Random updates from Apple to Pret A Manger

We have a handful of updates on some recent stories.

First, Apple has taken steps to address complaints about its labor practices. Specifically, they have signed up the Fair Labor Association (FLA) to audit its suppliers’ plants (Apple Initiates Labor Audit, Wall Street Journal, Feb 13). Apple asserts that these audits are “unprecedented in the electronics industry.”

Of course, the nattering nabobs of negativism over at the New York Times have called into question the effectiveness of the FLA audits in other industries (Critics Question Record of Monitor Selected by Apple, Feb 14). The FLA was formed by the likes of Nike and universities to prevent the use of sweatshop labor to make college T-shirts (I am pretty sure my employer is among the member universities). Some claim their overall performance isn’t so great:

Since its founding, the association has inspected more than 1,300 factories in Asia and Latin America, uncovering myriad violations. But despite these successes, many labor advocates say its efforts have barely made a dent in improving working conditions.

“The Fair Labor Association is largely a fig leaf,” said Jeff Ballinger, director of Press for Change, a labor rights group. “There’s all this rhetoric from corporate social responsibility people and the big companies that they want to improve labor standards, but all the pressure seems to be going the other direction — they’re trying to force prices down.”

FLA is dependent on its members — i.e., the likes of Nike and Northwestern University — for funding so some question whether they are truly independent. Further, it seems that they are not exactly over-resourced:

The association’s monitors inspected 190 factories in 2010, out of the 4,703 supplier factories that its member companies use. While that represents 4 percent of the factories, each company is required to do an annual assessment of each factory.

Clearly, if a supplier has a proven track record of good behavior, it may not be the best use of scarce resources to always return to their facilities. However, if only 4% of facilities are going to be visited and suppliers are coming in and out of the market every year, it seems like there are a lot of places to hide.

Second, I recently posted about a survey of New York City retail workers that presented a pretty grim picture for the industry. I should also have pointed to a recent Harvard Business Review article by Zeynep Ton that argues that it doesn’t have to be that way (Why “Good Jobs” Are Good for Retailers, Jan-Feb).

I recently studied four low-price retailers that operate in a virtuous cycle: Mercadona, the largest supermarket chain in Spain, with more than 1,300 stores and €16 billion in sales; QuikTrip, a U.S. convenience store chain with more than 540 stores and $8 billion in sales; Trader Joe’s, an American supermarket chain with more than 340 stores and $8 billion in sales; and Costco, a wholesale-club chain with more than 580 stores and $76 billion in sales. These retailers are highly regarded by customers and industry peers. In addition to healthy sales and profit growth, they have substantially higher asset and labor productivity than their competitors.

Employees of these retailers have higher pay, fuller training, better benefits, and more-convenient schedules than their counterparts at the competition. Store employees earn about 40% more at Costco than at its largest competitor, Walmart’s Sam’s Club. At Trader Joe’s, the starting wage for a full-time employee is $40,000 to $60,000 per year, more than twice what some competitors offer. The wages and benefits at QuikTrip are so good that the chain has been named one of Fortune’s “100 Best Companies to Work For” every year since 2003. All of Mercadona’s employees are permanent, and more than 85% are salaried full-timers.

These model retailers make an effort to provide advancement opportunities. For example, about 98% of store managers at Costco and all store managers at Mercadona, QuikTrip, and Trader Joe’s are promoted from within, and many executives at these companies started out in the stores.

What is the payoff from these investments? Low turnover, high labor productivity, and satisfied customers. It should also be noted that these firm’s labor strategies are supported by some other simplifying strategies such as reducing product variety. Lower variety allows for some simplification of operations and feed into higher labor productivity. It’s a very nice article and well worth checking out if you are interested in service operations in general and retail operations in particular.

Finally, Pret A Manger. The British quick-service chain has recently opened its fourth Chicagoland store in Evanston. We had a post last summer about their novel labor practices. Now some of their practices have generated some less positive buzz back in the UK. As the Evening Standard put it,“Why can’t a Brit get a job at Pret?” (Jan 23).

[A] notable thing about their staff: that there aren’t many Brits among them. In fact, in this shop there are eight nationalities represented, including recruits from Poland, Italy, Sweden and Nepal, but only one of them was born in Britain.

It’s an issue that has put Pret in the political firing line of late. Last week Boris Johnson expressed his disappointment at the dearth of young Londoners manning Pret’s tills. “If you’ve been to one recently,” said Johnson, “how many native Londoners served you? What’s going on?” The scrutiny of the company’s recruitment practices began in November last year, when staff at two central London shops were quoted as saying that they had no British colleagues and employment minister Chris Grayling said it was “unacceptable” for Pret and other chains to hire foreign workers at a time when domestic youth unemployment was rising. Figures released by the Office for National Statistics at the time indicated that more than one million people aged 16 to 24 were out of work, the highest figure on record.

Now some of the discussion around this echoes what is heard in the US about immigrant labor. From the vaguely racist (natives don’t want to work hard) to the more practical (native workers feel they have more opportunities and thus hold out for higher wages). Also, it is not clear that this is just an issue for Pret A Manger. I discussed this in my service ops class on Tuesday and students who had worked in London opined that Starbucks in London was not a whole lot different, with British baristas being few and far between.

What presents an interesting twist here is part of Pret’s hiring process. For new recruits, training wraps up with what is essentially an audition. Potential hires work a shift in the store where they would be employed and then their potential teammates vote Survivor-like about whether they get to stay in the kitchen. Now it is hard to prove that workers are biased toward their own — I would think that not working with a lazy jerk should trump getting another Eastern European in the shop — but it does highlight a potential complication of turning over the final hiring decision to a vote.