Home Improvement Store Chain: Employee Engagement and Customer Loyalty

In the late 1990s, one of the world's biggest "do-it-yourself" retailers -- with more than 300 stores and 30,000 employees -- set its sights on becoming the No. 1 home improvement retailer in the world. Company leaders outlined a two-part strategy focusing on customers and employees. Using the employee/customer/profit chain as their operating model, corporate leaders believed that recruiting talented employees and keeping them engaged would result in higher levels of customer loyalty. Customers would not only come back, they would recommend the business to others.

Although the company measured its business extensively, it needed a way to gauge if the strategy was working. The client turned to Gallup to assess and improve employee engagement and measure its influence on customer loyalty. Gallup consultants worked with client management to develop and implement a performance management system that addressed these objectives.

Gallup's comprehensive program includes measurement, analysis, executive consulting, manager training, and manager intervention components. Every six months, the retailer conducts a Gallup Q ¹² survey to measure employee engagement levels, while customer loyalty is measured monthly. Twice a year, managers receive a balanced scorecard with their employee engagement and customer loyalty scores. Bonuses are awarded based on the scorecard results.

Through Business Impact Analysis, Gallup consultants identified critical linkages between employee engagement, customer loyalty, and business growth and profitability.

• Employee engagement levels for each store were analyzed against four key productivity measures: inventory shrinkage, customer complaints, employee absences, and staff turnover. When comparing stores scoring in the top 25% on both employee engagement and customer loyalty against those in the bottom 25%, stores in the bottom 25% significantly underperformed across three productivity measures. Analysis demonstrated that the annualized financial impact of the underperforming stores cost the company more than $82 million yearly in shrinkage and turnover costs alone. An additional 10,000 customer complaints per year were also attributed to the underperforming stores.
  
  
• The analysis also examined the linkages between engaged employees, loyal customers, and several key business growth measures: per-store sales, per-store profitability, and sales per full-time equivalent employee. Again, stores in the top 25% significantly outperformed those in the bottom 25%. Stores in the top quartile scored much higher on the customer loyalty metrics than stores in the bottom quartile; likewise, top quartile stores outperformed bottom quartile stores on each financial measure.

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