Labor shortage pinches discounters - in New England

Discount Store News, May 23, 1988

Labor Shortage Pinches Discounters

New England merchants must learn how to operate with fewer store employees through intensified self-service and operating systems, or hope that, contrary to U.S. Census Bureau projections, population levels will take a decided upswing.

New England is an ideal economy for families and businesses: the highest per capita effective buying income levels of any region; overall low crime rates; and a high concentration of states with no sales and/or earnings taxes. Four of the top 10 best places to live, according to Money magazine's 1987 report, are in New England.

The influx of high-tech manufacturing firms into New England has been gradually filling a void created when textile, shoe, jewelry and other industries lost their place in the economy, sparking the initial stages of what could become the East Coast's version of Silicon Valley.

"The area has really been helped by high-tech business," said Harry Kohn, Stuarts Department Store president. "It has shifted the area into service-related business from what had been entirely manufacturing 30 years ago."

A problem with this dream economy, however, is the almost non-existent unemployment level, which has become a nightmare for retailers.

New England had the lowest unemployment rate of all regions in the country in March 1987 at 4.3 percent, and then it dropped an additional 1.1 percent to 3.2 percent by March 1988. It is expected that the area will maintain this low unemployment level.

With the exception of New Hampshire, all six states in the New England region are projected to have population growth below the national average through the year 2000, based on U.S. Census reports.

For discounters and other merchants who require an abundance of minimum-wage level employees, the region is the toughest labor market they have confronted.

While the high-tech companies have been able to draw from universities in cities such as Boston and Providence for employee needs, discount stores, department stores, fast food chains and other merchants have not found a ready source of minimum wage employees. Despite staff shortages, sales, in general, have moved in tandem with the high-tech surge.

Lawrence H. Wortzel, professor of marketing for the School of Business at Boston University, said the nature of retailing in the New England market is likely to undergo a transformation in the near future due in part to labor shortages. Discounters could be in jeopardy of losing market share as department stores further develop their own self-service strategies.

"The labor situation here is really tough. We have a shrinking high school age population and we don't even have a large population of retired people to fall back on, because they all move to Florida," said Wortzel.

The answer? "Better training and self-service. Right now traditional department stores are not set up for people to shop for themselves, but if they want to stay competitive they will have to include self-service merchandising into stores."

Discounters have an edge on most upscalers by already being well-practiced in keeping labor costs to a minimum, but chains like Rich's, which has all of its stores in the New England market, will have to work hard to maintain that competitive edge.

"The most important factor in New England right now is the tight labor market," said Howard Rich, president of the 21-unit regional chain.

The company is presently in the process of refixturing its stores to make them, among other things, more "labor saving," Rich said. He added that "Labor has been the biggest challenge. I've been with the company for the past 23 years and in the past year or two, the labor market has been the worst it has ever been."

The chain's same store sales growth figures--9 percent in 1987 and projected to be between 6 percent and 7 percent during 1988--indicate that, despite labor shortages and competition from other New England retailers like Bradlees, K mart, Zayre, Ames and Caldor, business has been good.

In contrast to Rich's approach, K mart's Lloyd Wickett, director of operations in the Eastern region, said the discounter has been cutting labor costs through automation.

"Automation will help us more and more down the road," Wickett said. "We're already about 60 percent finished. It should be about two more years before it is complete."

Automation of checkouts will speed checkout time by 27 percent, Wickett noted, and will also reduce the time used for merchandise ordering and receiving.

"You're not going to wave a magic wand and expect your labor problems will disappear. There is obviously a shortage and it's not going to go away for at least another 15 years down the road," Wickett projected.

Table : New England Snapshot

Table : New England Region:

Table : Discount Store Count