Time is Money … What if Less Time is More Money?

Over the past several months, we’ve been observing a shift in business operational strategies across various sectors, most notably in retail and hospitality. As the economic landscape continues to evolve with low unemployment on one hand and significant inflation on the other, companies are increasingly opting to adjust employee working hours rather than downsize their workforce:

“‘Companies that are hiring or keeping their employees are reducing their hours. Hours worked have declined in a way that you typically see around a recession,’ Lakshman Achuthan, co-founder of the Economic Cycle Research Institute, told Yahoo Finance Live.”

Retail serves as a notable example of how changes in consumer behavior are influencing business strategies. Recent data from the Bureau of Labor Statistics shows a subtle but telling reduction in average weekly working hours, dropping from 30.2 to 29.1 in January, reflecting the sector’s adaptation to these shifts.

As buying habits evolve, retailers are faced with difficult choices. So when employee hours are reduced, stores have two options: either they operate with fewer employees (usually resulting in potentially lower sales, as seen in last week’s article), or they reduce the number of hours of operation. 

As more experiments show that moving to a four-day work week can benefit employees’ mental health, I believe it can also be the right decision operationally. 

Let’s delve deeper. 

The Landscape

This January, we saw brick-and-mortar retailers add over 45,000 jobs, underscoring a robust employment increase despite the seasonal slump that is typical after the holidays. But even though the number of jobs grew, the average working hours of retail employees showed a slight decline. As mentioned, this pattern suggests a shift, favoring hour reductions over layoffs, which helps businesses maintain a ready and trained workforce while managing operational costs effectively.

Although still hiring, the fashion industry and department stores are demonstrating similar trends. For instance, even though Macy’s announced significant layoffs, the broader retail sector appears to be taking a more cautious approach, which is likely spurred by past challenges in rehiring after the pandemic layoffs. This strategy not only stabilizes current employment, but also positions businesses to ramp up operations when market conditions rapidly improve.

Meanwhile, the hospitality sector is facing its own set of challenges, with increased operational costs and reduced government support. In Wales (U.K.), pubs and restaurants are adjusting by limiting their operating days and carefully managing staffing levels to balance the need for quality service against profitability. 

Embracing Tradition in Modern Times: The Success of Saturday Morning Audio

In a world where extended hours are often equated with increased sales, Saturday Morning Audio, also known as Saturday Audio Exchange, presents a counter-narrative. In 1982, Andy Zimmerman founded the store in Chicago, which originally opened with notably limited hours, operating primarily on Saturdays and Thursday evenings. This strategy was based on the belief that weekend days were prime time for audio enthusiasts to shop, contrasting the common retail practice of maximizing weekdays and evening hours.

From its inception, Saturday Morning Audio focused on catering to a specific market: audiophiles on a budget. By offering used, demo, and discontinued stereo components—especially turntables—the store carved out a niche in the competitive audio equipment industry. The strategy of limited, targeted operating hours allowed the store to reduce overhead costs while still capturing the peak interest times of its customer base.

As the store grew in popularity, it expanded its offerings and customer reach, moving to a larger location on Belmont Avenue in Chicago by 2002. Despite the industry’s evolution and the increasing dominance of online shopping, Saturday Audio Exchange continued to thrive by maintaining its original ethos. It now operates three showrooms that mimic home environments, enhancing consumer experience and catering to its products’ tactile and auditory nature.

The store’s approach to business extends beyond just sales; it includes trade-ins and specialized services such as equipment repair and custom installations. 

Saturday Morning Audio exemplifies how traditional methods can succeed in a modern marketplace by adapting to the needs of modern consumers while still holding on to a business model that emphasizes quality interactions over quantity of operating hours. This strategy not only preserves the store’s unique charm, but also ensures its relevance and competitive edge.

So why don’t more stores mimic this strategy? What are the unique features, if any, of Saturday Morning Audio? These questions are best answered by building a model. 

A Model of Store Operating Hours

To model the economic rationale behind Saturday Audio Exchange’s decision to operate on limited hours, I used a simple cost-benefit analysis model that factors in overhead costs, customer behavior, and sales revenue. 

The primary motivation behind this model is to quantitatively assess how varying operating hours influence store profitability, considering both customer behavioral patterns and the associated costs of running the store. The model integrates several key components.

