Indian retail sector- HR challenges & measures for improvement.

Singh, B.D. ; Mishra, Sita

Introduction

"Take away my factories, but leave my people, and soon we will have a new and better factory." Andrew Carnegie, the American steel billionaire

With growing consumerism, unprecedented awareness, and a youth-hefty customer base, India is perceived as 'Most Promising Land' for the Global and domestic retailers. According to AT Kearney's 2007 Global Retail Development Index (GRDI), for the third consecutive year, India remains the top retail investment destination among the 30 emerging markets across the world. As per the report of McKinsey Global Institute (2007), India is becoming the world's 12th Trillion dollar economy, and further it predicts that India is well on its way to become the world's fifth-largest consumer market by 2025. Currently, India is ranked as the 12th largest consumer market in the world. The Indian retail market is professed as potential goldmine and is attracting a large number of giant international and domestic players in anticipation of explosive growth. The organised retail sector is likely to increase its share from the current 4% to over 20% by 2010, as the overall retail sector grows from $328 billion to $430 billion, as per report by FICCI (2007) on the retail sector.

The boom in the retail sector in India and its corresponding spike in demand for talent has under scored the need for effective HR systems. The function of human resources has special significance in retail as the employees operate in a unique environment. In any retail organisation, the people who deal with the customers at a one to one level are considered to be the face of the organisation. According to a recent study conducted by Wharton (2007) at a Canadian consulting firm on retail customer dissatisfaction, it was found that disinterested, ill-prepared and unwelcoming salespeople lead to more lost business and word-of-mouth than any other management challenge in B.D. Singh and Sita Mishra are Sr. Professor and Asst. Professor respectively in the Institute of Management Technology, Ghaziabad, 201001 retailing. Thus, there is utmost need for effective HR systems to encourage and develop employees, manage performance, reward recognition which helps to increase the opportunity for employee advancement and to retain engaged employees.

Literature Review

The impact of human resource management (HRM) policies and practices on firm performance is an important topic in the field of human resource management, industrial relations, and industrial and organisational psychology (Boudreau 1991, Jones & Wright 1992, Kleiner 1990). A number of texts have appeared in recent years promoting the advantages of using high involvement human resource practices (Arthur 1994, Kochan & Osterman, 1994, Levine 1995, Pfeffer 1998, Guthurie 2001) as well as on the use of High Performance Work Practices, which can improve the knowledge, skills, and abilities of a firm's current and potential employees, increase their motivation, reduce shirking, and enhance retention of quality employees (Jones & Wright 1992). In the existing literature, focus on the issue that human resource management practices is developing rapidly as it helps to create a source of sustained competitive advantage, especially when they are aligned with a firm's competitive strategy (Cappelli & Singh 1992, Jackson & Schuler 1995, Wright & McMahan 1992).

In India, the rapid development in this sunrise sector accelerates the need for the right kind of employees who can take care of retail operations. The success of any player in this lucrative sector depends not only on understanding target market and implementing marketing mix strategies but also on how effectively a retailer develops systems of high performance work practices including comprehensive employee recruitment and selection procedures, incentive compensation and performance management systems, and extensive employee involvement and training. An increasing body of work evaluated the links between systems of High Performance Work Practices and firm performance (Arthur 1994, Miller & Cardinal 1994, macDuffie 1995, Huselid 1995).

In India, sudden and unprecedented growth in organised retailing poses a challenge to human resources development. Therefore, it would be useful to look at the dimension of human resource practices in retail industry, emerging requirements and challenges and measures to improve work atmosphere in Indian scenario. Although a few studies have initiated their efforts on analyzing HR challenges in Indian retail sector (Chella 2002, Chakraborthy 2007, Abraham & Kumudha 2007), there are gaping holes in the existing research: in particular the factors leading to the type of HR policy carried out in the Indian retail sector is largely neglected. The focus of this paper is on examining the various factors affecting human resources in Indian retail sector and accordingly suggesting measures for HR policy.

