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Retail Store Performance Correlates With Aggressive Investment
by Jack Loechner, Friday, August 1, 2014 6:15 AM
According to RSR's latest benchmark report, What's in Store for Stores: Benchmark 2014, retailers’ performance dramatically affects their perception of the opportunities that will make
their stores more interesting places to shop. Lagging retailers tend to focus on the end result, says the report, while Winners focus more on more productive, educated and empowered employees
as the way to achieve that. Winners are focused more on improved productivity through education and empowerment as the way to respond to the challenge, while holding the line on payroll costs. In
light of the fact that consumers today are more demanding than ever, says the report, retailers know they must respond with better service than may have been offered in the past. But Winners want to
do that without exceeding the budget. Even though most of retailers’ current growth is coming from digital channels, shoppers continue to visit stores, Their demand for a more
relevant store shopping experience, however, has retailers asking “How can we rejuvenate the in-store experience?” in order to return stores to their rightful place in the retail
ecosystem. Highlights of the report include the following:
- While showrooming and omni-channel pressures dominate media conversations, fundamental and traditional pressures
rise to the top of store-based issues.
- Retailers’ sales performance dramatically affects their perception of what will make their stores more interesting places to shop. Winners
have already had more success prioritizing their employee work schedules
- All retailers face similar Organizational Inhibitors, but the technology infrastructure problem appears to
be winding down for the best performers. Instead, Retail Winners worry that putting technology in the hands of store personnel can be a distraction rather than a useful tool
- Retailers are in desperate need of systems overhauls for both customer and employee facing technologies
Even though stores remain the source of more than 85% of
retail’s aggregate revenue, they’ve undergone an identity crisis over that past five years. Most retailer growth is coming from digital channels. The core question has been, and
remains, “How can we rejuvenate the in-store experience?” The tools and techniques retailers use to create a compelling online experience, all based on liberated
self-service, have brought only marginal success in stores. People don’t just shop in stores to touch and feel products, they also expect assistance from human beings. And retailers
are recognizing that their employees, are ill-equipped to provide that assistance. In a recent blog, “The Business of Fashion,” The author notes that even
high-end high-tech self-service solutions are marginal drivers of sales, while tools given to employees are far more widely used and deliver better results. Though most retailers
don’t sell the high-end luxury products they were fixated on the end goal, maintaining or improving the customer experience this year, and most frequently cite making employees
“smarter” and better informed as a top-three value in-store technologies bring to the table.
Opportunities for In Store Technologies (% of Respondents) Create competitive advantage and new sources of revenue
generation 20% Put actionable information into the hands of managers 24 Help the company win new customers and retain current customers 30
React quickly to changes in the business environment 31 Bring more of the
digital experience into stores 33 Increase revenue while holding down operational costs 45 Maintain and/or improve the customer experience 48
Make our employees “smarter” and better Informed 59
Source: RSR Research, June 2014 Notwithstanding their hope for in-store technologies in general, retailers seem to be underwhelmed by many of
the tools they’ve deployed thus far. Making employees smarter and better informed is certainly dependent on giving them accurate and up-to-date information. Real progress has been made in
updating back-office systems to reflect store activities in near-real-time, says the report.
How Enterprise Process Data Delivered from Store to Headquarters’ Systems (2014; % of Respondents) Near
real-time updates to data warehouse and other “flash” systems (batch updates to systems of record) 15% Near real-time updates to customer, sales and loss prevention systems of record 41
Batch updates to all back-office systems 44
Source: RSR Research, June
2014 Since enterprise transformation of core merchandising systems is a long and arduous process, we expect to see more retailers turning to high
performance data warehouses to get these near real-time results before we see a larger turnover in systems of record that currently can only process in batch. In the benchmark
reports, RSR quite frequently cites differences between retailer overperformers in year-over-year comparable sales and their competitors. We find that consistent sales performance is an
outcome of a differentiating set of thought processes, strategies and tactics. The definition of Winners is straightforward. Assuming industry average comparable store/channel sales
growth of three percent, those with sales above this hurdle are“Winners,” those at this sales growth rate as “average,” and those below this sales growth rate
as “laggards.”
