The caption on the Washington Post article from March 29, 2007 reads “Circuit City Cuts 3,400 ‘Overpaid’ Workers.” Job cuts came out of 40,000 in store jobs, or 9 percent of the company’s in store workforce. The firings were not related to job performance, the company announced, but came as part of an effort to cut costs and improve the bottom line.
We learn later in the article that the chief executive officer of Circuit City earns a salary just over $1.4 million dollars, and one of 11 “overpaid” employees fired without notice at the Ashville, North Carolina store was overpaid at $11.59 an hour. Adults with jobs often have experience with a particular type of supervisor, manager or boss, who always manages to act like they are doing employees a favor by handing out some jobs. They act like your job is their personal gift to you. Never mind the work you do.
The wage disparity together with the firings implies that Mr. CEO regards selling merchandise on the floor as a marginal activity compared to the worth of one who hires and fires. He should have called me. I could tell him a few things about retail jobs.
Retail Jobs – a few things to know
Retail jobs in 2006 came to 15.3 million of America’s jobs at firms and businesses, 11.2 percent of total establishment jobs. Combine retail with wholesale and the total comes to 21.2 million jobs, more than any other sector except the government, which has even more, but that is another story.
Both wholesale and retail trade have growing employment but at growth rates so low that wholesale and retail jobs have a decreasing percentage of total employment. Retail was over 12 percent of employment in 1990, but now it is 11.2 percent. Using computer technology in trade, especially for barcodes and inventory management increases labor productivity. Retail and wholesale sales volumes per work hour are up and sometimes at rates comparable to productivity in manufacturing. Higher productivity in trade limits job growth, but so far not enough to decrease employment, only the rate of increase.
Employment data by state or metropolitan area tells the same story. The percent of retail jobs by state cluster tightly around the 11 percent range and the percent variation above and below is the smallest of any sector employment, usually less than a percent above or below. Because retail jobs remain at roughly the same percentage of total employment the only way to have more retailing jobs is to have a bigger population to serve. For anyone in local government or a chamber of commerce who wants to boast local employment by luring in a big national retailer, the plan will not work. Before much time goes by the new retailer displaces existing retail jobs and its back to 11 or 12 percent.
Circuit City is part of retail trade in a sector titled Electronics and Appliance Stores. It is one of 12 retail sub sectors, but definitely one where sales depend on salesmanship. Other retail sectors include gasoline stations and grocery stores, but salesmanship is not important for their products compared to Circuit City. Jobs at gasoline stations have fallen continuously since 1990. Grocery store employment is down since the late 1990’s and about the same as employment in 1990. However, Circuit City buyers may need to learn about available products and how they work before they make up their mind. Retail Salespersons do selling, which means explaining the product, answering questions, and knowing warranty terms or other product information. Explaining and selling take time and so more retail sales jobs are needed at electronic and appliance stores than gasoline stations or grocery stores. The need for salesmanship also helps increase employment at clothing stores, home stores, garden centers, sports, hobby and music stores, but especially at electronics and appliance stores. While these differences might appear obvious to many, they apparently were not to the management at Circuit City.
We can help Circuit City management if we look at the two occupations that dominate retail trade: retail salesperson and cashier. Retail Salesperson has more jobs than any other job in the United States; 4.3 million and over 90 percent of them are in trade. Another 1.1 million are area sales managers who manage sales workers most of their jobs in trade. There are a few retail sales jobs scattered around in other sectors: a hospital may have a gift shop, schools have book stores that sell sweat suits and teddy bears, but roughly speaking retail salesperson jobs are in trade.
For the second biggest job in the United States, we have Cashier with 3.5 million jobs and over 80 percent of those in trade. Cashiers jobs are not the same as retail salespersons. Cashiers run a cash register, take money and make change but they seldom do selling as the term describes the work of Retail Salesperson.
The difference in retail salespersons and cashier shows up clearly in the staffing of the different retail sub sectors. At gasoline stations more than 60 percent of jobs are cashier, but virtually no retail salespersons. At Electronics and Appliance Stores retail salespersons and retail supervisors make up over 40 percent of the jobs. Customers do not need sales help for a tank of gas, but they do want sales information for electronics. At grocery stores right around 33.3 percent of jobs are cashier, but only 3 percent are retail salespersons. At clothing stores nearly 75 percent of jobs are retail salespersons or retail supervisor, but only 8 percent are cashier.
The Washington Post correctly reported the average annual nationwide wage for retail salespersons at $11.14 an hour for the May 2005 Occupational Employment Survey. However, the amount is misleading and does not reflect the true circumstance of Circuit City or retail sales work. Selling skills have value reflected in the pay patterns of cashier and retail salespersons.
The Bureau of Labor Statistics publishes a percentile wage range within their Standard Occupational Classifications. For both cashier and retail salespersons they report wages for the 10th, 25th, median, 75th and 90th percentiles for the national economy, but also all the states and metropolitan areas.
The 10th percentile wage for cashier is $5.98 an hour from the May 2005 Occupational Employment Survey. The 10th percentile wage for retail salesperson is $6.54. In other words 10 percent of those with jobs in these occupations work for less than the 10th percentile wage and 90 percent earn more. The retail salesperson only earns about 9 percent more than a cashier at the low end of the wage scale. If we look at the 90th percentile wage for cashiers it is $11.20, but the 90th percentile wage for retail salespersons is $17.91, which is 60 percent more cashiers at the top of the pay scale.
The difference of the wage structure for the two jobs reflects the different possibilities for advancement where on-the-job experience can significantly increase the value of an employee. A cashier has little room to improve job performance because taking money and making change is the same today as it is tomorrow. Effective selling on the floor of Circuit City or elsewhere takes some time and effort to learn, which is reflected in the national 90th percentile wage of $17.91 an hour for retail salespersons.
The Washington Post article cited above informed us that Circuit City put a cap on pay for its sales staff, reported at $15.50 for computers. Anyone above the cap was regarded as overpaid and among the 3,400 dismissed as overpaid. So not only did Circuit City stupidly throw away its most effective employees doing harm to itself and its stockholders, it failed to understand who or how many are overpaid. There appears to be only one. Now you know.