Before discussing the HR challenges, it is important to specify tasks to be performed for effective retailing to occur. Some of these tasks are as follows:

* Buying merchandise for retailer

* Shipping merchandise to the retailers

* Receiving merchandise and checking incoming shipments

* Marking merchandise, inventory storage and control

* Preparing merchandise and window display

* Facilities maintenance, facilitating shopping

* Setting Price

* Customer contact, customer research and exchanging information

* Customer follow-up and complaint handling

* Sales forecasting and budgeting

* Credit operations, billing customers

* Handling receipts and financial records

* Gift wrapping, delivery to customers

* Repairs and alteration of merchandise, returning unsold or damaged goods

* Personnel management, coordination

Source: Berman, & Evans (2006)

Generally, the retail stores use organisational arrangements which may divide all retail activities into four functional areas

* Merchandising

* Publicity

* Store and supply chain management

* Accounting and control

These areas are organised by line and staff employees. These employees are divided in to managerial, supervisory and working hands. In the above backdrop, let us examine HR challenges in retail sector.

Lack of talent

Organised retailing is highly manpower intensive. Retailing is the second largest employer in India, presently it employs about 22 million people. The present scenario depicts that there will further be a very high demand for manpower to match the scope of roll out plans of various players in the near future. It is estimated that 8 million people will be required in organised retail by 2011 (Pant 2007). This gives a clear indication of the extent of human resources required to support the growth of retailing in India. Especially, at the lower levels, there is requirement for large number of support staff as customer care associates. Moreover, due to organised retailing correlation with other industrial and service sectors, it is generating a great deal of indirect employment viz. security, electrical and mechanical maintenance, property management services, parking, sorting, packaging, etc.

The sector is facing talent crunch because neither the talent required on such a large scale in the sector are available nor there is training infrastructure facility for them.

Unavailability of Experienced Manpower

Organised retailing is an emerging sector in India; there are not many executives with long and relevant experience. KPMG report (2006) reveals that there is a skill-set gap in those manning the floors. Although, India has a huge posse of qualified human resources, who have the required education and are highly motivated to undertake the challenging tasks still there is more pronounced need for middle and senior level management. Managers from industries such as FMCG Telcom, BPO, and Hospitality are able to quickly learn and adapt to the demands of retailing. Consequently, the scramble for talent hunt amongst organised retail players will be as fierce as their battle for customers. Therefore, developing strategies for creating, attracting, nurturing, retaining are required in the initial stages themselves.

Lack of Formal Retailing Education

KPMG report (2006) points out that there are also competency gaps in various key areas like supply chain management, vendor development and customer relations management. There is requirement for qualified and trained manpower to look after day-to-day operations and cater to the wide spectrum of customer expectations. Therefore, it necessitates appropriate training to provide them exposure and also to equip them with progressive working methods. As there is lack of formal vocational institutes, where students can be trained for entry-level positions, most retailers in India depend on in-house training or fulfilling their training needs with small institutes.

Keeping in mind the growth in the retail industry, some business schools are coming forward to pioneer courses in retail management. The Indian Retail School has a number of such short-term courses on retail management. Pantaloon has made a tie-up with several management schools to offer programmes in retail management. RPG Enterprises has also set up a training institute for front line staff and store managers. Tesco runs a retail certification course with IIM-Bangalore. Reliance retail has also decided to set up its own training centers across the country. At present, it has two such centers in Mumbai and Kolkata. Training of the staff is the best investment in business and so in the retail business. The lack of formal retailing education further exacerbates the problem of recruiting. There is urgent need for management education for fraternity to fill in this vacuum. Top management institute are not showing interest because of low salary packages being offered to their students. Despite all these difficulties, the problem is required to be addressed. Proactive training strategies would become a competitive differentiator for retailers given the resource and competency shortages in India.

Threat of Poaching

While most of these challenges are gradually being addressed by the growing organised retail segment, the shortage of experienced human capital across all levels leads to poaching problem. The gap between supply and demand is resulting in high levels of attrition, and increased costs of doing business for the industry. The growth in retail salary in India has been one of the highest among all sectors in the past two years. The average yearly increment is 18-22 per cent against the all-sector average of 13-14 per cent (Saha 2007). According to VP (HR) RPG, "The biggest poachers are the BPOs. Every second youngster leaving us joins a BPO". At the same time, upcoming retail chains are poaching from multinationals and the established retail players like Shopper's Stop, Kishore Biyani's Big Bazaar and RPG Group's Spencer's for back end operations. But for front-end operations like HR and merchandise management, the target is FMCG. According to HR consultants, the biggest setback for FMCG companies has been at the middle management level.

