Trader Joe’s Pays Its Workers More And Gives Them More Training — And They Get More Sales As a Result!

March 26th, 2012

I love Trader Joe’s. Without that store, I likely would have starved to death years ago. OK, I am exaggerating a bit, but probably 80% of my calories come that store. Anyway, perhaps one reason why I love TJ’s is because the service is so, so good. Whenever I good, there are never long lines. When a line gets long, they add another register (when they ring the bell, it is a call for more checkout counters). Plus there is a dude walking around with this humongous question mark, and you can ask him/her any questions about food. Plus they always have stuff in stock, and knowledgeable, enthusiastic employees. Fortunately, there will be a TJs in Houston. I am excited.

Anyway, why is TJs so far superior to other places. From James Surowiecki (author of Wisdom of the Crowds!) in the New Yorker:

A recent Harvard Business Review study by Zeynep Ton, an M.I.T. professor, looked at four low-price retailers: Costco, Trader Joe’s, the convenience-store chain QuikTrip, and a Spanish supermarket chain called Mercadona. These companies have much higher labor costs than their competitors. They pay their employees more; they have more full-time workers and more salespeople on the floor; and they invest more in training them. (At QuikTrip, even part-time employees get forty hours of training.) Not surprisingly, these stores are better places to work. What’s more surprising is that they are more profitable than most of their competitors and have more sales per employee and per square foot.

The big challenge for any retailer is to make sure that the people coming into the store actually buy stuff, and research suggests that not scrimping on payroll is crucial. In a study published at the Wharton School, Marshall Fisher, Jayanth Krishnan, and Serguei Netessine looked at detailed sales data from a retailer with more than five hundred stores, and found that every dollar in additional payroll led to somewhere between four and twenty-eight dollars in new sales. Stores that were understaffed to begin with benefitted more, stores that were close to fully staffed benefitted less, but, in all cases, spending more on workers led to higher sales. A study last year of a big apparel chain found that increasing the number of people working in stores led to a significant increase in sales at those stores.

In contrast, places like Home Depot scare me. I know nothing about home improvement, and I feel like the proverbial wandering jew as I traverse the aisles. I recently downloaded the Home Depot App, which tells me which stuff is in which aisle:

Some of the highest-profile retailers to flop in recent years were companies that made a big deal of slashing payroll costs. In 2007, Circuit City fired more than three thousand of its most experienced salesmen, replacing them with newer workers whom it could pay less. Its sales dropped, and it was bankrupt within a couple of years. When Bob Nardelli took over Home Depot, in 2000, he reduced the number of salespeople on the floor and turned many full-time jobs into part-time ones. In the process, he turned Home Depot stores into cavernous wastelands, with customers wandering around dejectedly trying to find an aproned employee, only to discover that he had no useful advice to offer. The company’s customer-service ratings plummeted, and its sales growth stalled.