The Upskilling Equation: How Much Should Retailers Budget for Workforce Education?

Between the rise of e-commerce and evolving consumer preferences, today’s retailers face many challenges. While layoffs might help cut costs in the short term, a more strategic and long-term approach to navigating the current landscape is to build a more skilled workforce. According to the World Economic Forum, six out of 10 workers will need to acquire new skills by 2027. Unfortunately, the retail industry has historically underinvested in workforce learning and development.

Due to ongoing economic volatility, big retailers may be hesitant about introducing new initiatives without a sense of a clear and immediate return on investment. However, neglecting the need for upskilling is a surefire recipe for increasing employee turnover and widening a skills gap that has already begun to impact customer experience, impede growth, and drive up recruitment costs. Investing in upskilling, conversely, can generate a host of company-wide benefits, including more consistent revenue and greater resilience during financial crises.

Recognizing the value in investing in their employees’ growth, many major retailers are allocating larger portions of their budgets towards workforce education. But this raises a question: How much should retailers budget for upskilling programs? With the right approach, it’s completely feasible to introduce an expansive program that doesn’t break the bank.

Why Invest in Upskilling?

Upskilling can help retailers save money by reducing employee turnover and giving existing employees the skills they need to become the next cohort of store managers. The long-term savings here can be considerable. Recent research found that the average company spent just $1,071 per employee on training compared to having to spend $4,700 to hire a single frontline worker and $28,000 to hire an executive.

The key to minimizing these recruitment-related expenses is boosting employee loyalty and retention. Introducing opportunities to build in-demand skills required for higher-earning positions gives employees a good reason to stay with their company, whether a major retailer or franchisee. Upskilling also makes employees feel valued by their employer, which can lead to heightened engagement and better customer service. The point is, upskilling can vastly improve the way a company is perceived by its team by showing employees that the company has their best interests at heart.

Current State of Upskilling Budgets

The challenge for many companies lies in finding the right balance between investing enough in an employee education benefit and maintaining fiscal responsibility. A study by the Boston Consulting Group reveals that leading companies allocate an average of 1.5 percent of their annual budgets to employee upskilling. However, this percentage is increasingly seen as a starting point, reflecting the growing necessity to address the global skills gap. This gap is widening due to shifts in market demand and rapid technological advancements.

The retail, healthcare, and hospitality sectors show varying commitments to workforce education, with some companies setting aside significant budgets for tuition assistance. These figures do not include the basic training that employees receive on the job. Retailers, in particular, often find themselves investing more in upskilling due to the sector's lower entry barriers and the consequent higher need for skill development, leading to increased participation in these programs.

This backdrop sets the stage for retail HR managers to evaluate what an effective upskilling budget might resemble in today's market, providing a foundation for the next step: the budget calculation process. This process is crucial for any retailer aiming to keep pace with the evolving demands of the industry and the expectations of its workforce.

Calculating Your Upskilling Budget

A simple way to estimate a target budget for an upskilling program is by using a per-employee formula: Total number of employees on payroll x $50 to $200 = Tuition assistance budget range from initial launch to full maturation.

This benchmark reflects a growing focus on workforce education globally, with a recent report finding that 62 percent of global organizations are planning on increasing their training budgets by an average of 8.3 percent in 2024.

Since every retailer has its own needs, the size and budget of your upskilling program should also be based on the specific skills you’re looking to cultivate and how much help your employees need in these areas.

For example, if your sales associates are struggling to deliver an effective in-store experience, it would make sense to offer a variety of courses to help your employees improve their interpersonal communication and customer service abilities. Alternatively, you may be more concerned with increasing your workforce’s proficiency with advanced technology, which suggests the need for more courses related to digital skills. Ideally, the budget of your upskilling program should reflect the amount of training required to bring your employees up to speed with your customers’ demands.

Final Thoughts

Workforce upskilling is becoming increasingly vital for success in retail. Therefore, it’s imperative for retailers to start developing a budget for putting an upskilling program into action. If the program aligns with the company’s goals and focuses on relevant skills, retailers will position themselves for sales growth and operational improvements. By devoting considerable resources towards closing the skills gap and retaining employees, retailers will build a more loyal, motivated and qualified team that’s ready to thrive in this new landscape.

Gurpreet Singh, group vice president at InStride, leads the development of corporate partnerships, helping employers in the franchise, retail, technology, travel and hospitality sectors provide life-changing education to employees through partnerships with high-quality global academic institutions.