Solving the talent challenge in retail 

This article was first published in Brink on December 1, 2022

For evidence look at Uber, which attracted a record 5 million drivers in 2022.¹ But there is one category where the problem remains stubbornly unsolved: retail. This is despite retailers’ best efforts to look after their employees by offering pay increases and improved benefits.

The breadth of Marsh McLennan’s capabilities gives us a comprehensive view of the challenges facing the retail industry as well as how companies can attract and retain talent in a competitive market. Our expertise across risk, strategy and people, investments in proprietary research and industry-leading retail practice areas enable us to quickly coalesce insights and market knowledge to help our clients act decisively.

Recruitment, retention and productivity are grounded in how strongly employees find meaning from their employment. We found a 27 percentage-point difference in retention and a 37-point gap in revenue growth between companies that provide that meaning and those that do not. Unsurprisingly, companies with experienced staff who feel a bond with their employer perform more strongly. Yet only 28% of companies are delivering that meaning, and retail on average underperforms other industries. While retail employees do recommend the products they sell, they are not inspired by what their organization stands for and do not believe their friends or family would be impressed by their job. They feel unsupported in their career growth and constrained by the lack of flexibility in the way that they work. Just as importantly, they do not understand how their role influences the company’s mission or feel that they have the tools or support to deliver it.

With greater turnover comes a less experienced workforce that has resulted in higher workers’ compensation claims, in contrast to country wide declines of 5% to 10% per year.² The labour market also remains tight, resulting in shallow labour pools that, in part, have resulted in pay compression. But increasing the total wage bill to buy employees’ loyalty is not the answer. Why? There just is not financial headroom as retail faces a range of challenges beyond labour — from supply chain disruption to investing in digital transformation and rising environmental, social and governance expectations.

If we look to the travel and hospitality category, employees rate their compensation on par with retail. However, they perceive much greater meaning from their work, which means the value ratio of their employment is consistent with other industries, enabling travel businesses to better compete for talent. This is the opportunity in retail: Build stronger meaning in the employee value proposition with prospects and employees. 

Here is how:

1. Create inspiration in the company’s mission and its employees’ personal roles
2. Rebalance compensation and enable career growth
3. Adapt to the evolving expectations in day-to-day work
4. Optimize recruiting activities
5. Better manage your risk profile

The marketing function is a key enabler in creating inspiration. With the growth of digital, amplified by the pandemic, the physical convenience provided by location is less of a competitive advantage than it was in the past. This has driven the need for retailers to transform into a destination, not only a provider of commodity products. In the past, marketing prioritized performance marketing, measured on immediate sales. Creating destination requires greater emphasis on brand marketing, driving belief and desire for the entire offer, the “why” behind the “what.” This will also help build pride and belonging among existing employees and consideration among prospects. HR can piggyback on this investment to help marketing consider the employee angle, and then complement it with internal communications that highlight the employee’s personal role in delivering the mission.

Reliance on compensation benchmarks alone can result in a race to the middle because what everyone else is doing is unlikely to be right for your organization. It is critical to actively engage and listen to what keeps your employees up at night: inflation, health and safety concerns, the ability to care for dependants, and saving for retirement. These persistent fears make employees anxious, hindering their ability to be fully present at work. With better engagement, total rewards can be realigned to ensure dollars are spent in the areas that matter most. Segmenting a workforce into personas with individualized offerings can help.

We have found particular benefit from reward programs that are directed to those needs most relevant to employees and demonstrate differentiation from competitors. For one global retailer, the waste identified was redeployed to address pay compression that was a key pain point for experienced staff. There was also a benefit from the process being open and transparent, with increased trust in how compensation was determined, which led to a decrease in turnover. It is true that the most valuable employees are typically those with personal drive. They care not only about the present, but how employers can help them on their career journey, and the skills and responsibilities that they can master. Painting a bright future and providing substance on the pathways creates meaning through anticipation.

For many retailers, consistency has been a prime imperative for delivering the customer experience. However, many employees find that this consistency is a straitjacket they are no longer prepared to suffer. There are two primary dimensions to consider. The first is flexible working. The gig workforce doesn’t always want fixed hours at a fixed location. That presents a challenge in retail but it is not necessarily insurmountable. Chick-fil-A has successfully instituted job-sharing through three-day blocks of shifts lasting 13–14 hours.³

Secondly, people want to feel that they can bring their whole self to work and not have to fit in with a homogenous corporate culture. Recognizing and celebrating diversity, whether LGBTQ, ethnicity or being a working parent, creates greater belonging and helps people be their authentic selves — something that aids productivity and is desired by customers. Successful corporate cultures benefit from working according to principles rather than rules. You can’t manage a thousand touchpoints with a manual. Both Southwest and Delta are principles-based, enabling their employees’ freedom to meet customer demands during exigent circumstances — for example, ordering pizzas for stranded passengers. That they can do this within a heavily regulated and safety-first industry demonstrates that this can be achieved in almost any industry.

The shift to digital requires new skills and has resulted in a greater competitive intensity for those skills. In fact, reskilling was the No.1 workforce initiative for executives in 2022.⁴ In that context, many of the tactics for recruiting are not as effective as they once were. There is a benefit from being specific on the skills needed, yet only 53% of companies have a skills taxonomy in place.⁵ Products such as Mercer’s Skills-Edge Suite can then identify the most prevalent skills driving the compensation to secure top talent. This more strategic approach, matched with tools to optimize the return on recruiting investment, will drive a more efficient and effective pipeline.

As we shared earlier, the change in workforce mix has introduced new risks that have seen insurance premiums rise in retail just as they are falling elsewhere. An active risk manager can lower premiums through targeted workplace training and safety programs. Where claims happen, Marsh’s Blue[i] suite of analytical tools identifies high-risk claims for early intervention and settlement, saving money for retailers who retain a portion of their casualty losses. Effective pre-loss (safety) and post-loss (claims management) strategies and execution will routinely deliver significant savings that can be reinvested to support a more attractive employee value proposition. One large national retailer used these analytics to identify underperforming distribution centres, implement a targeted safety and ergonomic program, and determine claims deserving early and aggressive intervention. The result was a 27% reduction in workers’ compensation costs over two years.

With HR, marketing and risk working together to enhance the employee value proposition, we believe retailers can hire, retain, and motivate top talent even during these volatile times. What is clear is that many retailers are not adapting sufficiently quickly to a talent market that has materially changed from before the pandemic. As an industry going through transformation, it is likely that other topics are monopolizing management attention. Yet strong talent is a prerequisite and foundation for everything. There has never been a more urgent time for retailers to solve this pressing challenge.

_{[1] “Uber attracts record number of drivers as cost of living bites,” August 2, 2022. Available at https://www.bbc.com/news/business-62396648}

_{[2] Marsh, FINPRO Detailed Market Update, Q2 2022}

_{[3] QSR, October 19, 2022. https://www.qsrmagazine.com/exclusives/chick-fil-operator-finds-magic-three-day-workweek}

_{[4] Mercer. Rise of the Relatable Organization: Global Talent Trends Study, 2022.}

_{[5] Mercer Pay for Skills survey 2022}