Two articles in the Wall Street Journal (even though they have some “dust” on them) serve as stark reminders of this reality. The first, “Retailers Reprogram Workers in Efficiency Push” (September 10, 2008) described installations of workforce management software at AnnTaylor Stores Corp. and other retailers. According to the article, workforce management systems are “sweeping the industry as retailers fight to improve productivity and cut payroll costs.” As the Journal noted, some workers aren’t happy about the trend, saying the systems leave them with shorter shifts, make it difficult to schedule their lives, and “unleash Darwinian forces on the sales floor that damage morale.”

The Ann Taylor system keeps track of the usual productivity metrics: average sales per hour, units sold, and dollars per transaction. The system schedules the most productive people during the busiest hours—and, because it awards more-productive salespeople with favorable hours, it gives employees an incentive to persuade shoppers to buy things. And it’s worked, as far as the overall economic goals are concerned; the chain’s director of store operations said it has helped turn more store browsers into buyers. But, as the WSJ story made clear, it also resulted in the loss of some veteran salespeople who had developed long-term relationships with customers. By focusing strictly on the metrics that could be easily measured, the system actually penalized associates whose selling style depended on longer interactions with the customer—even though such relationships often assured continued customer loyalty. Others found their hours cut back to the point where they could no longer afford to make the trip to work. During busy times, the formerly congenial staff began competing for customers, sometimes stealing them away from one another. While productivity was, indeed, increased, perhaps the most surprising unintended result of the system was that this story, with all its unflattering aspects, was splashed across Page A1 of The Wall Street Journal.

Ironically, just a few days before that story appeared, the Journal carried a remembrance of Michael Hammer, often called the “Father of Re-Engineering,” who had passed away at age 60 on September 4th. The Journal story pointed out that Mr. Hammer, author of the 1993 business best seller “Reengineering the Corporation: A Manifesto for Business Revolution,” was a remarkably successful and influential consultant. He revolutionized many businesses. Among his achievements, he had helped Schneider National trucking cut the time it took to complete a job bid from two weeks to two days; and by focusing attention on refinery safety and efficiency, he had allowed Royal Dutch Shell to improve reliability and reduce costs. He was lauded and recognized by Time and Forbes, and commanded huge consulting and lecture fees as a result.

Yet Mr. Hammer also had second thoughts. In a 1996 interview, the Journal recalls, he admitted that he and other re-engineering proponents hadn’t paid enough attention to people. “I wasn’t smart enough about that,” Mr. Hammer said. “I was reflecting my engineering background and was insufficiently appreciative of the human dimension. I’ve learned that’s critical.” It was because of that early omission, the Journal notes, that “re-engineering had a dark side, as the streamlining of processes in supply chain logistics and operations often went hand in hand with reductions in workers. Often the term became jargon for mass layoffs.”

There are lessons we can take away from these two stories, and you should consider them when you’re looking for ways to improve productivity and cut costs in your supply chain logistics:

1. What’s the effect on the customer? Think about the reaction most people will have when reading the Ann Taylor story. Why would anybody want to work in retail? Service is already lacking in most retail stores; is removing its last vestiges really a good thing?
2. Be careful what you ask for. I believe that people will give you what you ask for. If you want lower costs per call and push your people to shorten the call, they’ll deliver. But ask yourself, is that the outcome you really want?
3. Are you measuring the key performance indicators? Many businesses still aren’t benchmarking their supply chain logistics and operations internally. A $75 million personalized business with a complex call center recently had us implement their first cost-per-call, cost-per-order, cost-per-transaction reporting system—and they got some real surprises. Remember: you can’t improve something that you haven’t measured.
4. Direct has a real advantage. The president of a large general merchandise cataloger recently told me he wanted efficiency, but not at the cost of sacrificing customer service. “Many of our customers tell us that the casual, helpful, really interested call center reps are why they deal with our business. Our knowledge of the products and their application is extremely important to making the sale—not a short, brisk conversation.” Direct companies come out on top if they provide a higher level of service.

Failure to fully understand where you’re starting from, what you hope to achieve, and to think re-engineering through to all its possible consequences, can lead to any number of unintended results; winding up on the front page of the Wall Street Journal might be the least of your problems.

