Monday, December 28, 2009

The New Retail ROI

In one of the Retail forums I attended, there was a speaker who expressed his reservation to accept the term ‘organised’ retail to refer to modern retail. He had argued – and I have begun to see a lot of wisdom in his argument – that “organised” is past tense; and connotes that we are over the learning curve and “all’s well” in retail – which you and I know is far from reality. Therefore, the speaker had suggested that we use a present continuous tense “organising” instead; to suggest that we are still in the process of putting the pieces together and therefore, it is ‘work-in-progress’. While it is a matter of semantics for a preoccupied retailer, this phenomenon called “organising retail” (to be politically correct) is a process by which large investments are committed in strategic areas of the retail value chain to derive ‘returns’ – Return on Investment (ROI).

Every retail forum kicks up the issue of deriving a (healthy) return on investment in retail. But, what remains unanswered is ‘how’? What are the various things a retailer can do to ensure ROI from investments made in all sections of the value-chain? Do some elements of the value chain hold greater potential than others, to positively impact ROI? If yes, what are those areas? And what special efforts are needed to unlock such dormant potentials?

Should a retailer go after ‘location’; like every retailer’s anthem suggests? Implying that he should endeavour to occupy the best locations in every geography (with or without parity to the value such a location adds)? Or, should a retailer go after ‘scale’? Implying that he goes purely by market instincts to expand stores (mostly to pre-empt competition rather than being a strategic move)? Or, should a retailer indeed invest in ‘merchandise’ - the heart of retail – above all else? Or, should a retailer in fact make investments in his operations – streamline operating systems and imbibe best practices that will positively impact his ROI. Which of these elements can truly influence optimising return on investment?

Is a strategic location – be it a Connaught Place or South Extension; a Commercial street or a Brigade road; a Linking road or a Phoenix; a Camac street or a South city –a singular source of competitive advantage? Is it justifiable to pay 3x or 4x the price per unit of real estate in these retailer’s paradises? By virtue of being the locations these are; they certainly lend an advantage to businesses that puts them bang in the middle of oceans of pedestrian traffic – that comprises homo sapiens; jay-walkers; pick-pockets; shop-lifters; window-shoppers and a small percentage of the most sought after species called “shoppers”. Admitted that ‘location’ has a pivotal role in a retail business being successful; but, it is not obviously the only factor. Besides, real estate forms one-quarter of every retailer’s reality (fixed expenses)! The other three-fourths contributed by utilities/CAM charges; minimum guarantees and salaries!

Will the sheer number of stores in a chain help derive ROI? That question is already answered by the Subhiksha’s of the world. Having more number of stores will only help a retailer on two counts – one, it will help increase his share of mind; share of market or share of wallet in the given market place; and two, it will also help negotiate better prices with their vendors – not to mention that more stores in the chain means more stock transfers from one store to another! More number of stores would help diversify a retailer’s portfolio – it is hoped that a few star performing stores will help bring down the negative impact of a greater number of average and mediocre stores. The recent shakeout did help retailers rationalise their portfolios by negotiating rentals on some of their stores and shutting down poor performing ones.

Merchandisers and buyers in every retail organisation like to believe that it is their function, which is the chief cause for profitability and ROI. Alas, merchandise has long ceased to be a source of sustainable competitive advantage. ‘Product’ differentiation; and by extension ‘price differentiation’ is becoming increasingly very delicate in retail. With globalisation, any retailer can access and source any product from any part of the globe at almost similar prices depending of course on how well one negotiates.

Merchandise also does not ensure uniform returns. No retailer can expect to sell every single unit of merchandise at full price – unless it is a 100% cotton white shirt – which is also a challenge because they are the most prone to getting shop soiled! If every unit of a product were to fetch uniform returns to retailers; we would be living in a world where there was no SALE; no discounts and no promotions – a shopper’s boredom!

Funnily enough, merchandise – the centrepiece of all retail; looked at from a certain angle, is essentially a multi-layered risk (and I’m saying this at the risk of being accused by merchandisers of taking a perverted view). Slow moving merchandise is a risk that it can adversely impact gross margins every time a retailer is forced to take a mark down. Non-moving merchandise is a risk that in addition to posing a mark-down risk; it also poses a write-off risk if it remains ultimately unsold. And ironically, merchandise is also a risk even when it is innocuously sitting on a store shelf as it is prone to damages or shop-lifting. Therefore quite unfortunately, unlike in I-banking where high risk equates to high return; high risk in retail could mean diminished or close to ‘no’ return!

No matter how long and boring retail speeches get talking about ‘managing value chains’ and ‘achieving economies of scale’; every retailer’s moment of truth is the customer experience they are able to create in each of their stores. Retailers will be able to create the required economies of scale and manage value chains ONLY AFTER they have successfully wooed customers into their stores; delighted them with exceptional service and given them a compelling reason to not just come back more often; but also to bring their friends and family when they come.

While store locations and merchandise categories; individually and collectively contribute in their limited ways towards return on investment, one store is becoming increasingly indistinguishable from the other. In this confusing melee, there can be only one other element; an animate, pulsating and supremely powerful one - the human element, that holds the potential to have an overarching influence on customer experience and therefore on “return on investment”. The human element forms the only one that is trainable for better output. And it is also this area of the business that retailers tend to take for granted. They make little INVESTMENT if any; thereby perhaps missing out on how they, as management, hold the key to exponential RETURNS.

I have been fortunate to see over a dozen ‘business plans’ of various retailers. And ironically; not one of them had any expressed provision for making ‘investment’ on people (and I’d like to make the distinction here that merely hiring an army of people is not investment; it’s an expense!). Have you noticed, there is always a provision for ‘miscellaneous items’ in all business plans; but very rarely for ‘training’!

