​How IKEA and Costco Mastered Employee Retention

IKEA is known for some eye-catching statistics. In a single year, it distributes 2.5 billion wooden dowels, the little sticks that hold its furniture together, and 50 million Allen keys. Over 25 years in the UK, it sold 11.6 billion Swedish meatballs. However, one statistic stands out: annually, 62,000 IKEA employees quit their jobs. For most companies, losing 62,000 employees in a year would be a crisis. In 2022, IKEA faced such a challenge.

Southampton IKEA (3) by Barry Shimmon, CC BY-SA 2.0, via Wikimedia Commons

While IKEA aims to "create a better everyday life for the many people," many of its employees were not feeling this mission. The company has a vast workforce, and the 62,000 departures amounted to a 22.4% staff turnover rate. For a retailer often relying on students and part-timers, this isn't terrible, but in the UK, turnover reached a worrying 41% at its peak, with some stores hitting 60%.

Lessons from the Best: Costco and Employee Retention

Comparatively, Costco sets a high standard. The discount retailer has a turnover rate of just 13%, which drops to 6% for employees who stay longer than a year. This low turnover is significant when nearly one in six UK workers quits within their first 12 months, as reported by the Chartered Institute of Personnel and Development (CIPD). Replacing such a large portion of the workforce annually is costly, with estimates of around £10,000 per worker, factoring in recruitment and training costs.

IKEA's Approach to Reducing Turnover

IKEA has managed to reduce its UK turnover from 41% to 27% in less than two years by implementing three key strategies:

Increased Pay: IKEA raised wages to £12 an hour outside London and £13.15 within London, surpassing the minimum wage of £11.44. Additionally, a middle band for areas like Reading and Milton Keynes at £12.60 was introduced to address those regions' high cost of living.

Buddy System: IKEA recognised that many employees quit within their first 100 days. To help new recruits navigate their new role and culture, IKEA introduced a buddy system. Each new recruit is paired with an experienced worker.

Flexible Scheduling: IKEA introduced flexibility in scheduling, allowing employees to choose half of their shifts. Contrary to expectations, this didn't leave undesirable shifts unfilled; many workers, including students and those with second jobs, preferred these hours.

Success Stories in Employee Retention

Other companies have also found success in reducing turnover. Bunzl, a logistics company, saw its turnover drop from 17.3% to 15.3% over two years by offering career advancement opportunities, such as training warehouse workers to become truck drivers.

Recognition and reward platforms like Rippl, used by companies like Asda and BP, also make a difference. These platforms allow managers to give small, meaningful rewards to employees, significantly reducing turnover. For instance, one company saw turnover drop from 27% to 7% for employees who received these rewards.

The Real Cost of High Staff Turnover

High staff turnover can cost a business about 33% of an employee's compensation package, including wages and benefits. Beyond the financial impact, turnover can affect morale, productivity, and customer service. The CIPD highlights that high turnover can deteriorate profit margins and customer service quality, as retaining experienced employees often leads to better customer relationships.

Understanding and Mitigating Staff Turnover

Employee turnover refers to the number of employees who leave a business within a specific period. The UK average turnover rate is around 15%, though this varies by industry. High turnover isn't always negative, as it can sometimes help refresh the workforce and remove underperformers. However, excessive turnover is usually detrimental, leading to increased costs and disrupted operations.

Employees leave for various reasons, including poor cultural fit, low compensation, and inadequate management. Effective management and clear job expectations can significantly reduce turnover. Poor coaching and unclear job roles can lead to dissatisfaction and eventual departure.

Turning Turnover into Opportunity

While high turnover has its downsides, it can also be an opportunity to improve recruitment and management policies. Companies can use turnover to their advantage by:

Improving Talent: Replacing underperformers with more skilled employees.

Preventing Complacency: Encouraging innovation and growth by avoiding a stagnant workforce.

Reviewing Costs and Incentives: Revisiting compensation policies to ensure they are competitive and fair.

Broadening Perspectives: Bringing in new employees with fresh ideas and diverse experiences.

Staying Competitive: Adapting to technological changes with a workforce that embraces new ways of working.

Jacob Blanck, CC BY-SA 4.0, via Wikimedia Commons

Insights from the CIPD

According to CIPD, understanding employee turnover and tenure is crucial for benchmarking and improving retention strategies. The average turnover rate in the UK is 34%, with significant variations across industries. For instance, the hospitality sector experiences the highest turnover at 52%. Conversely, sectors like public administration and defence have much lower rates. Most employees tend to stay with the same organisation for two to five years.

High turnover, particularly in sectors with scarce skills, can be costly. Monitoring turnover helps identify trends and issues, ensuring employees have a good work experience. Only a small percentage of organisations calculate the cost of turnover or collect data to improve retention initiatives, highlighting the need for better practices in this area.