If you’re interested in more information on productivity measurements and benchmarking your operations and would like to talk with a consultant, contact Jeff Barry at jbarry@fcbco.com, or call (804) 740-8743. F. Curtis Barry & Co. is a national consulting firm that works with eCommerce, catalog, retail, manufacturing and wholesale distributors on projects focusing on supply chain strategies, order management systems, warehouse management systems, inventory management, third party logistics, and to reduce freight costs.

Overall Fall and Holiday 2010 Results:  Our best educated guess is that Christmas season will finish up 3% to 5% over 2009 on the average. Internet sales, in many direct businesses, will finish up with double digit increases over last year. 

We would all agree that 2009 was the worst business year since the Great Depression, so these average 2010 results represent an improvement, but may not bring businesses back to where they were before the Recession.

Many of our direct channel apparel clients are struggling. Sales are flat with 2009 to down as much as 15%.

Retail:  At the National Retail Federation (NRF) on January 10, 2011, the audience heard a panel of retail experts conclude that they believe retailers have had the “best holiday selling season in four years”. The feeling of many was that they were cautiously optimistic of a continued recovery in 2011. However, others cautioned that the biggest hurdle is the jobless rate which remains at 9% nation wide.  The question this begged was would the optimism continue through 2011?

While sales in retail stores are generally up, profits are apt to be slashed in many because of early season discounting before Thanksgiving, and the relentless promotions throughout the season.

Big box retailers and discounters have really figured out how to create date and time sensitive promotions. For example Kohl’s sent us three different shopping discount cards after Thanksgiving, each good for a short time period. At POS, if you didn’t have a shopping discount card, you were given a scratch off discount card (10%, 15% or 20% for immediate discount).  They also have their Kohl’s Cash which is timed to a future promotional date.  Kohl’s Cash the week before Christmas couldn’t be spent until the week after Christmas through early January.  This is important because we are “all fighting for consumer’s share of the wallet”.

With the post Christmas weekend of heavy snow in the Northeast, retail sales and liquidation may have suffered. However, we saw that here in Richmond, VA once the snow had gone that consumers were in the malls in record numbers.

Luxury goods merchants:  The Wall Street Journal (January 12, B7) announced that three major jewelry companies posted, “shiny sales increases in the 2010 holiday season”.  Troubled Zale Corp. (third-largest U.S. jewelry retailer) had same store sales of 7.5% for November and December. Those periods account for almost 50% of annual sales and the majority of profit.

Signet Jewelers, which operates Kay Jewelers, said same store sales were up 8.1% during nine weeks ending January 1, 2011 and U.S. sales jumped 11.7%.

Tiffany & Co. reported that worldwide sales rose 10% in the two month period, and 8% in comp stores adjusted for currency fluctuations.

At the NRF, several upscale retailers said they had good holiday seasons. One of them was Claudio Del Vecchio, president and CEO of Retail Brand Alliance, owner of Brooks Brothers. His chain had a “good season that could be, in part, attributed to gains made in the stock market” (Richmond Times Dispatch, January 11, B3). The Dow has risen 19% since the beginning of July 2010.

The economic recovery maybe uneven. Chances are the higher income consumers may have spent proportionately more than the lower income customer on Christmas. Matthew Rubel, chairman, president and CEO of Collective Brands, Inc. that owns Sperry, Keds, Saucony and Payless Shoe, said the “premium brands did spectacularly”, but the company had sluggish sales with brands serving lower-income consumers (Richmond Times Dispatch, January 11, B3).

Internet Channel: Consumer businesses now have more than 50% of sales coming from Internet; some are above 70%.  Internet in many companies will finish up 10% in many companies; and 15% or more in other eCommerce oriented businesses. Internet is now providing 20% to 30% incremental increase to the direct channel. Internet had some record breaking weeks during the Holiday season.

Shipping volumes: UPS shipping was expected to deliver a record 24 million packages on peak day. That is 9% higher than 2009 and 2007.

Free Shipping: This promotional approach continues to grow. At one point this season Internet Retailer observed that as many as 61 of the top 100 direct companies were using free shipping. A number of big box retailers offered free shipping for orders through their direct channels.