Retail
Understaffing in Retail Stores: Drivers and Consequences
Vidya Mani
Smeal College of Business, Pennsylvania State University, State College, PA 16802 vmani@psu.edu
Saravanan Kesavan
Kenan-Flagler Business School, University of North Carolina at Chapel Hill, Chapel Hill, NC 27599 skesavan@unc.edu
Jayashankar M. Swaminathan
Kenan-Flagler Business School, University of North Carolina at Chapel Hill, Chapel Hill, NC 27599 msj@unc.edu
September 22, 2011
Abstract
In this paper we study the drivers and consequences of understaffing in retail stores by examining the longitudinal data on traffic flow, sales and store managers’ labor planning decisions of 41 stores in a large retail chain. Assuming store managers are profit-maximizing agents, we use a structural estimation technique to estimate the contribution of labor to sales and impute the cost of labor for each store in our sample. We find significant heterogeneities in the contribution of labor to sales as well as imputed cost of labor across these stores. Using the estimated parameters, we establish the presence of systematic understaffing during peak hours. In addition, we explore the effects of forecast errors and lack of scheduling flexibility on the inability of store managers to staff optimally. Finally, we run counterfactual experiments to quantify the impact of understaffing on this retailer’s profitability. Key words: understaffing in retail, imputed cost of labor, store performance, structural estimation
Introduction In the battle to win retail customers, the importance of labor planning cannot be overemphasized. Having adequate store labor is critical as it impacts sales directly by affecting the level of sales assistance provided to shoppers, and indirectly, through execution of store operational activities such as stocking shelves, tagging merchandise, and maintaining the overall store ambience (Fisher and Raman, 2010). Store labor affects store profitability not only through
Vidya Mani
Smeal College of Business, Pennsylvania State University, State College, PA 16802 vmani@psu.edu
Saravanan Kesavan
Kenan-Flagler Business School, University of North Carolina at Chapel Hill, Chapel Hill, NC 27599 skesavan@unc.edu
Jayashankar M. Swaminathan
Kenan-Flagler Business School, University of North Carolina at Chapel Hill, Chapel Hill, NC 27599 msj@unc.edu
September 22, 2011
Abstract
In this paper we study the drivers and consequences of understaffing in retail stores by examining the longitudinal data on traffic flow, sales and store managers’ labor planning decisions of 41 stores in a large retail chain. Assuming store managers are profit-maximizing agents, we use a structural estimation technique to estimate the contribution of labor to sales and impute the cost of labor for each store in our sample. We find significant heterogeneities in the contribution of labor to sales as well as imputed cost of labor across these stores. Using the estimated parameters, we establish the presence of systematic understaffing during peak hours. In addition, we explore the effects of forecast errors and lack of scheduling flexibility on the inability of store managers to staff optimally. Finally, we run counterfactual experiments to quantify the impact of understaffing on this retailer’s profitability. Key words: understaffing in retail, imputed cost of labor, store performance, structural estimation
Introduction In the battle to win retail customers, the importance of labor planning cannot be overemphasized. Having adequate store labor is critical as it impacts sales directly by affecting the level of sales assistance provided to shoppers, and indirectly, through execution of store operational activities such as stocking shelves, tagging merchandise, and maintaining the overall store ambience (Fisher and Raman, 2010). Store labor affects store profitability not only through