Growth of online sales forcing retailers to review employee commissions

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

• Quebec fashion retailer Simons sets up shop in GTA
• Canadian fashion retailers face tough outlook, but luxury brands poised to do well

Clothing retailer Le Chateau said it's reviewing its options dueto the growth of showrooming a practice where shoppers browsein-store but then order online because it deprives employees ofcommissions.

"All of the retailers are trying to find out how torecalibrate," said Franco Rocchi, Le Chateau's senior
vice-president sales and operations.

No'one-size-fits-allsolution'

One option under consideration is allocating commissions fromonline sales to stores near the shopper's home.

The Retail Council of Canada said designing a good compensationstrategy is challenging. It's especially difficult figuring out howto divide store rewards among individual sales associates, notedsenior vice-president Michael LeBlanc.

"This concept of attribution is a really gnarly one forretailers," he said, adding there is no "one-size-fits-allsolution."

Options vary by type of retailer, store format, the role of salesassociates and the company's financial position. How e-commerce isintegrated into its operations and fits within its priorities isanother 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 Ishop,"' LeBlanc said.

Various forms of commissions

Luxury menswear retailers such as Harry Rosen pay commissions toemployees, even when the regular customers to whom they're assignedmake online purchases, noted industry observers.

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

• Mexx goes bankrupt, liquidates 95 stores in Canada
• What's going on with Canada's retail industry?

The trend in the U.S. is towards team rewards, with bonuses basedon the store's performance, in order to avoid the high-pressuretactics that customers loathe, said Jim Okamura, a Canadian retailconsultant based in Chicago who analyzes both the U.S. and Canadianmarkets.

Home renovation retailer Lowe's said its store, including thosefrom its recent Rona takeover, don't pay individual commissions.

"Our people are motivated by the desire to provide a goodcustomer experience," said spokeswoman Valerie Gonzalo.

Okamura said apportioning credit for a sale especially in aworld where customers are visiting stores, responding to promotionssent directly to their phones and ordering online is at the centreof internal fights among retailers.

"That's been in some way the bane of existence of omni-channelstrategies dating back to the start of e-commerce," he said.

'Millennialsare a finicky workforce'

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

Winegard added retailers will also have to adapt commissionstructures to avoid costly turnover of millennial employees, a groupshe says are often as disloyal as the customers they serve.

• Canadian retailers closing amid intense competition, failure to adapt to market

"Millennials are a finicky workforce."

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

"It's complicated as hell, to be honest with you, and I thinkthey are almost opening a Pandora's Box," said Harris, whoseToledo, Ohio-based marketing research and consulting firmspecializes in the Canadian, U.S. and Mexican markets.

• The online shopping mystery: why don't we use our smartphones to buy stuff?

Harris said adjusting compensation hasn't been a big issue so farin Canada because e-commerce is a very small proportion of retailsales. But he expects retailers will increasingly fine-tune theirstrategies as online sales, and services like store pickup, continueto gain popularity.

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