With more than 24 million employees and 2008 sales of $4.6 trillion,1 the retail industry is not only important to the U.S. economy but also helps create the fabric of how people live, work, and shop. Talent management is a critical issue for retailers, not only because the industry employs such a vast workforce – one in five American workers2 – but also because a retailer’s success largely hinges on the relationship between its employees and its customers.
Effective talent management involves defining the talent strategy, implementing the talent solutions, and providing the infrastructure that enables retail organizations to acquire, fully deploy, and engage its people to achieve strategic business objectives. This includes attracting new talent, building core capabilities, developing the next generation of leadership, increasing workforce diversity, and retaining top talent.
To better understand ways companies are tackling today’s talent challenges and positioning themselves for long-term success, Deloitte collaborated with the National Retail Federation (NRF) to conduct a comprehensive survey of the industry’s talent strategies and practices. The survey was designed to provide an in-depth look into where retailers are succeeding on the talent front – and where they are coming up short.
Survey respondents included senior executives from 29 of the largest retailers in the U.S. based on STORES' Top 100 list. Respondents represented major retail sectors – including specialty, department stores, grocery, pharmacy, discount, and Internet. The survey, conducted in the fall of 2009, revealed the following key findings:
• Effective talent management is a critical success factor across the retailers represented in the survey. Senior retail executives surveyed believe that hiring, developing, and retaining top talent is essential to achieving their business strategies.
• Leadership development represents the biggest talent challenge for retailers represented in the survey, with 83% of the participants ranking it as a major talent issue. But according to executives surveyed, it is also one of the greater opportunity areas for learning and talent development programs.
• While survey participants appear to understand the talent challenges they face, many do not have in place the tools, technologies, and programs necessary to support their talent management requirements and aspirations. Surprisingly, 41% of retailers who participated in this survey stated that they do not have the human resources (HR) technology to support talent management within their organizations.
• Retailers represented in the survey are confronting the leading edge of major demographic shifts now underway. The need to respond to the new value set of Generation Y is challenging these retailers as they seek to employ this next generation of retail talent. And the increasing buying power of Hispanic and African American shoppers has these retailers pursuing a diversity agenda that will enable them to better represent their more diverse customer base.
The Deloitte/NRF survey results revealed a disconnect between what surveyed retail executives strive for and what they are able to accomplish. These retailers believe that they have a strategy in place to grow talent from within, but they are often hard-pressed to implement effective programs to achieve their goals.
Retailers represented in the survey are investing in developing talent from within by focusing energy on top talent as future leaders, clearly defining career paths for career advancement, and building the core capabilities that drive retailer success. They are focusing on opportunities specific to the changing makeup of our population and how these changes are reflected in their own workforce to better position them over their competitors.
The talent imperative
Retail executives who participated in this survey understand that talent management is already a strategic imperative and that it is becoming even more critical to the industry. To an overwhelming degree, the respondents believe they are doing a good job integrating talent management into their company’s business planning. Nearly all (96%) of executives surveyed either strongly agree (55%) or agree (41%) that talent management is part of their company’s strategic planning process (see Exhibit 1) and 93% agree their talent strategies are in line with their overall business strategy. While this implies that talent is at the front of the executive agenda, the reality is that industry turnover rates, employee engagement scores, and the findings of our survey – particularly the leadership gap and the need to reflect more diversity in the workforce – suggest that retailers are challenged in translating strategy into action.
When asked to identify the top three people management issues most crucial to their organization’s success, 83% of surveyed executives called out "leadership development and pipeline" as a top issue (see Exhibit 2). Talent management also ranked near the top, cited by 62% of executives surveyed. Key talent concerns, such as "creating a high-performance culture" (55%) and "training/development" programs (34%) also ranked high on the list.
Interestingly, the more specific people management issues that some might expect to have been the top priorities in such a prolonged economic downturn did not come anywhere close: "compensation, benefits and pension planning and management" came in at 17%. Also, "anticipating and responding to business-critical events" – such as transformational change to business strategy, expansion into new markets, and workforce upheavals – tied for last with "complying with regulatory requirements" at just 3%.