One of my colleagues has this question to throw at the participants in all her training programs – “What is it that is unique to your store that no other store (in this mall or even the entire universe) has?” and this question always catches the participants unawares and they usually go bonkers with their answers. The answer becomes evident when she tries to put a mirror in front of them, as it were. “YOU” – she lingers; this unique set of people that are priceless to your business – which your competitors do not have! While it seems very melodramatic on the outside; it indeed drives home a poignant message.

Only when retailers make the right ‘Investments’ in their people – investments in ‘Training’ and ‘Re-training’ them; will they see ‘Returns’. When associates know that their employers are investing in their growth; they also tend to become more loyal. Retailers will be able to RETAIN their store staff; thereby addressing the plaguing issue of attrition.

‘Invest in Training’ should be the new mantra in retail and ‘ROI will follow’ is the implicit promise. Return on Investment (ROI) is just a point of view – it could very well be “RETAIN on INVESTMENT”

Monday, November 16, 2009

Retail musings over Diwali

Another Diwali has come and gone...and with it, the streets were littered with burnt crackers; the air got generous doses of toxic lead, magnesium and zinc pumped into it; bank balances of most families dipped while some savings went up in smoke....BUT, it certainly brought some cheer back to the faces of many retailers and their tattered income statements!

The width of the smile on the faces of retailers is only directly proportional to the growth their businesses have registered over the last Diwali season...and the past few quarters! Some have seen modest growths of less than 10% over the last season while some have seen growths of around 50%. Is it therefore a reason to cheer and celebrate? The answer is both ‘Yes’ and ‘No’.

’Yes’ because this Diwali has singularly restored the lost spirit back to retailing – it did a reverse of what the sub-prime crisis did to the economy same time last year. The oil lamps; the glowing sparklers and the whistling flower pots have wiped away, to a large extent, any tentativeness in the recovering economy – as if indicating that there indeed is that elusive pot of gold at the end of every retailer’s marketing rainbow (read budget).

And ‘No’ because; retailing has come only about six steps forward after having taken 10 steps backward over the past year! India Retail Inc has many strides to take to get back on the bus ride; from which it was jostled in the melee Wall Street created.

Now that the dust is settling down and retailers are slowly but surely standing up after that rude fall; and are dusting the mud off their clothes; it gives me renewed hope that this time around, one can expect them to exercise better discretion in chalking out their business expansion plans.

At this juncture, I’m tempted to ponder a while as to which side of the battlefield has this shakeout affected most – the swanky supermarkets or the modest mom-and-pop stores? And I am reminded of the ongoing debate whether organised retail will adversely affect traditional retail?

If the kiranas were gullible – as they were made out to be - they would have been the most bruised from this shakeout. But, that doesn’t seem to be the case. If anything, they have remained unaffected for the most part; except that the footfalls had dwindled in their stores, just as it had at the organised retailers.

The kiranas didn’t have to close down unprofitable stores unlike their pompous cousins who had a few hundred in number; spread all over the countryside and not necessarily making any money! They also didn’t have to renegotiate rentals. The kiranas don’t need a bad economy to close down unprofitable stores - the owner would have closed them down within weeks after they were opened if they were really not viable! Actually, he wouldn’t open one if he wasn’t doubly sure that his store would make money. Haven’t you heard of feasibility studies?

Will the sheer number of branded supermarkets; their inherent advantages of economies of scale and their sophistication permanently seduce the consumer away from the messy and drab looks of a neighbourhood grocery? I’m not so sure anymore that the kiranas are at any disadvantage themselves. Take the case of my friendly neighbourhood grocery where I found myself over this Diwali – First, its location. The store is in a strategic location - at the corner where the highway forks into the township catering not just to the floating traffic but also to the captive one from the neighbourhood. Kiranas seem to possess an uncanny ability to sniff out the most strategic of locations in a residential area; often long before the locality gets occupied or public amenities are made available.

I’m reminded of a very interesting practice among single-store kiranas even in evolved retail markets such as the Middle East. Every time a new apartment block comes up; the first activity you would see even before the building is ready for occupation is the inauguration of a grocery on the ground floor - started by a smart and enterprising immigrant Indian! He chooses that location because he is assured of a captive market from the residents of that building and manages to consistently maintain a merchandise mix unique to that customer base. The grocery in the ground floor of the very adjacent building would carry a merchandise mix that is at least 20% unique; to cater to the occupants of that building.

The practise among mom-and-pop stores in India is no different. You drive into a new layout or an upcoming neighbourhood and you will find the most strategic locations already taken by traditional kiranas! And they are successful in tweaking their product mixes to suit their neighbourhood preferences – In short, they practise a high degree of ‘localisation’ that is difficult for a branded supermarket – that works on a central merchandise master and centralised buying systems - to imitate.

Speak of sophistication - my neighbourhood grocery for example, uses POS machines; complete with scanners and thermal printers, over a multi-point checkout system. This necessarily means that the POS machines are linked to a server that hosts their master database and that they use a software program that tracks their inward and outward movement of inventory. I suspect these guys were using an accounting software even before they embarked upon the POS software systems.

