Feature

When hiring more workers makes sense

When Circuit City fired 3,000 experienced salespeople in 2007, sales plummeted and it soon went bankrupt.

James SurowieckiThe New Yorker

Stinting on staff actually hurts retailers, said James Surowiecki. The conventional business wisdom is that companies should hire as few workers as they can and pay them as little as possible. But a recent study of four retailers—Costco, Trader Joe’s, QuikTrip, and the Spanish supermarket chain Mercadona—showed that while they have more full-time workers and pay better wages than their competitors, their stores are also more profitable. Another study of a company with more than 500 outlets found that “every dollar in additional payroll” led to between $4 and $28 in new sales. That’s because customers value well-trained salespeople who can point them to merchandise. When Circuit City fired 3,000 experienced salespeople in 2007, sales plummeted and it soon went bankrupt. Home Depot also suffered when the CEO cut floor jobs and slashed workers’ hours. So why don’t retailers hire more if it “yields such big dividends?” Because cutting payroll costs is an easy short-term fix, whereas the benefits of hiring are longer-term. A closer look would convince parsimonious retailers that they’re getting “less for less.”

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