Retail operational improvements

The New Reality: Part 3 – Resistance Is Futile

The New Reality of retail has dramatic implications on the operating model for brick-and-mortar locations. As industry differentiators of convenience and selection become irrelevant, stores must be repurposed to support the omnichannel experience. This means that the role of the store and the associates must change, and the management techniques, including metrics and incentives, must be similarly adapted.

Product is King

In the New Reality created by the emergence of omnichannel shopping, product is king for retailers. Specifically, the physical shopping experience needs to be about showcasing product in a way that illustrates the integration of that product into the life of the consumer. It is no longer sufficient to show product features and benefits. It must be assumed that the hyper-educated shopper already knows the specifications of the product, or has them at their fingertips with a click of their smartphone. Differentiation must occur by illustrating how a product enhances the life of the end-user.

The product must be at the heart of the experience in stores…

This grants physical retailers the opportunity to showcase a suite of products that integrate, in a way that may be more difficult online. Successful retailers will not only allow these ancillary products to be purchased online while in the store but will also facilitate it. The role of the front of the store as a showcase is inevitable. However, it must be in done a manner to delight and entice customers through creating a memorable experience.
Another role for physical stores is as a fulfillment center for local deliveries or as a pick-up point for online orders. This means that inventory must be integrated across the network rather than ending at receipt in the stores. Associates must be able to find, pick and ship/pack the product efficiently to facilitate the customer experience. Companies like Manhattan Associates and JDA are integrating their warehouse systems to manage inventories across the entire network, allowing optimal customer fulfillment experience and visibility to product no matter where it sits.. As pure online competitors find more and more ways to offer same-day delivery, retailers with a physical presence must leverage their assets to get there first.

New Metrics and Expectations

As the new reality takes hold, and the role of physical stores and online fronts redefine themselves; it is crucial that retailers adapt their metrics. It is no longer desirable to segregate online and physical data. Retailers must integrate this data into one set that understands the relationship between online and in-store behaviors. This involves numerous changes in how we study traffic.

Nature of Traffic

In the past, traffic was defined as a person passing through the doors of a store or as a click on a website. They were generally tracked separately and treated as mutually exclusive. In the New Reality, companies will need to bridge this gap to understand and optimize the buying cycle. Meaningful loyalty programs help to track behavior between channels because they provide a marker that can be used to track a single customer, but very few companies are effectively using this to measure the customer lifecycle.
Furthermore, traffic was used as the basis for conversion calculation; in most cases all traffic in one of the channels was equally considered. As noted before, one of the biggest challenges for brick-and-mortar retailers is the decline in “browsing” and “pre-purchase” traffic. Even though the Conversion and Average Transaction metrics were lower for these customers, they were still incremental to the core “destination” traffic. We will cover this more in the Conversion chapter of this blog.

Interior Analytics

Traffic in brick-and-mortar has traditionally started and stopped at the entrance. While valuable, there is a treasure trove of insight available inside the store. Understanding how customers behave inside stores can inform on associate locations, plan-o-gram effectiveness, display interaction, store layout, fitting room configuration and many other factors.
This is an emerging space in terms of measurement technology, with companies like Retail Next and Shoppertrak pioneering new technologies. The IoT (Internet of Things) enables much of this. WIFI tracking, Bluetooth tracking, pressure sensitive floor mats, cameras with facial recognition and infrared readers are all available for companies to gather interior data. Companies who master not only the collection of this data, but the analysis required to develop insights from it will have a competitive advantage in integrating the omnichannel experience.

Integration with CRM

Integrating omnichannel traffic (both web and physical) for a single customer over the lifecycle of that customer will be necessary to truly understand the effectiveness of marketing efforts in the New Reality. Without looking at the entire ecosystem it is easy to sub optimize one channel at the expense of the other. Being able to translate (and predict) the click on a homepage to the anticipated purchase behavior in-store will yield significant advantages to the company who masters the traffic data of the New Reality.

Customer Service in the “New Reality”

Customer Service has traditionally been measured in terms of Customer Satisfaction. Companies have assumed that a “satisfied” customer will be more likely to re-purchase or recommend the store. This is expressed in the pre-eminence of the “Net Promoter Score” as the premier customer satisfaction gauge. The limitation with this is that it measures satisfaction with the current environment, and is thus limited to asking a customer about what they’ve seen and is focused on the absence of inhibitors rather than the presence of “delighters”. It also focuses on customers who made a purchase, and ignores the non-converted shopper.

