As more retailers turn to tech, Macy's store employees score victory in challenging self-checkout in mobile app

Key Points
  • A union that represents Macy's employees scored a victory in challenging a self-checkout feature in the retailer's mobile app.
  • An independent arbitrator ruled last week that Macy's violated its bargaining agreement and said the company must find a way to credit employees for sales through the app or exclude departments, such as men's suits and cosmetics, that have commission-based pay.
  • The labor dispute spotlights the tension between technology and workers in the retail industry, especially as the pandemic drives more digital adoption and retailers race to adapt to consumer preferences.

In this article

People wear facemasks as they walk through Herald Square on January 8, 2021 in New York City.
Angela Weiss | AFP | Getty Images

When Macy's rolled out a new self-checkout feature in its mobile app in 2018, the department store touted how customers could browse stores but skip the hassle of the checkout line. For some store associates, however, that set off alarm bells — and concerns that it would jeopardize their jobs or dock their pay.

Three years later, a union that represents Macy's employees has scored a victory in challenging the tech-based approach and how it cuts them out of commissions. An independent arbitrator ruled last week that Macy's violated its bargaining agreement and said the company must exclude departments, such as men's suits and cosmetics, that have commission-based pay from self-checkout.

The grievance was filed by about 600 employees at six stores in the Boston area and Rhode Island who are part of the United Food and Commercial Workers. UFCW represents 1.3 million workers, including over 11,000 Macy's workers in major cities including Seattle, San Francisco and New York City.

Former Macy's CEO breaks down the retail sales boom and what's next
Former Macy's CEO breaks down the retail sales boom and what's next

The labor dispute spotlights the tension between technology and workers in the retail industry. For years, retailers from department stores to major grocers have raced to keep up as online giant Amazon and direct-to-consumer e-commerce brands stole away market share.

Amazon has made technology a central feature as it expands its own brick-and-mortar footprint. At its convenience stores, called Amazon Go, it uses high-tech camera systems that automate checkout — speeding up payments for customers and eliminating the need for cashiers. It's thought to be bringing that technology to at least some of its Amazon Fresh full-sized grocery locations. And it is expanding a palm-scanning payment system to Whole Foods stores, too.

With the pandemic, the debate has come to the forefront again. Consumers have downloaded apps and adopted new modes of shopping such as curbside pickup to limit store trips and socially distance during the health crisis. Along the way, shoppers have learned to love the added convenience these services provide. That's added urgency for retailers to adapt their digital options, supply chain and workforce to keep up with consumer preferences.

For instance, contactless payments have gone mainstream, according to data from Mastercard. It found 41% of in-person transactions globally in the third quarter of 2020 were contactless, up from 37% in the second quarter, and 30% a year prior.

Remaining competitive

Santiago Gallino, a professor at the Wharton School who specializes in digital transformation, said retailers in particular are under pressure "to reinvent themselves and rethink the role of employees" or risk becoming extinct. The industry is littered with cautionary tales, from RadioShack to Toys R Us.

Macy's doesn't want to join that list. It has been battling a yearslong period of sales declines. Its sales fell for three consecutive years, from 2015 through 2017. Revenue dropped again in 2019. And the pandemic intensified its challenge, temporarily shuttering stores and causing annual sales to drop by about 28%.

In the arbitration, Macy's said it needed the technology "to remain competitive in an ever changing retail market."

While Macy's declined to comment on the arbitration's outcome, the ruling won't have an immediate effect for customers.

The company expanded self-checkout, called scan and pay, to all of its approximately 500 Macy's stores in 2018. Customers could scan bar codes on items with their phones and apply coupons or loyalty program discounts on their own, but had to get security tags taken off by an employee. The feature excluded some departments, such as big-ticket items like mattresses and fine jewelry.

Macy's took the feature offline for tech improvements in October and doesn't have a timeline on when it will bring it back, company spokeswoman Blair Rosenberg said. It would not be available in stores covered by the arbitration.

Macy's leaders have said, however, that it will direct its investments toward its digital business. At a virtual conference hosted by Goldman Sachs in September, Macy's interim Chief Financial Officer Felicia Williams said using technology — including self-checkout — to improve the customer experience is a priority.

As retailers adapt to stay relevant, Wharton's Gallino said leaders must strike a delicate balance: adding technology that customers want while stressing employees' importance, even if their job descriptions change.

"If the conversation is about cutting labor, cutting hours, the reaction of these sales associates is not a surprise," he said. "But if the retailer explains the transformation the industry is going through and how the associates add value in this environment, then I would hope both employees and management can get to a better place."

He said commissions have become trickier in a digital world, too. Historically, he said, retailers used the pay to incentivize employees' efforts on the sales floor, from fetching customers other sizes to recommending merchandise. The payoff came for the sales associate when he or she checked out a customer.

Increasingly, however, customers may come to a store to try on pairs of shoes, browse aisles or ask questions — only to buy the item later online. That can make the role of the employee in that sale harder to track even if they were instrumental in influencing that sale, he said.

"The link between the cause and the effect is not so clean," he said. "The moment when that link is broken, my sales rep may lose the incentive to be helpful and pay attention to a customers' needs."

As stores serve more as showrooms, he said, retailers must think of new ways to motivate strong customer service.

'Just the beginning'

As part of the ruling, Macy's must provide backpay that employees at those six stores would have made on about $2,000 in total sales made through scan and pay.

Fernando Lemus, who represents the workers who filed the grievance as president of UFCW 1445, said the self-checkout feature drove a small number of sales at the stores. Even so, he said, employees want to make sure that changing responsibilities don't amount to a pay cut.

"As technology continues to advance in this industry, we were concerned this was just the beginning," he said.

Over the past five years, he said, Macy's workers in his local union have declined by about 33% as the retailer reduces its workforce — and some who still work at stores have moved into jobs such as fulfilling online orders.

For Terri Barkett, who works at the Macy's store in Warwick, Rhode Island, the arbitrator's decision came as a relief. Unlike some of her colleagues, she said, her wages aren't based on commission. But she said she worried scan and pay could eventually lead to stores with few, if any, cashiers.

Barkett has worked for Macy's for 19 years. She said she takes pleasure in helping customers find the perfect birthday gift or outfits for special occasions — and often looks high and low for the right color, style or size. She said she believes human connection is one of retailers' strongest tools to deepen loyalty and drive higher sales.

Just this week, she said, she checked out a customer and noticed the Tommy Bahama logo on his shirt. She told him that brand was on sale and pointed to the display.

"He ran right over there. He got two more [shirts]," she said. "An app can't see that."

Mastercard's Linda Kirkpatrick on retail sales and contactless payment
Mastercard's Linda Kirkpatrick on retail sales and contactless payment