Labor Planning, Execution, and Retail Store Performance : An Exploratory Investigation

After the cost of goods sold, store labor expense is the largest cost component in the retailing industry. As a result, developing and executing labor plans is a key task for retailers. In this paper we use private data provided by a large retail chain to assess the relationship between labor planning and execution practices and the average transaction (basket) value of a retail store location. We find that consumer basket value varies greatly from store to store and that there is a strong cross-sectional association between labor practices at different stores and basket values. In particular, matching labor deployment to store traffic (rather than to the forecast of sales, as many retailers currently do) is associated with larger basket values. We further separate the task of labor management into the planning component (i.e., creating a labor plan that matches traffic patterns) and the execution components (i.e., deploying part-time employees, full-time employees and managers to match the labor plan), and we find that stores with better plans and stores with better execution of these plans for full-time employees (but not for part-time employees) demonstrate significantly higher basket values. We obtain these results after controlling for customer demographics and product variety, which are also significant in explaining basket values. Our findings suggest that modest improvements in employee scheduling and in execution of the schedule can result in a 3% sales lift at moderate, or even no, additional cost