Were these single store owners forced to embrace technology? Perhaps Not. They realised that technology has the ability to make their operations more efficient. They perhaps realised that they can no longer manually track the 3000-5000 SKUs on their shelves with a paper and pencil method of book-keeping and account for their sales through manual billing. Did they have to go beyond their means to afford a couple of POS systems and a desktop server? Perhaps not again. The investment into these two or three boxes of technology would have been a few lakhs of rupees – not exceeding two or three days’ sale of the store! This bare-bone implementation of technology in a grocery store may not be a patch over the multi-crore ERP systems that organised retailers are constantly found shying away from. Nonetheless, it is a shining example of efficient store operations by deploying the most basic retail technology even in a single-store family run business.

Has this come at the expense of manpower? Certainly Not. The grocery store in question has many other imperatives – of offering an acceptable level of customer service through the deployment of extremely agile and helpful staff. Manpower is widely used throughout the store. The store staff – teenagers in no particular uniform and found wearing hawai chappals on the shopfloor, have consistently surprised me with their product knowledge and their familiarity with all the categories. There is no in-store signage in the store; and no matter which of these boys you ask for a particular product, he would take you to that shelf or better still; go fetch the product for you! What surprises me even more is that, these stores often have a better assortment on their (always full) shelves – I’ve rarely returned with more than 5% of my shopping list un-shopped. The three cash-tills ensure that the waiting time in the queue is no longer than a few minutes. Of course, if you don’t like to stand in queues, you can always call them even to order a packet of milk and they will have your preferred brand of packaged milk delivered to your doorstep at no extra cost. Highly personalised customer service indeed! I cannot say the same of the five branded supermarkets within a one kilometre radius!

If there are three lessons I’d learn from the kiranas and apply to branded supermarkets; they would be – ability to choose locations that can intercept large swathes of traffic and are financially viable; their ability to fine-tune their product offering to the target market and their supremely personalised customer service.

I fell into a reverie ruminating over which of the two formats would be more resilient; when I heard a thud on my door. When I peeped out of the window to check; the newspaper boy was peddling away on his bicycle. I then opened the door and picked up the day’s newspaper only to see the headlines screaming....“Govt to shut doors on FDI entry in multi-brand retail”! What an irony... I open the door only to be told that the doors are to be shut?!

“Why am I not surprised?” was the first thought that crossed my mind. Trust the government to do what it does best – stonewall the prospects of a promising policy, especially after all these years of titillating the fancy of the retail community!

Now, coming back to my question.....heck, what question? The news has already sent some of the big boys scampering back to their drawing boards to restructure their business plans....and the owner of my neighbourhood grocery is sipping masala chai from a glass tumbler between munching glucose biscuits and puffing away on his beedi!

Wednesday, October 21, 2009

I’m your CUSTOMER...where’s your SERVICE?

While all the inanimate components – the store location; its ambience; merchandise mix etc have a limited influence on the customer experience; it is the human component – the store staff – that holds the ability to sway customer experience from the most insipid to the most delightful.

When I walk through a mall or down a high-street, I tend to stray into retail stores, as impulsively as dogs are drawn towards electric poles. But, unlike them, while I am there; I tend to sniff out product mixes; customer service standards; price points; visual merchandising etc. In short, I’m always mystery shopping. But what takes the mystery out of my shopping is that; I - due to my irreparable spending habit – return with a lighter wallet on most trips.

On one such stray missions, I found myself in an EBO of a premium brand of apparel on the busy Brigade Road in Bangalore. A male sales associate approached me tentatively with what seemed to be a weak smile. I threw a ‘Hello, how are you doing?’ at him only to see his smile turn sheepish from weak. “Hello Sir, can I help you?” is all that he could manage trying to gain his composure; wondering why I had snatched his prerogative of greeting first. “I’m just looking” I said and strayed into the depths of the store, snooping around. He could not counter my defensive shield as I waited for him to keep me engaged. I caressed some ties and belts en route as I casually enquired “What’s new here?”. “This is our new collection of Shirts, Sir” he said pointing to a wall full of shirts. “They look familiar..I’ve always seen these stripes and checks” I surprised him with an objection. “We keep getting new stocks all the time Sir” was the best he could manage after a long pause. The associate was very perfunctory in his approach and clearly didn’t demonstrate any intent to engage and sell to me. He obviously didn’t cut ice with me with his insipid customer service and did precious little to resurrect our moribund conversation.

On a different day I walked into a specialty store at a popular mall. “Oh, you have a Father’s Day promotion on?” I exclaimed reacting to a poster on the front counter. No sooner had I set foot into the store; an associate pounced on me with “We offer a free engraving on any key chain over Rs.500 you buy from our accessories section Sir” without once enquiring what I had in mind or what was it I was looking for? I humoured him for a while by browsing through some key chains and in the bargain, made him pull out a dozen different models, before I expressed my disinterest and weaned away. I then strolled into the wallets section and found the associate get busy with another customer who’d walked in. I settled in front of some immaculate leather beauties and got lost admiring them. When I was done romancing a few of them and looked up, I found a security guard in front of me with a broad smile plastered on his face. While I was in awe of his enthusiasm; I didn’t like the fact that he was taking his job too seriously – of watching over me by staring me in my face – his beaming smile notwithstanding! The store was not short-staffed – there were four associates in a 200 sq.ft store (definitely more than the number of customers in the store at that point) and there was absolutely no reason for the security guard to be on the floor. He was obviously annoying me by his watchful presence. “What is this wallet made of?” I asked trying to get him out of my shopping path. He kept blinking for a while but kept his plastic smile intact. I then asked the same question in the vernacular. He still didn’t get the message. Finally, after five minutes of my paraphrasing and adding animated body language; he realised that I needed help and offered to call a sales associate who was just two feet away! Retailers know too well that customers don’t like to be treated like potential shop-lifters with associates (or guards) shadowing them, breathing down their necks. Alas, such experiences are not uncommon.

