Retailers see rewards of better customer service

By Jessica Wohl

NEW YORK (Reuters) - Office supply retailer Staples Inc. (SPLS.O: Quote, Profile, Research, Stock Buzz) used to hold pizza parties at the end of each month to reward its top-performing store employees.

But within the past few years, the company has replaced the piping hot, extra cheese and pepperoni kind of rewards with something its workers like even more -- cold, hard cash.

"Our employees said 'You know, if I have a choice between pizza on a Friday night with my friends at work, or more money to fill up my gas tank or take my boyfriend or girlfriend out to dinner, I'll take the money,'" Staples Chief Executive Ronald Sargent said at the Reuters Consumer and Retail Summit in New York this week.

"So, we killed the pizza parties and we put everybody on a bonus program."

The Staples bonus plan is possibly unique, but executives this week said improving customer service and making employees feel more like team members is a key goal for the remainder of this year and into the holidays.

Since Staples started its program in 2002, store employees have been measured on store profitability and customer service.

Employees making $8 or $9 an hour can get up to $3 an hour more at the end of the month in the program, Sargent said. He said 70 percent of employees get some incentive every month.

While the program has led to increased wages, profitability has also improved. "You don't mind spending more on wages if your bottom line is much better, and that's kind of what we're seeing," Sargent said.

Still, Sargent said that while the program "seems to work really well, I think we're still probably the only retailer that does that."

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Retailers don't have to spend much to improve customer service, but bad customer service can cost them millions of dollars in terms of negative feedback and lost sales.

"Here's the dirty secret: bad service costs more," said Rob Markey, head of the customer-strategy practice at consultants Bain & Co.

Retailers speaking at the Summit said they are starting to see improved results from making adjustments to service plans.

Ethan Allen Interiors Inc. (ETH.N: Quote, Profile, Research, Stock Buzz) stepped away from a sale-price strategy in recent years and has seen its sales improve, Chief Executive Farooq Kathwari said.

"The new luxury is going to be good customer service. Consumers today, in this mediocrity and this sameness, want to have good service," Kathwari said.  Continued...