Top Three Opportunities for In-store Technologies (% of
Respondents) Help the company win new customers and retain current customers 15%
Create competitive advantage and new sources of revenue generation 16 Put
actionable information into the hands of managers 25 Bring more of the digital experience into stores
25 React quickly to changes in the business environment 38
Increase revenue while holding down operational costs 42
Maintain and/or improve the customer experience 53 Make our employees “smarter” and better
informed 69
Source: RSR Research, June 2014
Laggards remain focused on the end result - “gaining and retaining customers,” while Winners focus on the “how:” in this case making their employees smarter, reducing
reaction time, yet still managing costs. While showrooming and omni-channel pressures dominate media conversations, fundamental and traditional pressures rise to the top of
store-based issues.
Top Three (3) Business Challenges Faced In Stores (% of
Respondents; Mult Response OK) Store managers lack information they need on the selling floor 19% Customer dissatisfaction caused by lack of integration between selling channels 27 In-store "showrooming" and increased competitive price transparency 33 Difficulty differentiating ourselves from our competitors 34
Consumer price sensitivity 51
Need for more consistent store execution/employee productivity 59 Need to
improve customer service while holding the line on payroll costs 64
Source: RSR Research, June 2014 When asked to choose their top three business challenges, retailers return to the basics:
- Stores must
operate within a pretty fixed budget. Somehow customer service must improve without driving costs through the roof;
- Whether a retailer has five or five thousand stores, those stores
must meet customer expectations consistently, says the report. Employees must be productive, and floor sets must have similar, with a somewhat localized look and feel
- Consumer
price sensitivity continues to rise. It’s easy to call this a “showrooming problem” but in fact, the shopper has been trained by retailers to look for low prices
in virtually every medium, from mass market advertisements and FSIs, to personalized emails and notes on social networks
Challenges by Vertical SourceConsumer Price Sensitivity (% of
Respondents) Fashion/Short Lifecycle 42% Seasonal
47 Basics/Replenished Items 63 Durable goods 55 Consumer electronics 35 Perishable goods 64%
Customer Service vs. Payroll Costs (% of Respondents) Fashion/Short
Lifecycle 73% Seasonal 47 Basics/Replenished Items 50 Durable goods 55 Consumer electronics 70 Perishable
goods 72
"Showrooming"
and Price Transparency (% of Respondents) Fashion/Short Lifecycle 31% Seasonal 37 Basics/Replenished Items 22 Durable goods 40 Consumer electronics
60 Perishable goods 16
Source: RSR Research, June 2014 To almost no one’s surprise, retailers selling
Consumer Electronics are most concerned about showrooming and increased price transparency, says the report. Data from a variety of sources validates this concern. In fact, consumers have
done price comparisons for big ticket purchases since retailing began. The only difference today is they can do those comparisons in real-time. This just leads to a faster purchase decision,
not a different one, opines the report. Somewhat surprisingly, the retail verticals most concerned about improving service while holding the line on costs are Fashion retailers,
Consumer Electronics (CE), and those selling Perishables. The report notes that it can understand the pressure on CE, as margins are tight to start with. But Fashion and Perishables
generally have healthy initial gross margins. It’s expected that that pressure should be less than it has turned out to be. One would expect to see some retailers acknowledging they
are fully built out, and cut back on store growth. In fact, this was not a particularly strong indicator for additional growth. Instead, performance was the driving force behind new store
decisions.
Future Plans Regarding Store Growth (% of Respondents)
Winners Laggards We
plan to close stores in the near future 4% 41% We do not
plan to open new stores in the near Future 13 36 We plan
to open smaller stores in the future 18 32 We plan to
open larger stores in the future 36 9 We plan to open
new stores in new geographies 42 36 We plan to continue
to open new stores in our existing geographies 56 55
Source: RSR Research, June 2014 The most striking data point in is not so much that half of both laggards and winners
are continuing to open stores in existing geographies, and it isn’t that almost half of laggards are planning to close underperforming stores and pull back on new ones. It’s that
a third of laggards are planning to open smaller stores while a third of Winners are planning to open larger one. More successful retailers are more likely to open new flagship stores in
existing and new markets. Clearly this indicates that for Retail Winnersstores still represent interesting growth potential and opportunities, says the report. What are the
opportunities retailers see to improve the in-store experience? How will they justify store survival and growth? asks the study. Retailers’ performance dramatically affects their perception
of the opportunities that will make their stores more interesting places to shop.
