managers Department Managers Sales Personnel Office Personnel Cashiers Stock Personnel Delivery/Receiving Personnel Warehouse Personnel Total Source: NRHA s 2005 Compensation Study Between eight and 10 employees are scheduled to work on a typical weekday with as many as 12 employees on a weekend day, according to Gary Katz. There are times when you may staff the right amount of employees for what Hardware Retailing would normally be a busy time, like on a Saturday in spring. But it ends up pouring all day and not that many people come in. There are some things you can control and some things you can t, he says. The work schedule at Harvey s Hardware doesn t vary much from week to week, because employees are more comfortable with a set schedule so they can plan their activities, according to Katz. If something comes up we try to be flexible. We have enough experienced staff that we can still cover the store. In addition to paying close attention to payroll numbers, Katz makes notations in a daybook, recording things such as weather emergencies. This helps explain why sales spiked or declined for a given period. That way we re not scratching our heads wondering why our numbers are off, he says. Sean Curry, who operates Curry Ace Hardware in Quincy and Braintree, Mass., says that he aims to have enough employees on hand to help everyone who needs help so customers are never left to wander around the store. At the main store in Quincy, an average of six to 10 people are on duty, depending on the day and time of year. Weekends are busier and the number is usually closer to 10 for those days. Although the stores operate with shorter hours on Sundays, these days often turn

4 Right: Walter Toole (center) of Bray Ace Hardware, shown here with brothers Brett (left) and Scott Weidl, looks at his employees as an asset and not an expense. That s why he believes strongly in investing in their success through rigorous training, which ensures they have the knowledge and confidence to deliver strong customer service. That also means the right number of employees for his business is based on every member of the team being a strong contributor. Opposing Page: Harvey s Hardware in Needham, Mass., manages to cram 35,000 SKUs into a 5,800-square-foot store, which is why customers must rely on personal service to find what they need. Since they have a knowledgeable staff and low employee turnover, brothers Gary and Jeff Katz, who operate the business with their father, Harvey, have been able to differentiate their business with exceptional service. out to be very busy and require adding a few more part timers. Staffing is greatly important to make sure there are enough employees to ensure people get the assistance they need, Curry says. Being able to provide good customer service has really been our competitive advantage as Home Depot and Lowe s moved in. Curry s commitment to service means his payroll expenses run about 23 percent. We are definitely on the high end of the scale, but our turnover rate is low, says Curry, who adds that he only lost one full-time employee last year out of 24. He says the business does not have an exact formula to determine how much staff is needed at what time and on what day, but he looks at his transactions per hour to figure out the peak times when more employees are needed. Since the store gets frequent deliveries from Ace three times a week Curry knows more staff members are needed on those days to handle the deliveries and still have enough employees on the floor to provide good customer service. Keeping Close Track Walter Toole, who owns Bray Ace Hardware in Winter Garden, Fla., uses sales history for the past two years when developing his staffing plan. I measure by sales, profits and customer counts. Then I come up with goals each store can hit. If it s a new store, I ll be a little heavy on the payroll per hour, he says. How to Control Costs With labor Scheduling Labor costs comprise a large percentage of a store s expenses, yet many retailers do not operate with a formal system for labor scheduling. A little bit of planning can go a long way in helping hardware retailers maximize their productivity while controlling costs. To develop an effective labor scheduling system, try adopting the following methods: Solicit customer feedback. Ask if they consider staffing to be adequate. Track customer traffic and number of transactions per hour for a sample period. Include every day of the week, as well as days with and without promotions. Develop a simplified forecast of labor hour requirements. For example, develop a forecast of weekly sales volume within 5 percent. Correlate historical sales with the hours employees worked to determine sales per person, per hour (SPH). Next, establish a benchmark of SPH based on historical data and industry benchmarks. If your store labor cost is too high, gradually work toward your goal. Using the forecasted sales and the desired SPH calculated above, determine the number of hours to schedule your employees for the upcoming week. Keep in mind that promotions, seasons, weather, day of the week and time of day can affect labor requirements, as can non-selling activities such as ordering, receiving and restocking. Continually budget store labor as a percentage of net sales. Compare your store s performance against your goals and industry standards. Periodically update your staffing to be responsive to changes in the business, such as the reorganization of departments or evolving traffic patterns. At Bray Ace Hardware, each store manager is held accountable for scheduling, according to Owner Walter Toole, and very few employees have a set schedule. The managers must be focused on what s happening in their stores during the hours they re open, according to Bob Swarthout, his general manager. If the store is always swamped between 5 and 6 p.m., they should request more help for that time, he says. We try to be a good place to work, so that if someone is a single mom we do what we can to accommodate them with the schedule, Toole says. I m not fond of employees covering for each other when they want time off. Usually an employee will put in a request a couple weeks in advance, and we can usually accommodate them. June 2007 Hardware Retailing 31