To probe the talent imperative more deeply, Deloitte and the NRF asked retail executives to rate the specific talent issues facing their organizations in terms of criticality. "Attracting new talent" and "retaining top talent" received high rankings in terms of criticality among the nine dimensions (see Exhibit 3).
Many executives surveyed also appear concerned about emerging skill gaps within their workforces. The "skill gaps and people development" dimension received another high criticality rating. It was cited as a critical talent challenge for retailers struggling to adjust to the technology-intensive demands transforming the way they operate, including tracking inventory in real-time to dealing with customers across multiple sales channels.
Issues such as "managing a global workforce" and "sourcing talent in new markets" took a back seat in the survey to concerns about developing leadership, hiring and retention.
Retail executives surveyed also expressed a high level of confidence that their companies are doing an effective job matching workers’ skills to critical business functions. Fully 86% of the retailers who participated in this survey agreed (48%) or strongly agreed (38%) that their organizations have identified the functions within their workforce most critical to achieving business objectives (see Exhibit 4).
Predictably, executives surveyed ranked merchandising as the function that most needs highly talented resources, followed closely by retail operations. Merchandise planning, store associates, and finance all tied for third in criticality of talented resources (see Exhibit 5).
These responses matched up relatively evenly with the answers to a different question that asked about the skill sets and capabilities of the retail workers in those functional areas. Surveyed executives reported their most skilled employees work in finance and retail operations, merchandise planning, and inventory management – many of the areas they identified as most critical.
There were, however, several notable gaps between the responses to the two questions, where skill levels were thought to be significantly below the importance that was placed on the functional area. One of these areas was in multi-channel/eCommerce. With effective multi-channel/eCommerce capabilities now fundamental to the success of many retailers, this gap may soon need to be addressed.
Two other interesting findings emerged: Surveyed retailers also identified finance as a critical workforce within their organizations but some believed there was a talent gap. This likely reflects the increased focus that retailers are placing on business analytics and the changing role of the finance organization in supporting business decision-making, not simply using the finance organization as an administrative function. Another gap was in information technology (IT), which is playing a more essential role in supporting retail strategy. As retailers continue to move to enterprise resource planning systems, and as requests for "good data" grow, it appears that the demands and expectations on IT as a solution provider are growing at a pace faster than the workforce can keep up.
The best talent is home grown
In previous Deloitte studies, the results have shown that many executives fail to understand the bottom-line impact of recruiting, hiring and training a new employee, which can range from 25% to 200% of a departing employee’s annual compensation.3 The retailers represented in this survey appear to recognize this impact and place a strong emphasis on developing home grown talent as a result.
The retail executives who participated in this study indicated a clear preference for developing and promoting talent from within. When asked to identify their organization’s most valuable source of talent, the top choices were "developing/training of existing personnel" followed by "recruitment from the customer base," and then "recruitment from competitors" (see Exhibit 6).
While retailers represented in this survey are committed to developing home grown talent, many are focusing on existing talent at the expense of future talent. Only 59% of surveyed executives believe their companies are actively monitoring the future supply of that critical talent (see Exhibit 7).
The leadership gap is top of mind
On one issue nearly every survey participant agreed: Leadership is critical. As shown earlier, "developing leadership" ranked as the foremost critical issue facing companies represented in this survey and, 83% identified managing their "leadership development programs and pipeline" as an issue critical to their company’s success.
Yet many participating executives also believe that their company’s leadership development efforts often fall short. In fact, the executives who responded to this survey identified serious gaps in their organization’s leadership development programs. "Leadership effectiveness" also ranked low when these executives were asked to evaluate their company’s overall capabilities (see Exhibit 8).
We believe that growing talent from within demands a concerted leadership strategy and a robust leadership pipeline, where top talent is identified, cultivated and trained for key positions within the organizations. Yet we find retailers are often more tactical, focusing on the current quarter at the expense of sustaining leadership development programs over time. Closing the resulting leadership gap will require retailers to end short-term thinking and align development programs with long-term leadership goals. Those that do will better position themselves against their competition.
Retailers are committed to attracting and retaining top talent …
While retail executives surveyed may harbor doubts about the effectiveness of their leadership development initiatives, most believe their companies know what is required to motivate and retain top talent. Nearly three out of four (73%) surveyed executives either agreed (45%) or strongly agreed (28%) that their companies understand how to keep high-potential employees in their jobs (see Exhibit 9).