Delight vs Satisfy

In the New Reality, satisfaction will not be enough to attract traffic to stores..
Customers will always have a need to experience the tactile, and thus brick-and-mortar will always have a (limited) role in the retail experience. This will not, however, make up for the decline in physical traffic caused by the loss of “pre-purchase” and “browsing” traffic. To attract “non-destination” traffic, stores must focus on providing a reason for shoppers to come to the store beyond making a purchase. There are three broad categories that stores can leverage to make this happen:

Social

This was historically one of the big attractions for malls. The food court was the place where people could congregate, mingle and interact. The millennial generation is comfortable doing this virtually, and that is one of the reasons that malls have suffered from traffic decline; especially in terms of “browsers.” Retailers who understand how to leverage virtual platforms to attract people to physical locations will have a large advantage. This goes beyond “checking in” when you enter the store.

Entertainment

The gamification of retail is one of the largest emerging trends in the industry. Kate Prohorchik writes about this brilliantly in her blog at Iflexion. This is one way of attracting non-destination shoppers to your company. Another means that has been mastered over time by Disney is the element of integrating entertainment into the shopping experience. Any Disney outlet at their parks has a theme and something to discover for the shopper. Shoppers often enter their outlets for no other reason than to see what they are all about. The concept of “merchantainment” is another example of delighting versus satisfying customers.

Discovery/ Proprietary Product

One of the most enduring realities of retail is the concept of the “treasure hunt.” Shoppers love to find a bargain, an unexpected product, or something new. Hence the “off price” retail industry has been less impacted by the emergence of Amazon. TJX, Gabriel Brothers, Burlington, Ross and their ilk offer something that has yet to be replicated online; the ability to find an unadvertised discovery amidst piles of other product that have little interest to the shopper. This is also true at warehouse outlets like Costco and BJ’s. They rotate product frequently so that there is always a fresh value to be found that would not have been a normal component of the shopping basket. Finally, companies can delight shoppers when they have a strong private label that is known for delighting customers. Fashion retailers have traditionally led in this space, and in recent years this has been dominated by companies like Zara who can turn their private label fashions most quickly. A cautionary note is that a strong portfolio of private labels is preferential, but not sufficient. No company has had a stronger portfolio of brands than Sears, but taking your eye off staying relevant to the shopper will still kill a store faster than loyalty to private brands.

Beyond the Associate

One of the largest components in measuring customer satisfaction has always been the interaction with associates in the store…
While it is true that relationships matter, this is predominantly focused on destination shoppers who make repeat visits. Maintaining strong relationships is helpful, but not enough to offset the loss of non-destination shoppers. People will come back for a delightful associate, but they will not come to the store for a non-purchase interaction with one.
Retailers must find a way to entertain customers in a way that is about the experience…
Associates are a necessary, but not crucial component of the experience A great example is the Burberry flagship store in London. Angela Ahrendts, Burberry’s CEO, says “Walking through the doors is just like walking into our website. It is Burberry World Live.” Christopher Parr writes an excellent description of the flagship experience in his article at Pursuitist.

Measuring Customer Delight

The measurement of customer delight versus customer satisfaction is still in its infancy. It can be cumbersome and expensive to measure non-purchase behavior. It requires retailers to understand not just what happens, but why.

Dynamic measures focus on technology to gather data, and this is good to monitor trends…but to truly understand the customer journey, retailers should consider regular supplemental studies to validate and discover the reasons behind quantitative outputs. This should include a calibration of quantitative measures, such as customer journey mapping, with qualitative data gathered from customer intercept interviews and exit interviews that include both purchasing and non-purchasing customers. A duplicate survey of random shoppers through the website can help to cross-reference data.

Resistance is Futile!

These changes can be overwhelming to retailers who have focused on traditional measures throughout their existence. Unfortunately, the choice is to embrace the New Reality and adapt retail operations to match it, or go the way of Toys R Us, Radio Shack, Circuit City and so many others who did not recognize the need for fundamental change until it was too late.
Like Alan Deutschman writes in Change or Die, 90% of people who have coronary-artery bypass grafting fail to change the lifestyle that brought on the need for the procedure within two years. Companies are no different. Clinging to past behaviors and measures is the retail equivalent of fast food and no exercise. The question is, are you able to make the change that will ensure your future health?

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Andrew Taylor has over 20 years’ experience running operations at Fortune 500 companies. He is now a Senior Director at Connors Group. Andrew leverages his deep experience in retail strategy and operations and consulting to craft innovative solutions for clients. He can be reached at [email protected]
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