The latest industry reports are out for January and the traffic declines in brick and mortar continue and in some cases are accelerating.  RetailNext reported traffic declines of 9.3% over last year in January which was an improvement on the -13.4% decline in December.  Traffic declines are the new norm in brick and mortar retail.  So what should a retailer do?

Focus on the things the stores can control:  Average Dollars per Transaction and Conversion

ADT – This is all about building the basket with every customer by finding solutions to all their needs.  This begins with great scheduling but is really all about quality of selling skills.  Training is the big lever here but it takes time to have a real impact on the results.

Conversion – This is all about great scheduling and compelling offers.  Having the right people (number and quality) at the right time.  We know that when you put an associate in front of a customer, you convert at a much higher rate.  Presenting a compelling offer to a customer to get something in their hand is a great way to convert a potential non-buyer.  Then you use your selling skills to build the basket.

What looks to be certain is that traffic declines are here to stay in retail brick and mortar.  Retailers must leverage what they control to get back to last years results.  The keys are ADT and conversion.

In short…it will cost retailers more money in payroll without any positive impact on sales or productivity.

The Rule Change
In March 2014, President Obama directed the Department of Labor (DOL) to update the Fair Labor Standard Act of 1938 (FLSA) overtime protections with the goals of raise middle-class wages, increase the number of nonexempt workers, provide bargaining power to low-wage workers who do not have certain protections, and simplify the identification of overtime-eligible employees.

A New Salary Threshold
A standard salary level threshold placed at $47,476 per year ($913 per week) which is the 40th percentile of weekly earnings for full-time salaried workers in the lowest-wage Census region, currently the South. Also, a new Highly Compensated Employees (HCE) salary threshold is $134,004 annually = to the 90th percentile of full-time salaried workers nationally is being established. When calculating the salary, employers can apply non-discretionary bonuses and incentive payments (commissions) up to 10% of the new salary level or $4,747. These ayments must be made at least quarterly and incentive plans with annual payouts will not qualify.

Automatic Updates
Beginning on January 1, 2020, the salary level required for exemption will be automatically updated every three years. The standard salary threshold is tied to the 40th percentile of full-time salaried workers in the lowest-wage region, currently the South. A 7.7% increase over three years: 2020 estimated level of $51,168, similar increase for 2023 would reach $55,108, and a similar increase for 2026 would reach $59,351.

Decision Points
So with these changes becoming effective December 1, 2016, some decisions need to be made. There are three options:
– Increase salaries to $47,476 and continue to treat employees as exempt
– Reclassify employees to non-exempt status using a variety of pay options
– Restructure jobs, workforce, or operations

Risk:

As with any decision, there are risk.  Here are some of the common issues you will run into:
– Press coverage inspiring employees and lawyers to seek avenues to recover damages
– More lawyers who become aware of and educated about how to file FLSA claims
– Marketplace chatter that leads to “me-too” concerns among a wide variety of employees
– Exempt employees who pay is not raised who think it should be
– Exempt employees whose pay is raised, but who think they should be reclassified as non-exempt/ overtime-eligible
– Reclassified employees who question why they weren’t classified as nonexempt, and paid overtime, all along
– Reclassified employees who think they were wrongly “demoted”

Solution
So, how do you come up with a solution? Here are the steps:
– Draft collaborative teams
– Determine appropriate data and strategy
– Develop a communication plan
– Design and deploy training that imprints

No matter what decision you come to, it will cost the organization more payroll dollars without any corresponding lift in business leading to the customer likely bearing the burden of this new rule in the form of price increases.

For organizations pondering this decision, I have a slide show outline of the key points in this article for you to use and modify for your organization.