Even in Low Margin Businesses, Investments in Hiring Pay Off

A recent Harvard Business Review article examines the hiring practices of four low cost retailers: Costco, Trader Joe’s, QuickTrip and Mercadona. The study was interested in understanding why these four retailers were so much more profitable than most of their competitors. Retail is traditionally a low margin business, and the conventional wisdom is that tightly restraining labor costs is key to maintaining profitability. This study found exactly the opposite: these leading retailers typically spent more on the hiring process than their competitors and invested more in their employees post-hire, which in turn, had a direct, positive impact on the bottom line. Spending more to hire better-trained, customer-focused sales staff leads to more sales per employee and per square foot.

The connection between investment in hiring and improvements in the bottom line is one I often discuss with many of my retail customers. They typically utilize HireSelect’s personality and skills tests to hire sales associates. Most use the Criteria Basic Skills Test (CBST) combined with either the Sales Achievement Predictor (SalesAP) or its companion test the Customer Service Aptitude Profile (CSAP). These tests measure basic learning ability, communication skills, attention to detail, as well as important personality traits like patience, personal diplomacy, and sales disposition. But the lesson of the study is one that applies to almost any industry: companies that invest in enhancing their hiring process, and in training and retention post-hire, will win the talent wars.