CUSTOMER SERVICE; an extremely clichĂ©d and abused term in retail, is also the most nebulous. In most formats of Indian retailing, it is conspicuous by its absence! And where it exists in traces, it expresses itself in various avatars – two of which I’ve just sampled.

“Customer Service”, to me, is the effective management by a retailer of all the animate and inanimate touch-points that interface with its customers. Customer Service as a whole is often larger than the sum of its various parts. Only when all the elements of service are managed effectively, will it translate into ‘customer experience’ that every retailer fancies offering to their customers.

In another unique experience, I was hoping to impress a friend with some customized stationery. As I was travelling and couldn’t be in Bangalore to personally get it done, I called an instant printing service retailer– half unsure of meeting my objective. The lady who answered my call was so astonishingly helpful. I explained to her that it was important to have the customized gifts ready by the next day to be gifted when I arrived in town. Firstly, she empathised with my rather unusual requirement and understood the detailed specifications. I gave her the dimensions of the journals I wished to have created – the number of pages I wanted; the thickness of the note books etc. I also explained that I had some pictures to be printed on the front and back covers and that I could email them to her. I insisted on a certain thickness as I wanted a good quality paper. She asked me whether I preferred plain or ruled pages. When I said I wasn’t able to decide without getting a sense of how the ruled pages looked; she solved that problem by sending me scanned copies of the sheets. She then advised me that in order to maintain the overall look and feel, I should go with fewer pages to prevent the middle from protruding out making it look awkward. I agreed with her judgement and confirmed my requirement. The conversation thus far had gone into all the minute details of my requirement and the associate had made me feel at home; that I didn’t realise I was on a long distance call many hundred miles away in a different city!

She then asked me whether she could proceed with my order – without hinting at any advance payment. She knew that I was not in town to make the payment and they didn’t have an online payment option. (Remember she was risking producing a customized product for me that would make it difficult for her to sell to others if I never showed up! Moreover, they were in the instant printing business that doesn’t carry any inventory.) Not only did I not pay any advance, but also specified where and at what time I wanted the customized note pads to be delivered the next day! She was cordial during the entire conversation and assured me that she would ensure the delivery at the specified time and place. I was immensely impressed by the unusual service that I couldn’t wait to see my order delivered. And it was delivered - cash on delivery - to the specified location the next day, quite ahead of time! I couldn’t but be floored.

How could a sales associate connect with her customer; understand his requirement accurately and offer a delightful customer service – all on a long distance call; while sales associates miserably failed to make any impact despite having the customer in flesh and blood in their stores?

Retailers realise that it is no longer their merchandise mix; price or promotions that gets customers into their stores. If anything, it is their customer service that sets them apart from the crowd. It is not without the right investment that “Nordstrom” and “Starbucks” have become synonymous with the best in customer experience; making it difficult for other retailers to replicate.

The quality of customer service that sales associates can offer is largely dependent on how well they know their products; their store policies and procedures and how well they can establish a person-to-person contact with their customers (as in the third example); as against a customer-to-salesperson relationship – typical of the first two examples.

Retailers regularly claim to be training their store staff. Unfortunately, it is often confined to product knowledge training conducted usually by in-house merchandise teams or by brand managers of an external brand – both of which don’t cost much, if at all! Mere product knowledge training imparts only one-third of the required skills to the sales person and like most retailers have confessed to me; it centres on imparting product features and technical specifications – neither of which can help in the selling process. Sales associates with many hundred hours of product knowledge training reel out technical specifications and product features to their customers hoping to impress them, not realising that they are only tiring the customer with ‘data’ that is of little significance to him/her.

Customers are not in your store to buy a product because of its features. You need training programs that can help associates go beyond features and communicate product benefits in a way that addresses the customer’s inherent need. Fortunately, there are well researched and tested training systems now accessible in India, that are known to impart the tips; tricks and techniques to integrate product knowledge training with the other essential elements.

Retailers will do well to make the right investment in training programs that take a scientific and holistic approach to selling - and help offer a uniquely differentiated customer service while reaping rich returns on investment.

Wednesday, October 14, 2009

Retail Store as Theatre

The retail store manager’s role is an unenviable one. It hasn’t changed much since I was one many years ago. If anything, it certainly has become more “complex”: empty shelves; stocks not received to fill them; messy shop-floor; chaotic back-office; broken promises to customers; disgruntled customers with threatening complaints; warehouse and vendor goof-ups and a million other operational hiccups keep store managers constant company. Add to that; dropping footfalls; dismal conversions; sickly ticket sizes and screaming bosses; and you have a ticking bomb under your seat. While managing all these variables and trying to do a good job of it all, store managers usually paint themselves into a corner.

Alas, is there a way out of the dead-end? Or Is it forever going to be a tight-rope walk? Will the sword forever hang on their heads? As a store manager, how do I know what to do and when? How do I prioritize my work? Do I have any recourse at all?

Yes, thankfully there is…

…In the understanding that store management is both, an art and a science – but definitely not a curse. Now, there can be as many opinions as there are retailers, on what portion of store management is art, and what; science. This article is not an effort to settle that debate. However, it is just an effort to inextricably establish that store management is indeed a combination of the two; and that store managers thankfully have help at hand to equip them for the roller-coaster ride they are perennially on.

It is important for store managers to acknowledge this fact; and more so to know when to be the ‘artist’ and play to the galleries; and when, in fact to be the ‘scientist’ and feel the pulse of the business.

