Tuesday, September 14, 2010

Success Sutras for Retail 2.0

The monsoon showers will hopefully help wash the red off retailers’ balance sheets! It’s time to cheer. Cheer that EOSS for most retailers has gone well; and for those that pretended to be giving away a lot but meanly held back; their customers just showed them who is smart. It’s time to ship all their unsold merchandise back to their warehouses. Make way for Autumn Winter ’10.

Retail has come a full circle; hasn’t it? I mean, look at what happened in the last three or four years – Retail catches the imagination of large corporations; they hire some big names in consulting who tell them that retail will grow at 35% -40% annually and create some two million jobs. Some large business houses go all out and devote a few thousand crores; they assemble armies of people who could barely spell ‘retail’. Blue prints are drawn; executives from different industries are poached with the lure of obscene salaries. Having put their money; retailers go berserk in signing up real estate. Developers and landowners lord over their fiefdoms; extort insane rents and go put all that money in stocks. Retailers fill their stores with container loads of ‘made in china’ and recruit thousands of warm bodies to populate their mushrooming stores….and both, retailers and their employees, all wait in feverish anticipation of that elusive customer! The going is good for a while and then suddenly, our banker friends across the Atlantic belatedly realize that they have been financing non-existent assets and suddenly all their balance sheets are soaked in blood. Every street from Wall street to Dalal street is in the red! Credit dries up; Banks refuse to lend, let alone restructure the mess. Some retailers become history. Curtains close on Retail 1.0.

Welcome to Chapter 2; to all those lucky ones that survived the cloudburst and some that barely made it by the skins of their teeth! You deserve a place in this world. It’s time to pitch your tents; hoist your flags and blow the battle horns once again.

Now that the curtains are up again, is there something that we need to do differently that will certainly spell success in retail? Yes, there is.

Sutra # 1: It is important for retailers to establish ground rules for every single activity or process that is critical to their business. Beginning with getting the merchandise mix right to sourcing and buying the right products. Having ground rules here means to resist the temptation of creating standard ‘one-size-fits-all’ merchandise mix across stores. A sharp focus on localization is inevitable. Moving on into store operations; retailers will do well to establish store policies related to receiving goods; VM; replenishment; exchanges and returns. Who does what, why, where, when and how? It is equally crucial to keep these policies both customer and employee friendly as possible. In trying to please the customer, retailers often err on the side of over-complicating policies making them almost impossible to practice. When policies exist in writing and are communicated widely; there is no scope for individual interpretations and attendant inconsistencies. Any retailer desirous of giving their customers a consistent experience across its chain of stores has to invest time and resources to getting the first sutra right. Put it in black and white, because you don’t want to see any grey!

The second sutra is the most critical of the three. In fact it has two parts to it. 1) To indentify; hire and recruit the right people at all levels. It is common thinking in retail that regardless of how unsuitable or untrained the rest of the sales staff is, it is important for the store manager to be ‘seasoned’. ‘Seasoned’ frequently translates into someone who’s been doing things (not necessarily in the right way) for a long time. Therefore, an ideal store manager candidate typically is someone who’s been on the sales floor for long as a senior supervisor or department manager. Remember; practice does not necessarily make a man perfect; it makes the ‘practice’ more ‘permanent’! So, if your manager is someone who’s been doing things a certain way – his/her way in most cases - because he/she has not been educated on how to do something, then that’s the only way you will get it. So, teach your store manager what is important for your business and how to monitor it. 2) A fact that cannot be over-emphasized is the need for the store staff to be adequately and periodically trained. My organization has studied patterns in individual and store performance over the last 30 years and we’ve been able to conclude with certainty that trained staff are consistent in converting ‘shoppers’ into ‘buyers’. They are confident about their product knowledge and their abilities to communicate benefits to suit customer needs and are often found selling higher priced products in any given category, over their untrained counterparts. Trained staff also add-on successfully in at least 60% of selling opportunities and the added product is often of significant value that takes the average basket size up by 15% to 20%. I’ve heard some retailers site attrition to be the reason for not training their staff or making a perfunctory ritual of any little training that they undertake. I have just one thing to say to them. Every garment we wear gets wrinkled by the end of a few hours and that is no excuse to wear wrinkled clothes! Untrained staff have been found to lose more selling opportunities that would otherwise have been converted to sales. Often the opportunity lost is bigger than the investment required to train them. Panic not. Help is at hand!

The third sutra for success is to instill a sense of commitment in every customer service associate that their roles as sales persons is two-fold; a)to help every customer buy (buy more and more often) and b)to consistently sell, thereby moving the store inch-by-inch towards its goals. Any salesperson who has difficulty accepting this fact of their lives; is no salesperson! That’s easier said when individual contribution is not being measured on an equitable and fair scale and/or not being rewarded fairly and adequately. This is why it is important for retailers to have an enterprise-wide system that helps set fair and consistent individual goals; track them consistently; reward the right behaviors and coach the inconsistent behaviors towards meeting the desired levels.

For some retailers, it is a question of life and death to have good ‘mystery shopping’ scores that they have outsourced agencies perform periodically. They believe in doing everything possible to get a favorable score. So much so that, they have uniform incentive plans for their store staff, lest disgruntled staff get de-motivated and offer unacceptable customer service. They are also wary of setting individual goals and rightfully rewarding each sales person for his or her contribution; as they suspect that competition to achieve individual goals will cause conflicts between staff. Well, think of it; each time all sales people in a store get rewarded equally; the non-contributors feel encouraged to just piggy back and not make any efforts to contribute; On the flip side; contributors feel frustrated that their efforts rewards laggards while they themselves are not adequately so. Missing the forest for the trees, if you will!

It is strange that while retailers are ready to compete with one another, store for store; they shy away from instilling a spirit of healthy competition among their staff.

In the next three to five year horizon ‘store profitability’ and ‘same store growth’ will be the only two factors that will make a difference between a successful retailer and the one that isn’t. What that means is that the first surest way to go out of business is to open stores just to add to the store count without aiming for breakevens and profits. The second surest way is to be under the fond illusion that one is on the growth path when most of the growth is coming from new stores and not from existing ones. It’s a classic ‘catch 22’ for retailers. They ‘should not’ expand if they are not sure that each of the new stores will themselves be profitable within a reasonable time frame. And yet, while new stores are set in the profitability orbit; they ‘ought not’ take their eyes of exisiting stores to ensure they are sweating the daylights out of competition to consistently grow at or over industry growth rates.

30% or 40% overall growth will mean nothing if each store is not in and of itself profitable and that, stores that have been in existence over one year are showing healthy growth from their last year numbers. That’s all that matters. And the only certain way to ensure this is to devote company time and resources to getting the three sutras of Retail 2.0 right.

Welcome aboard!

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