Three (3) Opportunities for Improving the In-store Experience (% of Respondents)
Winners
Laggards Provide ability to locate and sell merchandise from anywhere in the company
20% 23% It’s all about our product mix. If we build it, they
will come. 24 27 Add self-service customer-facing
technologies 36 23 Bring more of a digital/online
experience to stores 36 41 Focus on a more convenient
customer experience 40 64 Educate and empower our
in-store employees using technology 40 32 More
personalized attention from our employees 42 45 Find
ways to make our employees more productive 51 36
Source: RSR Research, June 2014 Lagging retailers tend to focus on the end result (a more convenient customer experience), while
Winners focus more on more productive, educated and empowered employees, as the way to achieve that. And while both performance groups are responding to the first part of the top business
challenge (“Need to improve customer service…”), Winners are focused more on improved productivity through education and empowerment as the way to respond to the second
part of the top challenge (“… while holding the line on payroll costs.”). In light of the fact that consumers today are more demanding than ever, retailers know they must
respond with better service than may have been offered in the past. Winners have already had more success prioritizing their employee work schedules, reporting that the time they
spend with customers is far more in line with corporate objectives than that of those whose sales are already hurting. This is not happenstance: there is a direct correlation between a
purpose-focused store associate and market success.
Selling and Customer
Service: Time Spent(% of Respondents)
Too much time Right amount of time Not enough time Not
applicable Winners 5 64 29 2 Laggards 0 32 68 0
Source: RSR Research, June 2014 This does beg the question, says the
report, if lagging retailers’ employees are not spending enough time on the things they - and their customers - think they should to be doing, where then, are they spending their
time? Laggards are much more likely to report that employees spend too much time on administrative tasks such as corporate paperwork and processes than Winning retailers (50% to 36%,
respectively). This is one of the primary means by which Winners continue to push their culture, and their year-over-year sales, forward. They ensure that the revenue generating services are
given the time needed for success. Extended one point further, says the report, a store environment where the store manager is also freed of administrative tasks, employees are
acting as true brand ambassadors to the shopper, but the store manager is fulfilling a much more effective role as well. He can oversee consumer/associate engagement, fully informed
of what’s taking place on the sales floor. We have yet to see great examples of phone-based communication (whether through SMS, email, app or direct call) get consumers into a
store, apart from excessive price and promotions efforts that are mainly delivered via email. But based on the fact that the most successful retailers see such tremendous opportunity to
leverage these customer-owned tools in the future, the report says expect to see not only interesting ways to entice shoppers off the street, but even more creative ways to liven up the
in-store shopping experience.
A Lot of Value Driving Traffic to Store
Winners Laggards
Presence on social networks 51% 14% Consumer
Smartphones 53 36 Retailer Mobile App or web
53 27 Email communications 58 45 eCommerce site 64 64 A
Lot of Value Once Customer Is In
the Store Winners Laggards
Presence on social networks 27% 5& Email communications 31 18 eCommerce
site 38 32 Consumer Smartphones 42 27 Retailer Mobile App or web 51 27
Source: RSR Research, June 2014Overcome Doubts Via Proof Of Concept, But Don’t Waste Time, concludes the report:
- Until this year, retailers have consistently cited incremental technology
investment as a way to overcome capital requirement hurdles. But having seen a significant drop in these concerns, the study found an even more dramatic drop in the desire for incremental
improvements
- Fewer than half of respondents this year cite “smaller projects with incremental ROI along the way” as a tool to get projects going than they did last year.
While 41% of laggards still like this approach, the sentiment is consistent: “There’s no more time to waste, let’s get moving.”
- Within that context, it’s
not surprising that pilot programs continue to stand as the most frequently cited way to overcome doubts, and managed services are used to make the transitions as smooth and distraction-free
as possible.
Find more about technology enablers, current technologies in store, technologies coming
to the store, and Point-of-Sale, as well as suggestions for ongoing improvements here.