It is an indisputable fact that store managers have two bosses – the customer; their first boss; and their functional boss; the other. And you will agree with me when I say, that unless they serve their primary bosses well; the very existence of themselves and their secondary bosses is in serious jeopardy.

The simple truth for store managers to understand is that, with their customers (the camera), they are expected to mostly play the ‘artist’ and with their functional bosses, mostly the ‘scientist’. As artists, they essentially play three roles – the sales person (the clap-boy); the sales manager (the hero) and the people manager (the heroine). The fourth and the only role they are required to play with their functional bosses is one of an operations manager (the director).

Store managers find themselves in the line-of-fire either when they step into the sets as directors or when they continue playing the hero; the heroine or the clap-boy behind the camera.

A store manager is primarily a ‘sales person’ (the clap-boy) or a CSA (customer service associate) and more often than not, that’s where they have come up from. A manager cannot discard or subordinate that role, no matter how senior or experienced or busy he/she is. There are some store managers who are conspicuous by their absence on the shop-floor. I’ve also seen store managers who run the shop floor by remote control - either from their back offices or from the food-courts or worse, from their homes! No Store manager is too big or too busy to be on the floor; SELLING. If anything, they ought to remember that their being on the shop-floor as a sales person is an opportunity to be a role-model for their store staff. They can teach by example the delicate nuances of striking a rapport with their customers; understanding their needs and offering solutions to them. Store-staff get to emulate their store managers in the art of selling.

Your shop floor is a crucial moment of truth for your store brand to make a mark in the minds of your customers. It is also a fertile ground for understanding customer behavior and their preferences. Learnings from the shop-floor is what gives store managers the edge to influence merchandise mix; pricing and promotion strategies of the company. Store managers also get to observe their team-mates interacting with customers and can therefore assess them better. Knowing your sales staff intimately – and knowing their strengths and weaknesses, helps you better utilize them on the selling floor. Besides, it is also an ideal ground for coaching and mentoring your staff – especially new hires.

In an expanded role, store managers assume the responsibility to manage the collective sales process of the members of their staff. Therefore, a store manager is also a ‘Sales Manager’ (the hero). A role that convincingly establishes the fact that store managers are essentially sales people; and anyone who can bring the required rigour and discipline to the shop floor, can also make it to the top role, like themselves. They take ownership of the sales goals – not just their own – but that of the store as a whole. They become accountable for converting shoppers into buyers; selling more to each buyer and doing so repeatedly and consistently. As a sales manager, they prove their ability to win customers’ loyalties that ensure customers stick to your store and patronize it over long periods of time – despite competition.

As sales managers, they are also the custodians of customer service – the first person a customer would like to speak to when she faces a problem or; rarely when she gets satisfactory service!

As a ‘people manager’ (the heroine); store managers are responsible for the most valuable assets of their stores – their people. A store manager should be able to choose the right people for his store; train them and keep them knit together as a team; be a catalyst that spurs productivity in a diverse team. A people manager is also a friend, philosopher and guide to each of his teammates – deploying the right skills in the appropriate departments and holding them accountable for their actions and behaviours. Spot and correct mistakes of the sales staff with a right balance of reward and retribution. Coach and encourage them to out-perform themselves. Identify star performers and groom them into becoming a second line of command in the stores. And more importantly, as people managers, they are responsible for keeping store staff together as one chain - a chain that is as strong as each of its links – whenever you have to replace a link because of attrition, your chain is weak. It is indeed an onerous task, but nonetheless a crucial role of a people manager to keep the chain strong and intact.

The bosses in the corporate office are mostly concerned with only the fourth role – ‘operations manager’(the director). Stores opening on time; getting footfalls; converting them into customers and increasing the number of units each customer buys; meeting sales targets and following the standard operating processes, while doing so.

Unfortunately, it is this role of an operations manager that consumes all the waking (and sleeping hours) of many a store manager. It engulfs them into becoming trouble-shooters. Not unless they realize that in a ‘model store’ – operations is ‘incidental’ and not ‘imperative’ to a sale. The various things – receiving stock; stacking shelves; keeping the store clean; having friendly and knowledgeable staff etc – are all incidental to making a ‘sale’ happen. And the ‘Sale’ itself is the imperative – or the raison d’etre for the store to remain in business. Store managers – as operations managers lend leadership and direction to the business. They have to be the thinking and guiding force behind the other three roles – thankfully played by oneself.

Standard Operating Processes or (SOPs) are a means to an end – the Sale. It is a documented form of mapping who does what, when, why, how and where; to achieve the end result – a sale made to a customer; who is willing to come back to your store. The operations manager is indeed the custodian of SOPs – and not a victim of it, as is unfortunately the case in most stores.

While it is true that the ‘artist store manager’ has to be seamless in the three different roles he/she plays on the theatre called shop-floor. It is also important that he keeps the costumes of the operations manager for use only in the back office or while with his corporate bosses. Remember, your customer is not interested in what your procedure manual says or the seven reasons why you don’t have the product he wants, on your shelves.

Unfortunately, there is no theory to suggest an ideal ratio in which a store manager should spilt his time among playing these four roles – only a good training program can help him/her make the enactment so seamless, that they slip in and out of these roles, as if by magic.

Whatever you do, remember that when you are in front of the camera (your customer); you are in one of the three roles of an ‘artist’ – the ‘sales person’(the clap-boy); the ‘sales manager’ (the hero) or the ‘people manager’ (the heroine). And the next time your boss is screaming his head off at you, it could be because you were playing his favourite role – of an operations manager - in front of a different audience; your customer!

