By Brian Kilcourse, Managing Partner
6/10/2008
We had the opportunity earlier this year to hear the NRF’s President & CEO Tracy Mullin talk about legislative issues that the trade association is monitoring on behalf its constituents. According to Mullin, the economy is top of mind for most U.S. retail executives, followed by the upcoming presidential election and geo-political issues. But all of these issues pale to something called “card check” legislation in setting retail decision makers’ hair on fire. According to Mullin, sponsorship for this legislation is bound to come up again in 2009 after the elections, regardless of the fact that it was defeated in the U.S. Senate in 2007. Why? Because several very prominent political leaders supported both the House and Senate versions, including Speaker Nancy Pelosi, Senators Barack Obama and Hillary Clinton, and many others. Significantly, support for the legislation was split right down party lines with Democrats favoring it, and Republicans opposing. In 2007, the House version actually passed. Given the political climate in the U.S. and the prospect of a Democratically controlled Congress, retail execs are really worried about 2009.
So what is the once-and-future “card check” legislation all about? It’s actually called the “The Employee Free Choice Act,” but it only takes a quick scan of the issue to understand why retail execs are so concerned about it. The legislation would make it easier for unions to organize labor, eliminating the “secret ballot.” It would also change the definition of a “bargaining unit” to be individual stores and even departments within stores. The legislation is opposed by National Federation of Independent Businesses, The U.S. Chamber of Commerce, The American Hotel & Lodging Association, the National Restaurant Association, and (of course), the National Retail Federation.
Specifically, opponents of the legislation worry that since unions frequently downplay the significance of signing authorization cards, employees often sign them without realizing that they are authorizing the union to represent them. Since under the new rules, cards alone determine the right to representation, the employer would lose the chance to educate employees on the benefits of remaining non-union. Employers would also lose the ability to conduct anti-union campaigns between the petition to organize and the election. Employers would also lose the ability to challenge the appropriateness of the unit before certification.
This gets to heart of a key issue that retailers face. Consumers are demanding that retailers become a better solution to their lifestyle needs, and increasingly that means “service.” A quick scan of Yahoo! Finance will show why this isn’t as easy as merely spending a little more on labor. We looked at the most recent published income statements for Target, Safeway, Wal-Mart, Macy’s, and CVS. These companies reported an EBITDA range of between 4% and 7.76%. “Labor” is usually the biggest expense in retailers’ P&L’s after cost-of-goods, and is considered the largest “controllable” expense. So even small changes can affect profitability in a substantial way. As retailers of every stripe continue to try to satisfy Wall Street’s insatiable desire for more earnings, increased expenses of any kind are a step in the wrong direction.
Retailers historically have responded to market pressures by first putting the squeeze on expenses, and especially labor expenses. But more recently, there has been some evidence that retailers were putting labor back into the stores, not because they wanted to, but because consumers demand it. As colleague Nikki Baird observed in the RSR study, The State of Retail Workforce Management - Benchmark Study: November 2007, “…we have seen a major shift: last year, retailers were still focused on cost management of their workforce – trying to squeeze those last few payroll dollars out of the labor budget. This year is different – we now see a shift away from cost management to an investment in customer service.”
But the research doesn’t suggest that retailers have a particularly healthy view of their employees. As the same report later stated, “When there is very little stability in your workforce, it’s hard to develop a relationship of mutual respect between employer and employee…we once heard a VP of Store Operations state that his company’s workforce profile seemed to be ‘welfare moms’ – single moms with no education, a lot of kids, and little desire to work hard – an extremely unfair assessment, but indicative of the company’s relationship with its employees.”
So, what’s in “card check” legislation for employees? As this year’s crop of politicians have pointed out, the gap between the “haves” and the “have nots” continues to widen. Many retailers today are locked into a “minimum wage” mindset. With the economic pressures that workers at the low end of the economic ladder are facing today, workers could look for protection, whether retail employers like it or not. With the prospect of a union-friendly Congress in 2009, retail execs could be in for a very rough time unless something changes dramatically.
Arguments pro and con on this issue assume no change in the basic dynamic. But instead of perpetuating the status quo, maybe its time to think differently. As DestiNY CIO Nick Goss suggested in an earlier Retail Paradox weekly article (“If You Could Start from Scratch, What Would You Do? One CIO Gets the Chance,” 6/3/2008), instead of looking at the current retail business model of people, process, and technology, and asking “what can we do to change it?,” why not look at the desired outcomes and figure out what kind of business model is needed to produce them? Consumers are demanding better service, and employees want a meaningful job. So the question is, what business model would generate satisfied customers and motivated employees while still satisfying the need for reasonable earnings?
All of this reminds me of a conversation I had with a store manager friend of mine named Ron Hughes. He had worked in stores his entire adult life and managed his company’s top selling U.S. mainland store. Hughes was always there when the doors opened, cheerfully greeting customers and helping employees get the shelves well stocked and good looking, and he a kind of “retail hero” to me. So one day I asked Ron, “why do you like your job so much?,” and he simply answered, “I love to make people happy.” Perhaps retail companies need to remember that happy employees lead to happy customers – and figure out how to build a business around that simple notion. Then there would no need for things like “card check” legislation.
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