Consumer Behavior Model: This component predicts the number of customers entering the store based on the perceived value of visiting the store, which is influenced by the number of other customers present. The value perceived by customers is modeled as proportional to the square of the number of customers in the store at any given time.

The crux of the mathematical model developed for optimizing the operating hours of Saturday Morning Audio is rooted in the observation that shopping is a social activity. Oftentimes, consumers tend to derive value not only from the products they purchase but also from the shopping experience itself, which is significantly influenced by the presence of other shoppers. Furthermore, this social aspect of consumer behavior plays a pivotal role in determining how long customers will stay in the store and the likelihood of purchasing products.

In my model, the customer value derived from a store visit increases with the number of other people in the store, expressed mathematically as N^2, where N is the number of customers present in the store. This quadratic relationship (which should be familiar to long-time readers of this newsletter) suggests that the value of a shopping experience increases more than linearly with the number of people, highlighting a phenomenon where shoppers perceive a busier store as more attractive or validating. It’s simplistic, but it’s based on the following mechanics of Social Shopping:

1. Group Dynamics: Shoppers in groups or a crowd tend to feel more at ease, deriving enjoyment and assurance from the actions of others. This comfort can encourage longer stays and increase the likelihood of spontaneous purchases.

This is an image from Saturday Morning Audio:

2. Social Proof and Conformity: The concept of social proof, where individuals look to others to determine appropriate behavior, is highly relevant in retail settings. A busier store often signals to potential customers that it’s a popular and, by extension, a trustworthy place to shop. This perception can directly influence buying decisions.

3. Engagement and Interaction: More people present at the store can lead to more interactions and engagement with merchandise. These interactions, whether they’re discussions about products with strangers or observing others engaging with items, can pique interest and lead to purchases that might not occur in a less stimulating environment. In the case of Saturday Morning Audio, the actual exchange of products increases with the fact that more people with knowledge are present, some bringing their own equipment and others looking to buy equipment. 

Operating Costs: Costs are divided into fixed costs, such as rent and utilities, and variable costs, primarily staff wages, which are proportional to the operating hours.

Revenue Model: Revenue is generated based on the number of customer traffic, the probability of a purchase, and the average amount spent per purchase.

For simplicity, the model focuses on a single day (rather than a week) and the parameters include Fixed costs of $500 per day, Variable costs of $50 per hour, and Average spent per purchase of $80. Note that the amounts are for simulation purposes and not meant to be representative. 

The model simulates store operations from 1 to 8 hours to examine how these variations affect store profitability. The results, illustrated in the graph below, show the profit achieved at different operating hours.

The simulation reveals that the optimal operating hours for Saturday Morning Audio are 1 hour per day, where profits are maximized at approximately $6,367. As the operating hours increase, the profit decreases significantly, becoming negative when the store operates for 8 hours. This outcome suggests that a concentrated operating period could lead to more efficient use of resources and higher per-hour revenue, outweighing any benefits offered by increased operating hours (which ultimately dilute customer visits and increase costs).

Given these dynamics, the optimal operational strategy for Saturday Morning Audio involves maximizing the concentration of customers within a specific time window. This strategy not only enhances the social value of the shopping experience but also aligns with economic efficiency.

Peak Times: Operating during peak times can create a buzz and excitement among customers, reinforcing the social proof factor and encouraging more purchases.

Cost Efficiency: Shorter, concentrated operating hours reduce variable costs like staffing while capitalizing on high customer turnout, thus maximizing revenue per operating hour.

The integration of social dynamics into the model for Saturday Morning Audio emphasizes the importance of understanding consumer behavior beyond mere economic transactions. In other words, recognizing shopping as a social activity can help retailers craft strategies that enhance customer satisfaction and store profitability. 

Lifestyle Choices

Many firms are currently considering a 4-day week. But is this truly viable?

What about a 3-day week?

Una Pizza is considered (even by Italians) the best pizza in the U.S. and second-best in the world. It operates only three days a week. 

Pizzerias are not social networks, so what drove this decision?

The owner, Anthony Mangieri, expressed the desire to spend quality time with his daughter, emphasizing work-life balance. 

But there are additional benefits. By operating fewer days, the staff can focus on maintaining a high standard of food quality and customer service. This concentrated effort can enhance the dining experience, foster customer loyalty, and ensure that each service is executed at the best possible level.