Sunday, August 16, 2009

Crossing the Golden Zone

There has never been a more appropriate time to train your retail associates than here and now. Recession is a time when retailers want ‘more’ from ‘less’ – they want to boost their productivity while keeping operating expenses low. They want better utilisation of store space (sales per square feet) and an even better deployment of their customer service associates (sales per staff), after all the down-sizing and attrition.

Self-imposed austerity during hardtimes is good – businesses tend to become tight-fisted; but even those retailers that have allocated budgets are known to cut down on two important lifelines – advertising and training – and that, in my view is counter-productive.

Besides other things, advertising generates traffic into your stores; and training reinforces skills in your associates that make them more productive on the salesfloor – helping them make better conversions and increase average transaction values (ATV). What is recommended therefore is a judicious investment in the two.

Besides well established brand equity of a retailer, it is advertising that brings more and more customers into stores. But, once customers are on your sales floor, it is your sales associates (regardless of what nomenclature you use to refer to them) that make or mar a sale - No sale is an accident; but a lost-opportunity for a sale is definitely fatal.

The critical moments of truth in any retail selling is when your associates are able to 1) establish a rapport with every customer – connect with them as fellow human beings ready to serve; that will let them 2) probe deeper to understand customer needs and 3) establish personal credibility - that they indeed have the ability to help find solutions to customers needs and 4) demonstrate convincingly that they have only the customer’s interest at heart - over-riding that of their employer - in making the sale; in a true spirit of ‘customer service’. I call these four stages in the customer engagement process, the ‘Golden Zone’ of selling, as depicted in figure 1.

Figure 1:

Any retail training to be effective has to take cognizance of this fact and equip the retail staff to transition the golden zone successfully. For, as shoppers we all try to avoid ‘Sales people’ approaching us in a retail store because we KNOW that they are out to SELL something to us. We rarely look upon them as ‘facilitators’ who will help us find solutions for our needs - because, they rarely live by that image.

Unfortunately however, retailers hitherto have short-circuited the golden zone in one way or the other. Their training – usually an extension of what is normally called ‘induction’ – has been confined to a quick run through ‘product knowledge’ if at all; completely ignoring the first two essentials. It is like teaching a child S to Z in the English alphabet!

Consequently, we hear retailers complain that their sales associates are unable to close a sale even though they have had a brush with product knowledge! Only when sales associates walk together with their customers across this golden zone, will they have earned any credibility and trust to influence what customers buy and how much they buy. Therefore, the first two elements in customer engagement – building a rapport with customers and identifying their needs – is as indispensible in any selling process as the other two – establishing personal credibility while acting in the customer’s interest.

Training cannot be a perfunctory or annual exercise done erratically. For training to be effective, it has to be a continuous and deliberate commitment. Look at any top seed sports personalities or teams. They occupy the top slots in their respective sports and are consistently there, because they train for many hours every single day and do it deliberately. They set rigorous schedules and follow them to the last dot. Thus, it is not surprising that retailers who have invested in continuous training in selling skills and customer service skills have reaped huge benefits – in most cases, sales growth to the tune of between 5% and 20%.

If training is an activity that enhances sales and productivity; I believe it should be perceived as an investment and not as an expense; as it unfortunately is the case among many retailers currently. Just to put things in perspective, Indian retailers are losing around 4% of their net sales annually in shrinkage (roughly four thousand crore rupees in organised retail alone) – which is frighteningly huge compared to international standards. If only retailers commit to invest one quarter to one half of that, to the right kind of salesforce training they will begin to see the impact in their sales numbers.

If retailers are convinced that this is the way to go, their next question is to have the right content developed and delivered by the right trainers in the right manner. It can become a daunting task in the current retail scenario in India with several self-styled retail trainers without any empathy for retail. The acid-test for choosing the right training system in this lot is to look for the following traits.

Retail Grounding: It is indispensible for retail course designers and trainers to have had an ‘on-the-sales-floor’ understanding of retail – preferably in multiple formats. Trainers ought to have ‘been there and done that’ - be well-grounded in retail basics and yet be open to experimenting with fresh ideas - because what works for one format and one geography may not work for another. And training for retail skills is not a sacred initiation that happens in a classroom; it has to connect with the unique challenges of the shop-floor.

Realistic content: It is also essential that the training content be robust enough to deliver the training imperatives while keeping it easily comprehensible by sales staff– they have every right to know the ‘why’ for every ‘what’ they are being asked to do. And more importantly, they should also be made aware of the implications their actions would have on building the store brand in the minds of their customers - A sales associate trying to sell a higher priced product just to meet his sales targets while a lower priced product could still serve the customer’s needs, is likely to boomerang on the store’s reputation.

Manageable application: The retail training should establish well-defined metrices to evaluate the performance of salespeople long after the training intervention. The content and its delivery have to be based on a robust foundation of ‘progressive discipline’ for learning and application – an environment that respects certain ‘non-negotiable’ basics. Store and Regional managers need to be equipped with tools to help set individual goals for salespeople and monitor their performance against them. They should also be trained to coach and mentor their staff to outperform themselves.

When retailers don’t train their staff - or don’t train them enough - and yet expect them to show desired results; it is like giving them bicycles to compete in the grand prix out there! Only when a training initiative has all the above three ingredients, will retailers be able to measure the efficacy of any training program. Right training can positively impact both revenues and bottom-lines and yield a healthy ROI for the training dollar. Retailers have help at hand to choose from best-of-breed training programs – and design their own versions of Formula 1 - to make every member of their customer-facing teams true ‘Stars’ of the ‘Golden Zone’.