5 June 2007 Employee Productivity Benchmarks Hardware Stores Home Centers LBM Outlets Number of Employees (full-time equivalent) Sales Per Employee $143,358 $208,567 $281,387 Gross Margin Per Employee $59,038 $61,051 $67,999 Salary Per Employee $27,832 $28,770 $33,701 Payroll Per Employee $31,780 $34,802 $39,304 (including benefits) Payroll % of Sales 22.2% 16.7% 14.0% Source: NRHA s 2006 Cost of Doing Business Study Sample Weekly Payroll Report (Figures below are for illustration only and do not represent actual retailer s results) Week Ending Saturday 6/2 6/9 6/16 6/23 6/30 Employee Employee VAC Employee 3 VAC Employee VAC Employee VAC 36.4 Employee VAC Store Totals Hours Worked Weekly Ave. Actual Planned Last Year $ Payroll Expense Month Total Actual Planned Last Year Payroll % of Sales Sales for Month Month % Actual $145, % Planned $142, % Last Year $139, % Depending on the season, Toole has between 110 and 120 employees for his four stores (a fifth store is in the works). Each of his store managers is accountable for their sales per manhour figures as well as gross profit per hour per store. We set goals for sales per manhour, says Toole, whose company-wide figures are currently coming in at $88 in sales per manhour and $183,040 in sales per employee per year (compared to an industry average of $143,358). Toole s gross profit per employee per hour is currently running at $39/hour, although the figure is higher in his main store. I look at my employees as assets, not an expense, even though half my overhead is going to employees, he says. If you find good employees the payroll falls in line. Toole closely tracks the total number of payroll hours it s a regular topic of discussion during monthly meetings with his managers to see if there s a dropoff, because he wants to make sure no store is running too lean. When is it Time to Add Staff? Katz says the key for staffing at Harvey s Hardware has been finding the right ratio of employees to do the physical labor needed while having knowledgeable staff members on the floor to provide a high level of customer service. The store s low turnover rate and having a number of experienced staff members also helps. We try to have the staff we need to be available to answer all of a customer s questions and still have a few people to help carry heavier items out to their cars and do the physical labor needed, Katz says. He adds that determining the right number of employees has mostly been done through trial and error over the years, trying different numbers through the different seasons to find the right amount for the time of year. Eric Skrivseth at Catron Supply in Quemado, N.M., pays close attention to the sales per employee ratio published by NRHA in the annual Cost of Doing Business Study. I have been using this number to decide when I need to hire, and it seems to work fairly well, he says. So what should a retailer do about staffing levels when sales are soft? Fortunately, Katz says they have not been faced with that circumstance. We re a well-established business and we have money in the bank, so we wouldn t overreact. But I don t think you can boost sales by getting rid of people. Toole at Bray Ace says he only loses people through attrition, not layoffs. I don t believe in cutting hours to make 32 Hardware Retailing

6 Toole closely tracks the total number of payroll hours it s a regular topic of discussion during monthly meetings with his managers. Sean Curry, who operates Curry Ace Hardware in Quincy and Braintree, Mass., makes a conscious decision to go heavy on payroll expenses so he can continue to provide high levels of service in his stores. He believes in changing job descriptions several times a year to keep things fresh for employees, which also boosts their productivity. Owner Walter Toole (right) and General Manager Bob Swarthout of four-store Bray Ace Hardware in Winter Garden, Fla., pay close attention to employee productivity figures such as sales per manhour and total payroll hours per month. They want to make sure they are not running too lean so that customer service levels begin to suffer. payroll. My employees expect that payroll check just as much as I want customers coming in, he says. Full Time vs. Part Time Deciding on the right number of employees for your business also entails determining the right mix of full-time and part-time staff. Under former CEO Bob Nardelli, Home Depot changed its mix of full-time and part-time employees from to 50-50, which led to a noticeable decline in service levels. The retail giant is now attempting to reverse that trend. Employees who are full time tend to be older and more mature, but we still need younger ones who can work odd hours and do some of the grunt work, says Katz. I don t like unloading the truck anymore at my age, he jokes. Bob Swarthout, general manager at Bray Ace, says they don t really look at the ratio of full time to part time anymore. If you get a lot of part-time employees they won t be as dedicated to the job, he says. Most of our part timers are high school or college students or retirees and they only want to work part-time hours. Boosting Productivity While it is important to look at nonselling activity to make sure payroll dollars are largely spent on employees who are on the salesfloor helping customers, Katz says there are advantages to having staff receive and put away merchandise. When I get employees to touch and feel merchandise it boosts their product knowledge and awareness of the product, he says. We try to check in the merchandise during the slower times so we don t have much down time. We have to be more productive such as the way we check in merchandise so we don t have to cut costs related to touching the customer, says Toole, who has a crew that comes in at 3 a.m. to put away stock so the salesfloor employees can concentrate on helping customers. Toole also makes sure all his employees pass NRHA s training program so they are more productive in their interaction with customers on the salesfloor. We re going to win the service game, he says. We re going to exceed expectations more times than not, because our people make the difference. June 2007 Hardware Retailing 33