Retention of employed staff, particularly the frontline staff who constitutes 85% of a retailer's workforce is becoming a rising concern. While Pantaloon has attrition rate of 8.6% per annum, RPG Retail accepts that their frontline attrition rate has drastically increased to 16% from 5% last year. Subhiksha too is faced with an attrition of as much as 5-6% per month. There is growth in retail sector, with many well-established business houses like Reliance, Birla and Bharti Enterprises have drawn up ambitious plans to foray into retail and other established players like Pantaloon Retail, Shoppers' Stop, Subhiksha and Spencer's are also investing heavily in this sector. Apart from this, many global players are foraying into retailing through one or the other way. All this can lead to higher attrition or poaching problem. Battling acute attrition, retailers are throwing in plenty of incentives to retain frontline staff, reports CNBC-TV 18.

Stressful Environment

According to a survey carried out by Associated Chambers of Commence and Industry of India (ASSOCHAM), retail sector is among the top ten segments in which the menace of stress and mental fatigue had intensified during the recent times (Tribune News Service 2007). The working pattern of retail industry requires employees to put in long hours (8-12 hrs.) of work which generally cause fatigue and lower motivation among employees. There is lot of work pressure in particular from work overload, time pressures and deadlines, and staff shortages and turnover rates. This may lead to poor performance, absenteeism, mistakes in jobs etc. Besides this, in part-time and casual jobs in retail sector, there is job insecurity, short-and split-shifts, unpredictability of hours, low wages and benefits, poor working facilities, and the need to juggle multiple jobs to earn a living wage contribute to stress and workplace problems.

High Turnover

According to KPMG report (2006), globally, retailing is a high staff turnover industry, with even the larger retailers facing attrition rates of between 40 and 60 per cent a year. As organised retailing is at a nascent stage in India, attrition is not yet an issue at least at the middle and senior management level. However, with rapid growth in retailing, the demand for managers with good retailing experience is set to increase, hence attrition levels are expected to worsen. For front-end staff attrition rate is believed to be 25 to 50 per cent which may be due to large number of inexperienced and part-time staffs. With more and more players roll out their retail initiatives, industry experts expect that attrition will rise at the managerial level too. At lower levels some perennial issues for high employee turnover within the sector are: seasonal employment during peak trading period and the perceived lack of career opportunities. This is especially true amongst students many of whom are employed by retail organisations as undergraduates but would look for alternative employment as graduates.

Complex Human Resource Environment

The development of the retail sector is dependent on the availability of skilled and knowledgeable manpower broadly at two levels- managerial and associates. Although growing consumerism and availability of manpower are powering the growth of organised retail business in India but skilled human resources are woefully short in supply. Traditionally, the task content of frontline jobs has been low and segmented, requiring little skill or training. It leads to cycle of low wages, low morale, and high turnover and high customer dissatisfaction and, therefore, loss of sales. But at present the need of the hour is to hire employees with the right skill set who can take care of operational functions and also there is necessity to engage employees with the right attitude as they need to work long hours and also on holidays and festive occasions.

The retail human resource environment in India is very complicated with lack of experienced and trained people, lack of sources of employment and little focus on human resource planning, compensation measurement and working conditions. In addition to this, the perception of working within retail is poor with entrenched beliefs that all roles involve long and unsocial hours, which limits the ability of employees to manage the balance between work and life. It may be business requirement to open the retail stores on holidays and festivals, but from employees' perspective that deprives them of community activities.

Women in Retailing

Retailing has made a lot of progress in career advancement for women. Women employees account for nearly 25-30% in the organised retail sector. According to Shoppers' Stop CEO Govind Shrikhande "No wonder, retail is among the few sectors where the ratio of women employees is the highest in India". Women employees are considered to be far superior in terms of service standards and interpreting consumer mood. Some of the biggest players in the organised retail turf are looking up to the fairer sex, especially when it comes to dealing with higher attrition rates. Reliance Retail, Future Group, Shoppers' Stop and RPG Retail are experimenting with a host of hiring models to improve the ratio of fairer sex in their workforce. Mukesh Ambani's Reliance has launched an initiative to encourage the spouses of employees to work in its retail venture. Accordingly, the employees' wives are being trained to take up jobs (full time, part time or on call) at Reliance Retail outlets. The Future groups plans to start stores, which will be manned entirely by women. The focus of this model is on offering flexi-career opportunities where women will be required to work for a maximum four hours a day (Economic Times 2007).

