Understanding the dichotomy between a hot economy and current negative consumer sentiment may be achieved by looking through the lens of the service economy. Front-line customer service workers, particularly in Retail, have taken a continued hit to their livelihood over the last few years. We may see clues to this by looking at the cost of providing customer service, along with its progression pre-, during, post-COVID and today.

• Pre-COVID: Economy booming, service providers fully employed; status quo. Lots of service-oriented establishments.
• COVID:  Service providers laid off; no help at all available in Retail.
• Post-COVID; Stores re-open, some workers dribble back to Retail, some still on the couch, but staff shortages abound and those in-store were overworked and not in a good mood.
• Today: More staff present, as the value of customer service re-visited, but inflation has wreaked havoc on pay scales and retail/hospitality profitability.

Customer service has never gone out of style, although it did take a hiatus while the world decided whether a pandemic would end civilization as we know it or not. 

In my writing “Raving Fans Creation,” I point out that customer service is best financed as marketing investment rather than an expense and smart retailers know that good service will get them more sales. Lousy service doesn’t get repeat business.  

No different today, although the cost of providing human customer service has gone up. This has manifested itself in some new mitigating changes:

• Some restaurants have implemented 10% service fees. Which customers dislike. But they dislike even more paying more for already increased menu prices.  Not popular but easy to understand: the price of meals has already gone up (inflation) + labor costs.  There’s only so much price elasticity and inflation has pushed that limit.
• AI is now being cited as the reason for staff reductions reducing staffing needs. Perhaps AI can replicate or improve the service, but less human interaction has rarely proven as desirable. Rather, AI may do a better job and displace other (disliked by users) legacy cost-savings measures like Interactive Voice Response (IVR).

IVR and the dreaded “Press 1 for…” have been praised as cost-saving by companies and cursed by consumers.  Who doesn’t prefer to call customer service and be directly connected to an agent without navigating the phone tree?

Consumers like human interaction, but who’s to pay for it?  In Dover Saddlery’s physical equestrian tack shops customers continue to prefer to shop in-store to smell the leather, try on the hard-to-fit helmets and breeches, and schmooze with other riders. When given a convenient in-store shopping option (vs. online) these customers more often than not choose the mode of higher human interaction.

The death of the physical store, as many predicted, has not happened as the internet, while convenient in many cases, doesn’t replace the higher level of customer service and human interaction found in those retail points that provide a valid service-oriented reason for frequenting them.

Through COVID and beyond, we see customer service remaining as valuable (and desired) as ever and worth the investment.  Those companies that figure out (as many always have) how to pay for it (as a marketing cost) will continue to be successful. Those that don’t — won’t.  The trick is the cost of the humans (that provide the best customer service) has exponentially risen with the impact of inflation, a $20 minimum wage, and even this week’s recent floating in the news of a $50 minimum wage.

Service providers, seeing their low-wage buying power erode, are grumpy.  Their employers, seeing their payroll costs skyrocket, are frustrated.  Inflation and what service workers view as a permanent reset to their earning potential makes them a constituency hard to convince that the economy is strong.

So, while economists see an economy chugging along by the numbers, your waiter and retail clerks — the real-world, front-line service quarterbacks — aren’t feeling the rosiness or economic bluster.  Their compensation hasn’t translated to their paycheck keeping up with the expenses they pay in the grocery store and to their landlord.   And with higher wages and less staff to show for it, neither are their bosses seeing a resurging economy adding to their EBITDA. Only when customer service can return to pragmatic economic structural support will they start to feel better about the economy.

About the author:

Brad Wolansky is CEO-emeritus of Dover Saddlery and author of “Raving Fan Creation: Your guide to growth and profitability amidst margin reducing tactics of your competitors.” 

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