Rethinking Retail: The Story So Far
Sagorika Roy
Senior Consultant,
Aon Hewitt
Nishant Watel
Consultant,
Aon Hewitt
Traditionally retailing in India can be traced to
the emergence of the neighborhood kirana stores
catering to the convenience of the consumers.
However, the concept of retail and the idea of
shopping has undergone a dramatic change in terms
of the platform and consumer buying behavior.
The Indian retail industry has emerged as one of
the most dynamic and fast-paced industries due to the
entry of several new players. It accounts for over 10%
of the country's Gross Domestic Product (GDP) and
around 8% of the employment. Increasing participation
from foreign and private players has also given a boost
to the Indian retail industry. However, the sector has
been impeded by multitudes of challenges in the
last few years. The biggest challenge has been the
emergence of the e-tailing business that has forced
traditional retailers to rethink their business strategies
to remain relevant and competitive. One of the cost
elements that retailers have traditionally turned to in
difficult situations has been employee costs - these
constitute anywhere between 3.5% - 8.0% of revenue
and their ability to effectively optimize on these costs
has often made a real difference to performance.
HR teams of retail companies have been made to
forgo the traditional hat of recruiter or trainer. While
these continue to be critical roles - HR has emerged as
the true business partner. HR today, is working hand-inhand
to ensure the bottom line numbers are met, the
productivity norms are adhered to and the right talent
mix is driving the business. In various efforts brought in
by HR - the central objective is to 'build for tomorrow'
The Headcount Distribution across Core
and Support Functions
In retail - the margins are thin, attrition is high
and competition is growing at a rapid rate. As
a result, firms need to ensure that they are able
to achieve the right teeth to tail ratio. It is a fine
balance where retail companies want to ensure they
have as many incumbents as possible generating
revenue, but at the same time - the non-revenue
teams are not under unreasonable pressure.
Optimization of employee costs is also fraught
with risks. In an industry where organizations see
almost the entire frontline staff turnover in 12-15
months, it is important to ensure that there is a certain
degree of motivation and performance orientation.
On an average, retail organizations follow a 93:7
teeth to tail ratio. This signifies that for every 13 revenue
generating team member (core), there is 1 non-revenue
generating team member (support). This stiff ratio is
a reflection on how firms are looking at manning their
pyramid. Many firms today have chosen to outsource
some of the non-core roles to ensure efficiency of cost.
However, when we compare wage bill distribution
amongst the core & support roles - the ratio looks
different. Market trends show that the wage bill
ratio for core to support is 80:20. This indicates that
while support teams are smaller, the average spend
is higher as compared to the core functions.
The organization pyramid in the overall retail industry
takes the shape of a perfect pyramid. With a sizeable
population manned at the lowest level (largely the retail
operations team), the pyramid is a reflection of how
the industry is managing not only the distribution of
headcount but also the wage bill. Almost three quarters
of the overall population is manned by the bottom two
levels. Keeping in mind the industry dynamics and the
sensitivities of talent required by the retail industry - this
is an extremely effective way of managing people cost.
Retail operations has a lion's share in the core team.
This is the on-ground staff - responsible for sales. This
team typically constitutes +12 graduates who are on the
shop floor assisting sales (this demography changes basis
company philosophy and also products sold). While retail
operations has the highest headcount, the compensation
budget spent on them is relatively smaller. This is a
result of low payout as many team members in the
retail operations team are on minimum (plus) wages.
Buying & merchandizing and supply chain are the
other two large teams. With increased scrutiny on
revenue management and profitability of business - loss
prevention teams have gathered strength over the years.
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