Industry learning to cope with rising labor costs

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labor costsWhile some aspects of the U.S. economy are returning to some levels of normalcy (or at least the “new normal”) as we approach the three-year anniversary of the start of the pandemic, there are other aspects that are still feeling the repercussions. For example, the number of people who have exited the workforce permanently as a result of the pandemic—combined with the impact of record-high inflation in the U.S.—has caused a surge in labor costs, Bureau of Labor Statistics show. The phenomenon has resulted in many employers not only offering existing workers more money to retain them, but also onboarding new hires at much higher salaries than they normally would offer in a non-inflationary environment. It’s a practice akin to “signing bonuses” in professional sports.

While the flooring retail and distribution sectors certainly haven’t borne the brunt of higher labor costs (see chart), it’s still very much a reality they have to contend with. “Wages are going up and the number of people out there looking for jobs are far below the demand for the jobs that are open,” said Shane Richmond, vice president of Baltimore, Md.-based Fishman Flooring Solutions, a full-line flooring distributor with five locations in the Mid-Atlantic area. “As a result, we’re seeing upward wage pressure on those positions. In order to fill those internal positions, we’re having to fill them at a higher rate, which makes internal equity a real issue for the drivers we already have.”

It’s not just drivers who are commanding higher salaries at Fishman Flooring Solutions. “It’s across the entire footprint of the business—the professional positions in finance, purchasing and credit personnel, etc.,” Richmond added. “Hiring any new people puts upward wage pressure across the business.”

Specialty flooring retailers also attest to the predicament regarding the higher price of labor and the potential impact on business. However, it has not deterred them from adjusting their prices—and overall selling strategies—accordingly. Case in point is John Bretzloff, owner of Barefoot Flooring, Castle Hill, N.C. While some customers who have balked at higher ticket prices due to increased costs incurred by the retailer—including labor costs—those who are buying are stepping up their purchases. “Those who are venturing into our store typically are prepared for it and still purchase with the same frequency we have enjoyed over the years,” Bretzloff explained. “Surprisingly, there is very little discussion about elevated pricing.”

Other specialty retailers, including Ted Gregerson, CEO of Abbey Carpet & Floors/Floors to Go, Anniston, Ala., also seem to be facing less resistance in charging higher prices to make up for increased operating costs. Despite higher labor charges in his store, consumers in the market for flooring have largely been unfazed. “The consumers who are coming in are not only buying,” he explained, “but we are also continuing to see a rise in the average ticket size.”

At the end of the day, retailers say customers understand the rising labor costs are simply the result of the higher costs of doing business—no one is immune. Take Ohio-based The Flooring Edge, which operates three stores in the region. Last year, Craig Phillips, president, placed a line charge of $35 for the cost of the in-house measure on every retail job—customers didn’t bat an eye. “The majority of our retail jobs are measured by a measuring guy; it is truly a cost of ours,” he explained. “We do not charge the customer directly on that expense, but the cost is factored into the job. So, when the job is figured at our target margin, it is factored into the total price we charge the consumer.”

Casey Dillabaugh, owner of Dillabaugh’s Flooring America, Boise, Idaho, said he does not plan on making any major “consumer experience” changes in the face of rising operating costs. However, he offered this caveat: “We must be able to maintain margins so we can be financially secure. As such, all divisions in our business have raised their prices accordingly based on our cost of goods and labor increasing.”

For many retailers, however, it’s not so much about justifying higher salaries for employees as it is about finding skilled, competent workers in the first place. “Our greatest need is for support staff that can learn our processes and work with our sales and installation teams for a positive experience,” said Carlton Billingsley, owner of Floors and More, Benton, Ark. “We continue to look for the right people to allow our sales and installation teams to growth and be successful for the entire company.”

Tips to (responsibly) lowering labor costs

Statistics show labor costs can account for as much as 70% of a business’ total operating expenses. (An acceptable average cost percentage is typically 25%-35% of gross sales, industry stats show). This includes employee wages, benefits, payroll and other related taxes.

Monitoring one’s labor costs is particularly critical in today’s post-pandemic environment, where many organizations are feeling the pressure to do even more with less—that is, fewer employees, diminished resources and smaller budgets. That’s according to a leading consulting/HR firm Paycor, whose client list spans human resources managers serving a variety of bellwether sectors. The company, which has developed a human capital management platform that tracks virtually every aspect of people management (including recruiting, onboarding and payroll to career development and retention), offers HR managers, owners and operating executives several valuable tips to judiciously lower labor costs.

  1. Cut back on overtime. If your employees are working more than 40 hours a week, consider cutting their hours back to 40. This will save your organization money on labor while still allowing your employees to earn a decent wage.
  2. Offer incentives for employees to work their allotted hours. You could offer a bonus for employees who stay within their allotted hours. This will help to motivate your employees to work fewer hours, which will in turn cut costs.
  3. Carefully hire the right candidates from the beginning. The average cost of turnover can cost up to 30% of an employee’s first-year wages. This is an especially important strategy for reducing annual costs of labor in the long run.
  4. Use temp labor during busy times. If you have peaks and valleys in your business, consider using temp labor during your busy times to help with the workload.

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Jan. 9/16, 2023

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