The Retail Industry ? ? ? About 16% of the U.S. work force works in retail. During the period 1948-1992, real wages in retailing declined from from 91% to 62% of the national average. As an industry, retailing is plagued by high turnover, few benefits, and the extensive use of part-time employees. “All “All retailers retailers in in America America have have awakened awakened to to the the Nordstrom Nordstrom threat threat and and are are struggling struggling to to catch catch up. up. Nordstrom Nordstrom is is the the future future of of retailing… retailing… [It] [It] is is the the most most Darwinian Darwinian of of retail retail companies companies today.” today.” New York Times, August 27, 1989 Retail Comparison Sales per gross square foot of store area Gross profit per gross square foot of store area Expenses as a percentage of sales Macy’s $203.80 $61.10 26.3% Dillard 138.00 44.50 24.7 Federated 165.00 47.00 24.7 May 171.00 48.90 20.4 Nordstrom 388.40 117.60 25.1 The retail worker in the United States is somebody who often came from a dysfunctional home… somebody who didn’t do well in school, who basically told the teachers in one way or another to go to hell.” Charlie Bressler EVP, The Men’s Wearhouse Measurement System Nordstrom carefully evaluates salespeople on their salesper-hour (SPH) ratio. ? ? ? ? ? ? Each employee has a target SPH ration – a quota – based on hourly wage and store department. Actual SPH for the past two weeks – sales, minus merchandise returned by customers, divided by hours worked – appears on each pay stub. If actual SPH is higher than target SPH, employee is paid 6.75 % to 10% on net sales. If SPH is below target, employee is paid the base hourly wage. Failure to meet SPH often results in decreased hours, or in some cases, termination. Meeting or surpassing the target SPH means more working hours – including better hours when the shopping is heavier – and a better chance of promotion to a department manager job. Diagnostic Control Systems ? ? ? Measure a critical performance variable for the firm. Allow managers to set ex ante targets or standards Allow the organization to measure outputs Impact of SPH “There “There is is pressure pressure on on managers managers to to get get people people with with the the biggest biggest SPH SPH in in the the the the most most hours. hours. You’re You’re not not told told that that ifif you you don’t don’t go go off off the the clock, clock, you’ll you’ll get get your your hours hours cut. cut. ItIt becomes becomes an an inferred inferred thing. thing. The The more more you you sell sell per per hour, hour, the the more more hours hours you you get.” get.” Nordstrom employee speaking only after being guaranteed anonymity. HBS Case #191-002 Nordstrom: American Dream, or American Nightmare? Great Service through Fear ? Local 1001 publicity campaign ? Washington State union complaint ? NLRB charges ? Shareholder class action suit ? Employee class action suit ? WSJ front page story ? 60 Minutes TV story Entrepreneurship in Action ? ? ? ? Highest retail sales productivity Earnings > $80,000 Compound growth in sales, earnings Highly educated & motivated workforce