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I am extremely wary of n=1 reasoning. It ends us being confirmation bias. We look at Sears, note that they pay more than Walmart, and say that paying employees
by braythwayt 8y ago
I am extremely wary of n=1 reasoning. It ends us being confirmation bias. We look at Sears, note that they pay more than Walmart, and say that paying employees more either has no effect, or is harmful.
But are we also looking at the thousands of businesses that pay their employees terrible wages, but go out of business?
Businesses are complex systems that defy the search for simple explanations. That won't stop humans from trying, though. We all love the idea that there is some simple Eureka! idea that explains everything.
In this specific case you're talking about wages as if all other things are equal. All other things being equal, if we pay employees more, we lose business to lower-cost competitors that pay employees less.
This is like saying that if all other things are equal, a restaurant that pays more for its ingredients will lose business to competitors that pay less.
Of course, as managers, our entire reason for existence is to make sure that all other things are not equal. If we pay more for ingredients, we have to build our business around turning those more expensive ingredients into a better customer experience and perception of value.
And the same goes for paying more in wages. It's our business as managers to turn that into value. If we can't, are the wages the problem? Or is our mismanagement the problem?
Looking at the comments about shopping at Sears, I am not seeing a lot of "Everything about Sears was great except things cost a few cents more." I'm seeing anecdote after anecdote about how poorly it was managed.
Under the circumstances, if I wanted to cut wages at Sears, I would have started with their managers. If they're going to manage the thing into the ground, why pay them more than you'd pay an intern in an MBA program?
- lotsofpulp 8y agoIf a restaurant is located in an area that has no customers interested in better ingredients or food, then it will lose business to competitors. And Sears' customer experience has been terrible for a couple decades, but from all accounts I've heard it was great in its heyday. What changed, and this is my conjecture of course, is the introduction lower cost options such as Walmart, Home Depot, Amazon, etc, that revealed that Sears' clientele were not willing to pay a premium for their products in exchange for whatever extra Sears was offering (in this case I'm assuming better staff at the stores via Sears offering better pay and benefits).
- jakelazaroff 8y ago> Sears' customer service has been terrible for a couple decades, but [...] was great in its heyday. Wouldn't "worse customer service" be the change that allowed other retailers to eat Sears' lunch, then? You say Sears' clientele were not willing to pay a premium for whatever extra Sears was offering, but by your own words they haven't actually offered anything premium for a long time. More expensive and better is a viable value prop; more expensive and worse is not.
- lotsofpulp 8y agoYes, but I think it takes a while to switch a company's atmosphere, and they also have or had a ton of defined benefit pension liabilities on the books that other retailers didn't. Sears catered to the giant American middle class, and while I'm sure that mismanagement was a huge part of its demise, I also think the declining spending power of the American middle class also contributed.
- baddox 8y ago> This is like saying that if all other things are equal, a restaurant that pays more for its ingredients will lose business to competitors that pay less. Well, isn’t that one also true? There are limits and exceptions, obviously, but yeah, I’m pretty sure there is a strong correlation between the cost (cheapness) of ingredients and total sales.
- braythwayt 8y agoActually, there is not a simple correlation between just one of your costs and total sales. In retail, for example, location cannot be ignored. Likewise, there is an awful lot of work that has to go into being the low-cost leader. Amazon and WalMart are good examples of this. They don't just cut one cost and wait for the money to flow in. They build their entire business around leveraging low-cost, in ways that are extraordinarily difficult to copy. It's not as simple as, "Pay less wages, cut prices by a few cents, but keep doing everything else the same," any more than running a fast food restaurant is about buying cheaper ingredients and "passing the savings along to diners."
- 3minus1 8y agoThis reminds me about a recent Freakonomics podcast about Trader Joe's. It starts off by asking, what would you think about a grocery store with no name brands, much fewer options, no sales on items, not loyalty program, no automated checkout, no large social media presence, no large advertising budget, etc? A lot of it sounds bad, but Trader Joe's is really successful.
- Larrikin 8y agoI thought you were referring to Aldi. That model seems to be working well for grocery stores.