March 1st, 2010
The financial outlook for retailers in the past 18 months has been fairly grim and the situation appears likely to continue for the short term.
In addition to the recession, the amount of shopping carried out over the internet is on the increase which has had an effect on traditional retail.
In the UK the total online spend during 2005 was £8 billion which rose to £26 billion in 2009 – an increase of over 300%.
Over the past 10 years UK retail has added 58 million square feet of retail space (net) whereas online retail (at average industry sales per foot) has added the equivalent of an additional 56 million square feet.
Retailers are clearly looking to take advantage of this trend for convenient online shopping by providing customers with this option.
Given that there is no need for front line staff to deal with internet custom the staff costs related to these types of sales are significantly reduced. However existing staff can be re-trained to work in this new environment.
The wages bill is usually the largest fixed cost for retailers and this is therefore one of the first areas in which cuts are made in a recession. However, now that we are starting to see the green shoots of recovery, making redundancies at this point may not be the best solution in the medium or long term.
Redundancies can be costly both in monetary terms and in terms of management time. They can have a severe impact on staff morale and damage a company’s public image.
By avoiding job losses employers can preserve valuable skills and expertise gained by their employees, the result of much time and expense incurred by the employer and therefore improve the company’s long term prospects of survival and success.
However, in order to survive the remainder of the current economic situation there are a number of ways that staff costs can be reduced while retaining your most vital resource.
Reducing Temporary and Agency Staff
A quick and cost effective way to reduce headcount can be to reduce the number of agency, temporary and casual staff. To the extent that such staff are not employees it is legally simpler and cheaper to terminate their engagements than to dismiss permanent employees.
Staff who are not employees do not have a right to bring a claim for unfair dismissal, nor can they claim a redundancy payment. All workers are, however, protected by anti-discrimination legislation so any decision to terminate their engagements must not be made on discriminatory grounds.
However, given that for a number of retailers temporary and casual staff can make up a large percentage of staff, consideration should be given to how this would affect the morale of those employees who remain and whether the business can operate with reduced staffing levels.
Reductions in Hours
An employee’s working hours are generally a condition of their employment contract and cannot therefore be amended without the employee’s consent.
Although gaining an employee’s consent to such a change, for example reducing their working hours from a 5 to a 4 day week with a corresponding 20% pay cut would usually be difficult, in the current economic climate it may be easier to gain their consent. The key to gaining agreement is to communicate with staff, explaining to them that by agreeing to these cuts in the short term they are helping to save jobs that would otherwise be lost to redundancy. Where more than 20 staff are affected, the collective consultation rules will apply.
Flexible Working or Part Time Working
Employees who have a child of up to 16 years of age (or 18 years if they are disabled) and carers may make a request once every 12 months to work flexibly.
However, employers may wish to offer this possibility to all other members of staff, together with the opportunity to work part time in order to reduce staff costs in the short term.
Part time working can lend itself to the retail industry by allowing flexibility. Although staff must be available to cover all of the company’s core hours, shifts can be organised so that large numbers of staff are only working during the busiest times and only skeleton staff are in place at quieter times of the day or week.
It is important to ensure that part-time workers are not treated less favourably than full-time workers to avoid a claim for discrimination under the Part-Time Workers Regulations.
Flexible working can be seen as a benefit by a number of members of staff. Many employees working in the retail environment are young people and particularly students. These members of staff may appreciate the ability to vary shifts from week to week given that their timetable will also vary and from an employer’s perspective they are also likely to be able to agree to variations in their shifts at short notice.
This can allow an employer to vary the number of staff working at any one time as sales fluctuate.
Sabbaticals or Unpaid Leave
Offering employees a sabbatical which can either be paid, on reduced pay or unpaid can reduce an employer’s wage bill in the short term and can give employees the opportunity to take a short term break from work to do something that they had always wanted to do but would otherwise not be able to do due to work constraints, such as travelling.
The above three examples require a change to the terms and conditions of an employee’s contract of employment and this cannot therefore be carried out without the employee’s consent.
Changes relating to cost cuts are likely to impact on staff morale and motivation. To counteract this it is important to ensure that you communicate with staff at every level to explain the seriousness of the current economic situation on your business and the fact that the company is committed to finding alternative solutions to redundancy to save their jobs.
If staff understand the situation being faced by the company they are more likely to agree to short term changes to retain their jobs in the longer term.
When making these changes it is important to keep in mind the fact that these are only short term measures and that the economic situation will improve in the future. Employers should therefore maintain flexibility so that they can reverse any temporary measures to cater for improved trading conditions by giving the employees a short period of notice.
When making any changes to employees’ contracts of employment it is important to bear in mind the potential for discrimination if a change is likely to impact unfairly in relation to one group of people when compared with another group, for example if the change has a greater negative impact on men compared with women.
Looking to the Future
If retailers are able to decrease the necessity for redundancies and retain staff by putting in place alternative cost cutting measures this will improve their medium to long term prospects for success.
Talented staff will be retained and will appreciate the fact that the company did everything it could to save jobs at a difficult time. As the economy picks up companies will be well placed to take advantage of an increase in consumer spending without the burden and expense of re-recruiting and training that others will be facing.