And, of course, operating only on select days can create a sense of exclusivity and increase demand. Given its limited availability, customers might see dining at Una as a special event, which can make the experience more appealing and sought after. It’s nearly impossible to get a reservation there. 

Finally, with the challenges in recruitment and retention that the industry is facing, a condensed workweek might make the positions more attractive to employees seeking flexibility or reduced working hours.

Overall, Una’s operational strategy is not just about economic calculation; it also deeply integrates personal values and lifestyle choices.

Analysis of Limited Store Hours in Retail: An Academic Analysis

The paper “Occasionally Open, Always an Experience” provides an interesting insight into the retail phenomenon of limited store hours, specifically analyzing the compensations that owners of women’s apparel/accessory and home furnishings shops make to maintain viable businesses while operating fewer hours (e.g., four days a month). The study, conducted through qualitative, multiple-case interviews with six female store owners, offers a rich dataset to understand the implications of this business model on various aspects of retail operations and customer relations.

The findings from the study suggest that owners who adopt limited store hours engage in specific strategies to enhance customer experience and maintain profitability:

1. Pricing Strategy and Cost Efficiency: The study challenges the traditional notion that longer operating hours necessarily correlate with higher profitability. Instead, it finds that limited hours can reduce operational costs significantly while still allowing for competitive pricing. This is particularly effective in environments where consumer demand aligns with the hours of operation, allowing businesses to operate efficiently with high turnover during limited operating hours.

2. Customer Flexibility and Shopping Experience: The research highlights the importance of aligning store hours with customer lifestyles and preferences. Stores that operate on limited hours attract customers who are willing to adjust their shopping schedules. This flexibility is crucial for maintaining customer flow despite the restricted hours. The paper also notes that these limited hours create a sense of urgency among customers, potentially boosting sales during the operating periods.

3. Relationship Marketing Practices: One of the key strategies for businesses with limited hours is investing in relationship marketing to build strong customer bonds. This includes personalized service, frequent communication, and loyalty rewards. Such practices help mitigate the potential drawbacks of limited availability by enhancing the shopping experience and customer satisfaction.

This study provides practical insights into managing retail operations with limited hours. It’s not only the somewhat unique cases of Saturday Morning Audio and Una Pizza. It underscores the potential for retail stores to operate successfully on a limited-hour basis without compromising customer service or profitability. Moreover, it demonstrates that limited hours can be part of a broader strategy that includes strong customer relationships, effective pricing strategies, and optimized cost management.

The study challenges traditional retail operations models that advocate for extended hours to maximize exposure and revenue. It adds to the understanding of how modern retailing can adapt to changing consumer behaviors and economic conditions, offering a viable alternative to the conventional 24/7 operational model. This is particularly relevant in the context of increasing digital competition and shifting consumer priorities towards more personalized and flexible shopping experiences.

Are Reduced Hours Always Optimal?

While all this may benefit retail and hospitality, there are other industries, such as the pharmacy sector, where this strategy may prove detrimental. More than a fifth of community pharmacies in England have reduced their operating hours since 2022, sparking concerns regarding patient access to essential pharmaceutical services. This underscores a critical aspect of healthcare provision as reduced hours can negatively impact public health outcomes.

Recent changes in community pharmacy operations include a reduction in weekly operating hours by an average of 10.5 hours across affected locations. This scale-back was primarily driven by financial pressure, where maintaining unprofitable operating hours became unsustainable. 

The reduction in accessibility is alarming, especially in larger population centers lacking out-of-hours pharmacy cover, as highlighted by MP Bernard Jenkin during a Parliamentary debate. Data from the NHS Business Services Authority indicates that of the pharmacies reducing hours, some have cut back significantly, with 19 pharmacies reducing their weekly hours by more than 32.

The situation in community pharmacies challenges the cost-benefit analysis applied in retail contexts like the Saturday Audio Exchange. Obviously, unlike discretionary consumer goods, pharmacies provide essential services, making accessibility a crucial factor. So the situation where pharmacies are already optimizing their opening hours raises the question of how they can be incentivized to operate longer hours when it’s against their interest. 

Final Thoughts

The operations mantra is “There is no one process that does well on all dimensions,” which means that not all stores and operations try to maximize the number of hours to maximize overall foot traffic. 

But reducing the number of operating hours requires courage and a long-term view, which are in short supply these days.