M&A Secret Weapon: Retaining Talent and Customers While Delivering Results

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May 1, 2020

Over the past decade, the consolidation of retail stores has become an everyday occurrence. Consider that retailers announced approximately 9,300 store closures in 2019, a 59% increase from 2018, and the highest number of reported U.S. retail store closures since 2012, according to Coresight Research. And there’s likely more consolidation to come, as legacy retailers find ways to improve their customer experience by acquiring successful and/or strategically advantageous brands.

As the brick and mortar retail landscape consolidates, hundreds of thousands of employees are impacted and may find themselves disrupted or displaced as their stores get absorbed into a new parent company. Driving short-term results for shareholders would indicate that these job losses are a necessary cost of doing business. But simply letting go of experienced or high-performing employees, especially when talent is in high demand, doesn’t well serve employees, the company’s customers, or the business itself.

Reframing the situation from maximizing shareholder value to maximizing value for a broader set of stakeholders results in a solution that creates longer-term value for all parties involved. This is where the concept of a talent pool comes into play. By creating a talent pool of employees affected by store closures, companies can retain key people for new and existing locations and drive customer loyalty to the post-integration brand. Our experience shows that a talent pool also reduces the costs of the consolidation process, especially in markets where employee turnover rates are high, creating a triple-win that benefits the business, customers, and employees.

Understanding the talent pool

 So what exactly is a talent pool? And more importantly, how do you put one to use during your next consolidation? At its most basic, a talent pool is a set of temporary holding positions for key employees at recently closed stores. Rather than lose their jobs because there are no immediate openings nearby, employees can support work related to the integration until something becomes available.

The acquiring company evaluates applicants to the talent pool to get an understanding of their skills, experience, and expertise. After analyzing local availability and undergoing a vetting process, some employees are immediately placed in open positions in nearby locations when their home store closes. If there are no additional open positions available, retained employees are placed in the talent pool, where they support interim projects. For example, talent pool employees may be well suited for initiatives like helping set up a new location, supporting the shut-down of the old location, or providing a warm and familiar welcome to customers coming through the door at a new or nearby store.

In our experience, the pool works best with parameters in place aimed at limiting the disruption to the employee and customer experience and maintaining consistency in-store operations. For instance, with a recent client that acquired 2,000 retail pharmacy locations, employees transitioned to a role with responsibilities similar to their previous role.

Over time, as individuals are placed into available positions from the talent pool, the number of employees supporting temporary initiatives and awaiting placement will decrease. As a result, the goal of the talent pool is that it will inevitably empty over a predetermined period of time as natural attrition creates placement opportunities for retained employees.

The talent pool pays off

High attrition rates have traditionally been an expected part of a consolidation. Companies pay out millions of dollars in severance packages and may then spend millions on recruiting and hiring the necessary replacements.

However, a talent pool approach changes the game. An organization we worked with closed 35 percent of its acquired store locations as part of a consolidation, affecting more than 7,000 retail employees. The company’s goals were to keep the top talent, engage employees during the transition, and improve customer retention.

The success of the transition pool process for the Rite Aid integration is a testament to the dedication and efforts of the individuals involved.  We transformed what could have been a very unfortunate situation – store closings and layoffs – into a positive one, with employees engaged and motivated to begin their new roles at Walgreens.  The success of the pool also led to increased customer loyalty, as customers were able to see familiar faces at the nearby Walgreens location. – Wayne Orvis, Group Vice President, Operations Planning & Strategic Initiatives at Walgreens

The buyer succeeded in all its aims and more. The company retained an astounding ~75% of the affected employees, including more than 95% of those employees that joined the talent pool. Stores that retained employees from nearby closing locations had a 5% increase in customer retention. Additionally, 20% of employees chose to leave on their own for various reasons (e.g., close to retirement, lived far from the nearest store, etc.), making them ineligible for a severance package. As a result, the company saved more than $50 million in its consolidation process.

Now that’s a result.

Make the most of a talent pool

Creating a talent pool is a worthwhile endeavor, but it’s also a significant one. The client referenced above achieved so much success largely because the initiative had buy-in and cooperation from across the organization. A robust financial and operational business case was developed to forecast retention and severance costs associated with the pool and was shared with senior leadership to ensure alignment at the corporate level. A key underlying assumption of the business case was the high attrition rates among employees, which lent confidence to the future cost projections of the pool, since the rates implied a steady emptying out of the pool over time and a natural endpoint when all employees would be placed or find other opportunities outside of the company.

After buy-in was achieved at the corporate level, multiple teams were involved in the successful execution of the pool, and each served a key role. For example, the company trained its field organization and store leaders on the talent placement process and retention objectives. These individuals then helped place talent pool candidates and conducted evaluative interviews.

Human resource staff in the field tracked where employees landed from the beginning of the consolidation through the placement of the last individual. And those working at corporate headquarters designed the process and then quickly made strategic changes as needed. As an example, company leaders realized early on that they needed to communicate better with talent pool employees—letting them know what they could expect while in their temporary positions would improve their experience.

Having cross-organizational buy-in and involvement is critical to the success of a transition pool program. Support at both the corporate and field level ensures that employees feel welcomed and valued”– Wayne Orvis, Group Vice President, Operations Planning & Strategic Initiatives at Walgreens

Lastly, taking a standardized and methodical approach to finding new positions for employees is essential. It allows your organization to more easily scale a talent pool initiative and ensure that the approach remains consistent and equitable across locations and throughout the consolidation effort. Such a strategy includes:

  • Evaluating employees based on predetermined criteria
  • Placing employees into any available roles at the closest proximity store to support the increased business from the closed location
  • Offering employees additional opportunities at other nearby locations if the closest proximity store did not have open roles and/or providing temporary opportunities to help with integration-related projects

A secret weapon during consolidation

While we’ve seen success with talent pools within the world of retail pharmacy, the approach would be just as effective for any retailer consolidating a large number of stores and wants to retain strong talent and save on costs. The strategy reassures employees and customers that they have a place with the company, even amid the change.

Author note: We would like to thank Rodey Wing, a partner in the consumer practice of Kearney, and Pooja Mirchandani, a Kearney consultant, for their contributions to this article.