flowing motion

HR doubles your money?

Posted on: November 19, 2008

Supermarket in São Paulo

Image via Wikipedia

State of Retail 2008

On Monday, The Times published a summary of OC&C’s report State of Retail 2008.  As a typical Gen Xer, I love numbers and numbers abound in this article.

Rates of return are slim

They report the EBIT (earnings before interest and taxation) as a profit margin. None of the figures surprised me.  They are quite constant with figures achieved in other countries.  After all, the nature of an industry does define what we do and how we do it.

Grocery stores achieve 2.5-3.5%.  Books & stationery, Electricals and Music, video & gaming achieve similar margins.

Opticians, pharmacies and health & beauty achieve twice that rate at 7%, and clothing, footwear and accessories achieve slightly better at 9%.

What this tells us about work is this:  if we own a business, even a successful one, we have to sell a lot of stuff to make 1 pound profit!  The local convenience store or bookshop must sell 40 pounds to leave 1 pound profit in the hands of the owner.   The local clothes shop must sell about 12 pounds to keep 1 pound in the pocket of the owner.

Some do so much better than others

The article also gave a good comparison of the margins achieved by the top two retailers and the rest.  In almost every case, the top two retailers achieved TWICE the margins of the field.

What the report didn’t tell us were the “HR Costs/Revenue” ratios: how much of the sales dollar do large companies like TESCOs spend on HR?

It is clearly obvious that industries like consultancy where 20-35% of each sales dollar is paid in salaries, more money is spent on training, etc.  When the return on 1 pound on HR is 3 pounds in sales, we pay more attention to HR than when we spend 1 pound on salaries to make 30 pounds such as might happen in a supermarket.  Simply, in a supermarket other factors have a bigger impact on sales.

But when the margins are DOUBLE in one firm than another, then the question arises, WHY?

  • Does the firm have an advantage of size?
  • Does the firm operate in a more lucrative niche?
  • Are the management somehow superior to management in the other firm?
  • Are the management practices better?
  • And how does HR contribute to a better HR costs/Revenue ratio?  (Profit=Sales-Costs-HR Costs)

I do wish OC&C had give us the HR figures too!

UPDATE: For an HR Managers perspective on the Recession, I have written a summary on a new post.

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