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Growth of online shopping forcing retailers to rethink employee commissions

MONTREAL — Rising online sales are prompting some Canadian retailers to consider overhauling the commission structures that motivate their store employees to deliver strong customer service.

Clothing rtailer Le Chateau said it’s reviewing its options due to the growth of showrooming — a practice where shoppers browse in-store but then order online — because it deprives employees of commissions.


“All of the retailers are trying to find out how to recalibrate,” said Franco Rocchi, Le Chateau’s senior vice-president sales and operations.

One option under consideration is allocating commissions from online sales to stores near the shopper’s home.

The Retail Council of Canada said designing a good compensation strategy is challenging. It’s especially difficult figuring out how to divide store rewards among individual sales associates, noted senior vice-president Michael LeBlanc.

“This concept of attribution is a really gnarly one for retailers,” he said, adding there is no “one-size-fits-all solution.”

Options vary by type of retailer, store format, the role of sales associates and the company’s financial position. How e-commerce is integrated into its operations and fits within its priorities is another consideration.

“Retailers are looking at this because the customer is saying: ‘I’m going to be more agnostic than I used to be about where I shop,”‘ LeBlanc said.

Luxury menswear retailers such as Harry Rosen pay commissions to employees, even when the regular customers to whom they’re assigned make online purchases, noted industry observers.

Commissions are typically paid as a percentage of sales by firms in automotive, electronics, furniture and high-end apparel, while other sectors pay varying degrees of individual compensation.

The trend in the U.S. is towards team rewards, with bonuses based on the store’s performance, in order to avoid the high-pressure tactics that customers loathe, said Jim Okamura, a Canadian retail consultant based in Chicago who analyzes both the U.S. and Canadian markets.

Home renovation retailer Lowe’s said its store, including those from its recent Rona takeover, don’t pay individual commissions.

“Our people are motivated by the desire to provide a good customer experience,” said spokeswoman Valerie Gonzalo.

Okamura said apportioning credit for a sale — especially in a world where customers are visiting stores, responding to promotions sent directly to their phones and ordering online — is at the centre of internal fights among retailers.

“That’s been in some way the bane of existence of omni-channel strategies dating back to the start of e-commerce,” he said.

Retail consultant Brynn Winegard said awarding commissions is also complicated because consumers are increasingly doing a lot of research and ordering online, even while standing at store shelves.

Winegard added retailers will also have to adapt commission structures to avoid costly turnover of millennial employees, a group she says are often as disloyal as the customers they serve. “Millennials are a finicky workforce.”

Trendex president Randy Harris said companies like Le Chateau will undoubtedly find it a challenge to design a good system.

“It’s complicated as hell, to be honest with you, and I think they are almost opening a Pandora’s Box,” said Harris, whose Toledo, Ohio-based marketing research and consulting firm specializes in the Canadian, U.S. and Mexican markets.

Harris said adjusting compensation hasn’t been a big issue so far in Canada because e-commerce is a very small proportion of retail sales. But he expects retailers will increasingly fine-tune their strategies as online sales, and services like store pickup, continue to gain popularity.

E-commerce accounted for 5.7 per cent of total retail sales in Canada last year, compared to 7.1 per cent in the U.S., according to a Trendex NAFTA apparel report.


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