Thursday, July 23, 2009

After the Storm…

‘When there is no wind…Row…’ goes an anonymous saying. And the current economic downturn seems to have done just that to business in general and the organised retail industry in India in particular – taken the wind out of its sail.

While retail is all about ‘Location, Location, Location’; it is also about ‘Capital, Capital, Capital’’ – capital expenditure; working capital and human capital. And retailers of all sizes and shapes have been struggling to juggle the trio with varied levels of success (or lack of it!)

In the years gone by, retailers were in a mad rush to expand and establish bigger and bigger footprints. They put whatever little money they had on opening more and more stores – never mind if the location was right or they were a ‘me too’ player in the geography. This only gave them more stores, as in more doors. Merely adding stores to show space occupied or to build valuation is a zero-sum game, as most retailers have now realised.

Some very ambitious retailers went a step further and diverted their working capital (funds meant for buying inventory and paying employees) to fund capital expenditure (to fund furniture, fixtures and even security deposits) – resulting in unpaid dues to suppliers. The vendors wouldn’t take it lying down, when they saw retailers divert money owed to them into their wasteful or fanciful expansions. Ironically, more stores meant more inventory and that meant that vendors had to supply more stocks. They wouldn’t, when their old dues were still not honoured. It started reflecting in dropping fill rates and eventually empty store shelves. It also left the employees de-motivated with mounting unpaid salaries.

All this has only left a pile of over-ambitious retailers struggling to rise from the dust that they raised in the first place!

What next?

Is it the beginning of the end (to mad expansion and a return to business based on sound basics)? I hope so. A shake out of this nature was imminent in the next two to three years; but it was pre-empted, thanks to the recession.

The recession has not left all retailers devastated…it has crippled a few into compromising positions! and practically the entire organised retail community is on ‘SALE’ to increase conversions and ATVs and thus generate cash flows to pay landlords their re-negotiated rents; vendors their 200 day old dues and employees, their four months’ salaries!

I am also assuming that by now, it is enormously evident that having warm bodies in store uniforms will not generate the desired sales. In fact, the store staff is the first and the last point of contact between the consumer and the brand – they are the ones that will make the customer come back again and again or shop at competition. In short, they have the power to either make the business a resounding success or a hopeless failure.

That brings us to the third ‘capital’– the human capital. In any discussion on people, it has become almost fashionable for retailers to complain that a) it is difficult for them to find the right people in the right numbers at the right time and b) even if they found them, they wouldn’t last long enough to make an impact on their businesses. What, however doesn’t get mentioned is what (if anything) are retailers doing to retain the few people they are able to find; and make them more productive and efficient.

I’d like to put the first of the two complaints in right perspective. Let’s admit that many freshers to retail leave due to disillusionment; that retailing is not so much about swanky malls and glitzy air-conditioned shops; but more about being on ones two feet for ten hours everyday, receiving stocks; checking and stacking them; attending to crazy customers and smiling in and through all this! When they leave, they leave retail for good, to take up less exacting jobs.

Now, let me try to address the second complain – most other store-staff leave not only because an other retailer is willing to pay more; but because their current employers are doing precious little to show they care about them. Money is NOT the only thing that motivates shop-floor employees. If it were; the few that remain should also leave due to overdue salaries and never dispensed incentives!

And what is not spoken about is what do retailers do to ‘EQUIP’ their staff with the right skills and ‘MOTIVATE’ them to remain highly committed and deliver the goods.

‘Equipping’ and ‘Motivating’ essentially has THREE steps to it.

Assess their strengths: With more players jumping into organised retailing and the existing ones expanding, there is a demand for qualified staff that is in short-supply. Retailers should be lucky to get enough numbers of front-end staff with prior relevant shop-floor experience. Most people wanting to pursue retail as a career avenue are freshers, with little or no experience in retailing. It is important to therefore, assess their strengths. Even absolute freshers may possess some skills that can be deployed on the shop-floor. In addition to highlighting the ‘must-have’ qualities, an assessment of skills also tells the retailer ‘how to’ or ‘how not to’ use the resource. For example: If the assessment shows that a candidate is very meticulous and is comfortable doing monotonous jobs, she could be trained to become a cashier, rather than being trained as a salesperson on the shop floor or an assistant in the back office. This will not only result in better utilisation of resources but will also ensure that she doesn’t leave due to the misfit.

One of the large retail projects that I set up was in a Tier II town; where finding adequate manpower was itself a challenge. My team and I resorted to some innovative means of recruiting the over 150 salespeople we wanted for the project. We partnered with an NGO that was into a social development project of identifying and imparting life skills to youngsters from socially deprived communities. We then picked the promising amongst them and trained them on selling and customer service skills, before introducing them to our customers. And I must admit that it paid off handsomely.

Equip them: with skills to understand customer needs (customer service); offer them suggestions (product knowledge) and help them make the right purchase (selling skills). An expert in product knowledge need not always be a successful salesperson, lending him incapable of closing deals. Similarly, a very good salesperson may fall short of convincing customers for want of product knowledge. And both varieties are unlikely to make any difference in the customer’s shopping experience, if they cannot genuinely understand the customer’s needs and ‘connect’ with them. I recently came across a retailer with a peculiar problem - the salespeople in its lingerie section (mostly females), who possess excellent product knowledge were unable to connect with their customers (who could sometimes be males) adversely affecting the sales in the department.