Despite recent progress, women still don't get enough attention at retail firms. Retailers need to address some of the issues with regard to female employees:

* Equitable remuneration

* Meaningful training programme

* Advancement opportunities

* Flexible timings (to manage their family responsibilities)

* Job sharing among two or more employees who work less than fulltime

* Child care

Requirement for HR Practices

Retailers need creative HR practices to win over the war for talent hunt which is imperative for success in Industry. Indian retailers need to develop a set of good HR practices to enhance competency and retention of employees while developing processes and systems that will address not only the current shortfall but also future challenges viz. indiscipline, disengagement, disputes, trade union issues, sexual harassment, attrition etc. Any organisation can succeed by being compassionate to employees' genuine needs and initiating HR policies which harness the potential of every employee.

As retail industry is luring the employees from other industry, this strategy may lead to another set of challenges as the industry matures. The employees who are drawn from other sectors may be worried about their growth opportunity, career path and other future related issues.

To deal with these challenges the Indian retail industry needs to start putting in place strong human resource systems and processes to manage a huge workforce in a motivating environment.

Recruitment Challenge & Employing Strategies

Indian retail sector is facing some specific recruitment challenges, even companies known to be leaders in retail industry are experiencing recruitment challenges, especially for entry-level store employees and for store managers. Some of the recruitment challenges are:

* Finding the right talent that is willing to commit over the long-term.

* Retail jobs in the frontline are near minimum wage jobs, although players in specialty format tend to pay a little more. But pay cannot be used to hire people.

* Retail jobs are also not career builders in the short run. Thus, making career paths clear to new talent also poses as one of the biggest challenges.

* Competition and diversity are challenging too; everyone is looking for the same highly-qualified employees

To overcome these challenges retailers can employ following strategies to recruit workers:

* Build the brand name of the company in the overall employment market by communicating its attributes in a way that distinguishes the company from the competitors. The focus of the company can be on attributes such as inclusiveness, competitiveness, fast-paced, goal-oriented, values-based, having high integrity, graceful under pressure, fun, entrepreneurial and so on.

* Highlighting the job opportunities through company's own website as well as major job listing websites, such as monster.com and naukri.com targeting intranet postings current employees so they can see where new opportunities are available.

* Classified ads, signs at shopping malls, radio ads, brochures, message on sales receipts can also be used for recruitment.

* Employee referrals can also be promoted with bonuses for referring new hires that stay with the company for at least a prescribed period of time.

* The culture of a company, its values, and the way in which attributes are expressed and demonstrated appears to be a significant factor in employees choosing the retail company for which to work. It is also important to company managers who select employees for their temperaments as well as their skills.

* To overcome the short run career image, exposure to career paths to employees is required. Different companies have different career path models which are aligned with the company's culture, approach to employee communications, size and available opportunities, and management approach. Along with this, showing wages associated with career paths, showing career paths and opportunities, internal promotions, internal job fairs can also be useful.

Compensation Strategies

The biggest challenge of ensuring employees contribution to business results is in figuring out what kind of reward and recognition programme to implement. Total compensation comprises direct monetary payments (salaries, commission and bonuses) and indirect payments (paid vacations, health and life insurance and retirement plans). It should be fair to both the retailers and its employees. To better motivate employees, some firms also have profit-sharing.

In India, the compensation strategy for front-liners is conservative, while retailers develop a very competitive plan for store managers. But if retailers want to provide stability to their employees and also want them to act as the custodian of their business who can contribute to business, they should plan for devising an effective compensation strategy. In order to get maximum contribution from employees the retailers can design a compensation programme which is low on guaranteed pay but aggressive on store profitability linked bonuses or incentives. Even those in support functions such as merchandising, distribution, accounts and so on need to be rewarded based on the performance of the stores that they are servicing.