So with all this confidence in how to attract and retain top talent, how are retailers represented in this survey attracting and retaining the best and brightest? When asked to identify the top three tools they use to attract and retain talented employees, a majority of executive surveyed (76%) cited "financial rewards and incentives" (see Exhibit 10). The next-biggest group (69%) said they attract and retain high-potential employees by offering "training and development" opportunities. This makes a lot of sense due to the high priority that we have found Generation Y puts on professional development.
Many retailers represented in this survey rely on the affiliation to their brands – after all, if an employee has a close connection with the brand, they may be better able to represent it to the customer. Two-thirds (66%) of the surveyed executives cited brand attraction as a key tool.
…But many need additional tools, technologies, and programs to get the job done
While there is broad agreement among executives surveyed about the importance of attracting, retaining and motivating top talent, the survey results suggest that many retailers are either unaware or unprepared for several serious talent challenges looming on the horizon. HR technology deficit hampers talent management Many retailers represented in this survey appear to be suffering from a serious HR technology deficit – at least when it comes to managing talent. More than four in ten (41%) of the executives who participated in this study reported they do not have the technology in place to support their company’s talent management requirements and aspirations (see Exhibit 11). Technology can play a major role in the delivery of effective talent management. Retailers that do not effectively leverage technology may compensate for the loss with labor-intensive practices, possibly pulling time away from the customer and leaving the organization open to talent gaps and even potential litigation. Technology can be leveraged throughout the talent pipeline, including workforce planning and management, recruiting and on-boarding, employee and manager self-service, succession planning, and benefits, to name a few.
A gap between talent priorities and existing skills As previously noted, new gaps are emerging at the organizations represented in this survey. The survey results indicate that while executives believe "information technology" and "store associates" are critical to the success of their retail organizations, the current skill level of their employees in these areas is relatively low compared to other workforce areas. Compensation is not a competitive advantage The vast majority of the executives who participated in this survey (75%) believe their compensation levels are competitive with the rest of the industry (see Exhibit 12). The same percentage believes performance is clearly linked to employees’ rewards and recognition (see Exhibit 13). But with many of them paying a "competitive" wage, pay is not going to differentiate one employer from another when it comes to attracting and keeping talent. That could prove particularly problematic as retailers strive to please younger and increasingly less loyal and more opportunistic Generation Y workers.
Current advancement and succession plans are ineffective As shown in Exhibit 14, 50% of respondents acknowledged that their organizations did not effectively map clear career paths for ambitious employees. Also, a third of respondents felt that their organizations did not have effective succession planning. Similarly, 41% felt that their companies are not effective at helping employees develop the skills needed to move up and succeed at the next level. These deficits will especially loom large for talented, ambitious workers in today’s job market. If they see greater long-term opportunity elsewhere, they will likely pursue it.
In addition to revealing the challenges they face, the survey also exposed some blind spots for retailers represented in this survey, both inside and outside their companies. More than four in 10 of survey participants (41%) reported they did not have an easily accessible inventory of skills across business units or functions (see Exhibit 15). And one-quarter (24%) reported their organizations are not tracking what key competitors are doing to manage critical talent, risking the loss of top talent to competitors’ more attractive workforce programs (see Exhibit 16).
Grappling with generational and demographic shifts
Several tectonic shifts are underway in the retail industry, and the executives who participated in this survey report they are already beginning to feel them. Indications are, however, they are not sure what to do about them.
Unprecedented demographic change in the customer base is weighing heavily on retailers represented in this survey. Ethnic diversity ranked as having a moderate impact on their workplaces, given the average 3.4 score, on a 1 – 5 scale (see Exhibit 17).
Retailers represented in this survey are aware they need to better reflect the customer base in the ethnic makeup of the workforce. The buying power of certain ethnic groups, particularly Hispanics and Asians, is expected to grow significantly over just the next few years. By 2012, Asian American purchasing power is expected to grow 45% to reach $670 billion and the buying power of African Americans will rise by 30% to $1.1 trillion. By 2050, the Hispanic population is expected to make up 30% of the overall U.S. population – and Hispanic teens alone already wield $20 billion in spending power.4
Results of this survey also indicate that the full impact of the arrival of the Generation Y group into the retail workforce is starting to be felt. Born between 1982 and 19955, those workers (and prospective workers) today range from 15 to 28 years old. Participants rated Gen Y’s impact on their workforce as a mid-level concern. So while Gen Y has already penetrated the retail workforce, retailers have not yet fully adjusted.
