Illustration by Kelsey Dake
When my wife and I first visited the supersize Ikea in Red Hook, Brooklyn, in 2008, we didn't take time to stop for the lingonberry jam or meatballs. Soon after we walked in, we just wanted to leave. We realized that the place was a crowded, labyrinthine mess lacking the adequate amount of staff to help us chose between the Ekby Hensvik and the Ekby Bjarnum. We left angry and exhausted, and we swore — for the sake of our marriage — never to return. Ikea, I thought, was just like Walmart or countless other big-box retailers that seemed to have embraced a Faustian bargain with their customers. The chains would sell absurdly inexpensive stuff — like a Lovbacken coffee table for $60 — but as a consequence, customers would have to put up with huge stores manned by small, often unhappy and unhelpful staffs.
Deep thoughts this week:
1. Big retailers classify workers as a "cost."
2. But they can be a major source of profit.
3. If stores understood this, they'd make a lot more money.
It's the Economy
Adam Davidson translates often confusing and sometimes terrifying economic and financial news.
One recent Sunday, however, my wife and I caved. We needed to buy four separate closets and all the interior trimmings, and Ikea was the only place we could find them for less than $600. Coincidentally, it was the same weekend in which I was reading "The Good Jobs Strategy," by Zeynep Ton, a business professor at M.I.T.'s Sloan School of Management. Ton, 39, grew up in Turkey and spent several summers working at her father's apparel factory, often sewing pockets for bathrobes. The job was, like many menial low-wage tasks, both pressure-filled and boring, and Ton wished she could find a way to make such workers happier. After a volleyball scholarship brought her to the United States as a young adult, she eventually dedicated her academic career to figuring out how to make low-paid work more rewarding for employees and employers alike.
In the last few years, Ton has become a revolutionary force in a field that would seem unlikely to generate many — the Kafkaesque-titled Operations Management. Her central thesis is that many of those big-box retailers have been making a strategic error: Even the most coldhearted, money-hungry capitalists ought to realize that increasing their work force, and paying them and treating them better, will often yield happier customers, more engaged workers and — surprisingly — larger corporate profits. This sounds Pollyannaish, sure, but a study co-authored by Marshall Fisher, a Wharton professor who specializes in retail-management studies, backs it up. For every dollar of increased wages, one retailer that was studied by Fisher brought in $10 more in revenue. For more-understaffed stores in the study, the boost was as high as $28.
The problem results from the way many companies consider their workers. Ikea, for instance, has more than 130,000 global workers. In order to manage all these people, it uses something called work-force-management software, which ensures that there are enough workers — but not too many — to handle the forecasted in-store shopping traffic. (Walmart, which has 16 times as many workers, does, too, as do most larger retailers.) The software typically codes workers as a cost — one of the biggest — and aims to find the most efficient number of employees that can handle expected traffic. A trip to a big-box store reveals this algorithm's logic in practice. There always seem to be endless aisles of merchandise but no one to answer your questions.
Ton, however, argues that workers are not merely a cost; they can be a source of profit — a major one. A better-paid, better-trained worker, she argues, will be more eager to help customers; they'll also be more eager to help their store sell to them. The success of Costco, Trader Joe's, QuikTrip and Mercadona, Spain's biggest supermarket chain, indicate, she argues, that well-paid, knowledgeable workers are not an indulgence often found in luxury boutiques with their high markups. At each of the aforementioned companies, workers are paid more than at their competitors; they are also amply staffed per shift. More employees can ask customers questions about what they want to see more of and what they don't like, and then they are empowered to change displays or order different stock to appeal to local tastes. (In big chains, these sorts of decisions are typically made in headquarters with little or no line-staff input.) Costco pays its workers about $21 an hour; Walmart is just about $13. Yet Costco's stock performance has thoroughly walloped Walmart's for a decade.
I was thinking about this as my wife and I re-entered Ikea. From the moment we walked into the store, we realized that something changed. A greeter at the entrance pointed out a shortcut to get to the closet department, which probably saved us half an hour. When we got there, a salesman guided us through the options. Suspicious that this was a fluke, I made a point of asking questions of every worker we passed, but every one was pleasant, knowledgeable and helpful. Even on a crowded Sunday, there seemed to be plenty of roving employees looking to answer, direct and expound upon the various differences between the Pax and the Stuva closet systems — of which, I can now tell you, there are many.
Adam Davidson is co-founder of NPR's "Planet Money," a podcast and blog.
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