Define their roles and what they will be measured on: most retail organisations I’ve seen from close quarters indulge in an annual exercise of setting KRAs (Key Result Areas) for their staff. I’d like to stress on the word ‘annual’ because that is how often KRAs are used! There are three reasons why. One, the KRAs defining exercise is reduced to a mere ritual rather than being used as an effective tool. Two, it is almost always unilateral – the boss decides; without taking the store staff into confidence. That’s surprising because it’s the front-end team that has to deliver the numbers; and three; the targets are either too macro; such as improve sales by 10% or too unrealistic; such as improve sales by 10%!!

Gross Sales, as we know in retail, is a factor of Walk-ins, Conversions and Average Transaction Value (ATV). The store staff has limited role (if any) to play, in improving walkins (unless the store appoints two CSAs outside the store to drag in customers!). CSAs can largely influence ‘conversions’ and increase the ‘ATVs’ (a result of up-selling and cross-selling) and that is what they need to be measured on and not by macro targets. Of course, star CSAs are those who make customers come back only to be attended to by them, and this breed is rare.

My point is that retailers need to keep it simple for their store staff to understand how their performance will be measured and encourage them to work towards earning their incentives. Often times, the incentive targets are set with a negative intention – that of making it impossible to achieve, rather than enticing the staff to get closer and closer to achieving bigger and juicier targets.

‘Defining roles’ and ‘measuring their performance’ is of no use unless the staff is adequately and properly ‘Equipped’ (trained) to perform their duties effectively.

I must admit however that a retailer looking to get the most out of the training rupee, is typically faced with many uncertainties – What is the right training input? How often should training be conducted? Who should administer the training and what should be the ideal investment to make?

Thursday, March 19, 2009

Should I save or spend?...that is the question

A question perhaps as profound as Hamlet’s ‘To be or not to be’; that it is top-most on our minds during these days of pay-cuts; uncertain jobs and drying up finances. We all want to hold on to our hard earned money, for we don’t know what could hit us next. Naturally therefore, we have switched to the ‘save all you can’ mode. To add to that, we Indians have been brought up constantly reminded by our parents to first save and only if absolutely required; spend.

On the other hand, we as consumers seeking to improve our standards of living – are gripped by an urge to add that popular brand to our wardrobe; get that elusive diamond pendant or give that long overdue face-lift to our living rooms as they all seem to be within reach, thanks to the fact that most brands and retailers are offering the best deals and the deepest discounts heard since Adam. Alas, all of these will make us part with what we are desperately trying to save. To make matters worse - the TV channels, newspapers, bill-boards and store-fronts are teasing us for being shy of malls and showrooms. But then, how do we reconcile this dilemma…should we save (that tomorrow may be bleak) or spend (like there is no tomorrow!). Isn’t that where we began?

I presume that most of us budget our monthly expenses for different types of expenditure – food, clothing, entertainment etc. If not a very definite number, we usually set an intrinsic threshold. In most cases it is dependent on our incomes and our lifestyles. Incomes are constant...and may now be under pressure, but lifestyles are well within our control. In better times, we may have become too generous to the extent of pampering ourselves to the spoils. Now definitely is a time to pause and think about all our expenses.

And I bet that if we look closely at our expenses every month, we are bound to identify one or two areas of our lifestyles that we are splurging on…It could be dining out as a family for example. It is one thing to dine out with family and friends to break the monotony of eating at home and it is another to become so lazy that we get used to our favourite restaurants that even the chef knows our entire family by their first names! The chocolate soufflĂ© or badam halwa for dessert notwithstanding! Have you thought of the couple of hundred rupees that you’ve just saved? Some of us are so addicted to the pampers of home-delivery that we haven’t stepped into our kitchens for weeks!

My point is, that the moment we reflect on our (taken-for-granted) spending habits we will be able to identify wasteful expenses and cut down on them immediately. This will save any middle class family a few thousand rupees every month; and that can go straight into savings.

A recent survey of 100 households across the country tried to capture the spending and saving trends of families during August 2008 (when the inflation was close to 13%) and during November 2008 (when the inflation dipped to 8.5%). The spending hadn’t decreased, but neither had the saving increased. The survey had interviewed a cross-section of the society, with families whose monthly incomes as low as Rs.5000 to as high as a few lakhs of rupees. The respondents were quizzed on how much they spent on food, entertainment and clothing and how much they ended up saving every month. It was an eye-opener to discover two things. One; a family earning Rs.5000 a month could save Rs.1000 (20%) while a family earning two lakhs a month was able to save only Rs.10,000 (5%). And two; all their known areas of expenditure - food, entertainment and clothing - plus their savings, especially for middle class households, did not add up to what they earned! It only goes to prove that the better times had made many of us spend unknowingly or unconsciously (or perhaps carelessly). The inflation has dipped below 5% now – even fuel is cheaper, leaving us with a few spare coins in out wallets.

These are times when even the most coveted brands are available at a discount – and if you have been eyeing the advertisements for that new Hugo Boss shirt or a Chambor lip colour or that expensive wrist watch and if they are all now available at much below their normal prices; it may be a good idea to ‘invest’ in them. I say ‘invest’ because, obviously they wouldn’t be so sought after by us if we didn’t believe they could add tremendous value to our personalities. I am not for a moment, suggesting that we splurge. I am also not suggesting that we swipe the embossed numbers off our credit cards and live in debt forever. I am suggesting that we spend judiciously.

While it would be foolish to be reclusive and let go of the opportunity to save that 50% or 60% that those desirable brands are offering. It would be disastrous to also let our greed take the better of us and end up shopping three suitcases full of clothes! Judicious spending is when we are able to become aware of our reckless spending habits and religiously stick to our trimmed budgets – the deep discounts will surely help pick up that one extra well crafted trouser or that well designed top – now, go pick them up without guilt!