Engaging & Retaining the Talented

It is challenging enough to find the right people, but more challenging is to retain and engage competent employees. High attrition rate in retail is acknowledged as an accepted but inefficient practice which not only affects retailers in their ability to develop and retain talent, but also to drive higher levels of profit. The companies are forced to spend time on recruiting and screening new talent, rather than in growing the business. The impact of turnover also affects the experience levels of employees who are interacting with customers and, therefore, may also impact the quality of service and the quantity of sales. Hence, retailers must examine different strategies which they can use to engage their employees, reduce turnover and boost morale. These strategies are given below:

* Fairness/equitable treatment.

* Better hiring processes and improved efforts to meet employee training needs.

* Providing good work environment with clear values and goals.

* Ensuring equitable pay and fair treatment.

* Helping employees maintain a balance between personal and work life is a vital strategy that can help retailers develop a happier, more productive and more loyal employee culture. Retailers should focus on sufficient hours of work and flexibility in the scheduling of those hours to meet employees' personal needs as well as those of the company.

* To retain their people, the retailers should take every opportunity to tell employees about the career paths and opportunities that exist to move ahead and earn more money.

* Leading retail companies of all sizes make investments in training. Although some of the key retention strategies for entry-level employees are competitive pricing (i.e. salary) but giving them the right training can also be a tool for retention. Most of the companies gear a basic training to employees. But focusing on training for specific competencies required for the positions within the company and requirements at each job progression is also advisable for retention.

* Retail companies emphasises on performance, although to achieve this they provide the support needed to assure the employees will be successful in their positions. Retailer can supplement this by emphasizing on special assignments, rotations, and training which can be used by retail companies to keep their employees.

* In India, some leading retailers focus a lot on this issue. Reliance Retail has a talent transformation programme where people are made to identify their skill sets.

* Employee retention through job enlargement in retail plays a crucial role as the job markets perform better for skilled personnel.

* Focusing on polychronic-orientation (an employee's preference for switching between multiple tasks within the same time-block) can be very useful. It has been demonstrated empirically that a polychronic-orientation has both direct (employee fit) and indirect (through fairness perceptions) effects on retail employee satisfaction. (Arndt et al 2006)

Career Advancement

Any Company's ability to recruit and retain a high-quality employee diminishes as the perception grows that it offers limited advancement potential. This limited advancement potential within individual retail firms leaves many qualified employees with few options other than to look elsewhere for employment, which, in turn, contributes to the turnover costs paid by employers. Thus, providing opportunities for career advancement can be an important attraction point to draw top-notch talent, although this can be a way by which retailer "brand" their company in the employment market. Due to scarcity of experienced and talented people, one can find that there are too many companies chasing too little talent. Thus, in this competitive environment showing that a company offers the employee a bright future provides a competitive advantage in recruitment. Career advancement in companies can be done though:

* Developing career path

* Recognizing and communicating advancement opportunities

* Company's commitment to internal promotion

* Identification of critical positions

* Developing talent and succession planning

Healthy Management Practices

In conjunction with the above mentioned human resource management (HRM) practices it is advisable for retailers to ensure healthy management practices. The implementation of these practices is increasingly regarded as an important determinant of an organisation's competitive advantage.

* Providing safe and secure workplace

* Paying salaries on time

* Providing and processing leaves, loans and other requests on time

* Providing neat and clean wash rooms, changing rooms and rest rooms

* Providing good uniform

* Ensuring the handling of grievances

* Equitable treatment at workplace

Ethnic Diversity Management

Many multi-nation companies (MNCs) are going to open their retail outfits in India. Naturally, employees profile is going to be a complex and diverse one. It requires developing a global cultural management to take care of this future HR problem.

Conclusion

Retail is a sunrise industry and perhaps one of the biggest industries having potential for employees. It has appeared suddenly and going to increase in future. India has no past experience of this type and of its magnitude. We have to get ready to meet the challenges posed by it at HR front. No doubt, the primary responsibility has to be that of government, both center and state but the challenges are so enormous that it required private sector also to take active part. Government has to lay down the policy, which has to be industry friendly but real entrepreneurial role has to be played by the private sector, especially big domestic players in retail industry. Though, some players' viz. Future Group, Reliance etc. have already taken initiatives, this growing industry requires many more to come in to shape of either captive institutes or private public partnership for creating, attracting, nurturing, and retaining trained manpower.

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B.D. Singh and Sita Mishra are Sr. Professor and Asst. Professor respectively in the Institute of Management Technology, Ghaziabad, 201001