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?