According to numerous reports, Gen Yers value career progression, accelerated learning, and a work culture that matches their values – demands that are already on the radar screen for many retailers represented in this survey. Even in the current tight labor market, retailers who responded to this survey consider employees’ increasing demands for work-life balance to be only a mid-level talent issue, based on the average score of only 3.0 (see Exhibit 18). We believe retailers who adjust their talent management strategies to Gen Y will be better positioned to tap into this crucial talent pool. Retailers who do not will likely face challenges, as this group tends to be less loyal and more restless than prior generations. If not satisfied, they will be looking to move on to a better opportunity.
While Baby Boomers have long dominated the demographic landscape, the majority of surveyed executives did not foresee any major impact from either the retirement or re-entry of workers in this generation.
However, retailers represented in this survey may be missing an opportunity to pass down this retiring generation’s intellectual capital and knowledge base to younger workers. A majority of retailers who responded to the survey (55%) do not feel that their organization provides skilled workers with incentives to document their knowledge (see Exhibit 19). And 38% do not believe their organization has a process in place for documenting and retrieving that knowledge (see Exhibit 20).
In 2009, the retail industry faced the most significant economic challenges in recent history, which led to a cleansing of the industry. Many of the weaker companies succumbed to the pressure and closed their doors while surviving companies got leaner — both in inventories and in people. Retailers were pushed to focus on what matters most — the connection with the customer, and the strategies for leveraging people in the most efficient and effective ways possible.
But as the economy starts to turn, opportunity is on the horizon for retailers who are ready to take a proactive approach toward talent management and leadership development. Taking advantage of this opportunity should mean keeping a sharp eye out for high performing talent that is ready to make a leap as the economy recovers, reinvesting in the capabilities of a leaner organization, and focusing on building capabilities that may have been put on hold during the downturn. Based on our survey findings and analysis, we believe retailers should consider:
Linking talent strategy to business and customer strategy The world is different. The way that customers are living, shopping, and spending has changed, and not just as a result of the economic downturn, but also from the lessons they learned about credit and excess that came from the recent recession. Retailers across the board are reinventing themselves to respond to this change. Taking the people of the organization along in these changes will require implementing new talent strategies that shape the capabilities, performance, and culture of the organization.
Renewing the leadership pipeline Clearly a shortfall within many retail organizations is the ability to grow talent from within to more substantial levels of leadership. Correcting this talent shortfall will help retailers better compete against increasing levels of competition. By investing in robust leadership development, revamping succession planning, and clearly defining competencies and career paths, retailers will be much better positioned to create a pipeline for talent within their organization that supports their success in the market.
Leveraging technology to enable talent strategies With people at the heart of the retail business equation, it is somewhat surprising how under-invested most retailers are in leveraging technology to recruit, develop, deploy, and manage the performance of their organizations. HR organizations have the opportunity to reduce overall cost-to-serve while increasing their ability to respond nimbly to feedback from the business across the talent pipeline.
Embracing diversity as a winning business model Customer-centric programs are at the heart of most retailers’ business strategies, but a retailer’s workforce that reflects the demographic mix of its customer is more likely to understand that customer and reap the benefits. Retailers that not only attract but develop, retain, and advance a diverse workforce will likely be better positioned to achieve a competitive advantage with their customers.
In addition, we have provided a convenient checklist (see Exhibit 21) that retail executives may want to consider as they seek to achieve effective talent management and leadership development programs.
As used in this document, "Deloitte" means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.
3Deloitte, "Talent Based ROI – Ways to Improve Employee Impact to the Bottom Line," 2008.
4U.S. Census Data, 2007; Abate, T., "Who is Doing What with Technology?" San Francisco Chronicle, July 28, 2008; Zimmerman, A., "Home Depot’s New Site Opens Doors to Hispanics," The Wall Street Journal , November 17, 2008; "The Changing Face of Shoppers," Retail Forward, 2008; and Deloitte research and analysis.