Listening ain't enough!

I was checking out of a hotel in Delhi recently and as I had a meeting at 4.30pm before my flight at 9 pm, I requested the hotel that I’d like to check-out only an hour before, at 3.30pm as I had no intentions of basking in the Delhi sun! The staff at the front-desk was tentative at first, and then tried to tell me that I’d have to pay extra if I decided to extend my stay by three hours! For God’s sake, I had stayed there for three nights and was happy with the facilities that I’d even requested their sales department to get in touch with my office for a potential corporate tie-up. I wondered if I’d made a mistake!
I objected to their intention to charge me extra as I believed it was not fair. I reasoned that most hotels world-over accommodate a few hours of additional stay, especially when the occupancy rates are low, as it was the case at this hotel and considering my situation, they should not charge me extra. The front-desk staff then tried to educate me that their systems would automatically charge half-day tariffs for all check-outs after 12 noon. Now, that was the stupidest reason they could’ve used to overcome my objection. I then wished to escalate the matter to their manager, who tried repeating the same reason for having to charge me more. While I sat the manager down and explained to him how he should be controlling his computers rather than them controlling his behavior” several questions kept cropping up in my mind to be answered…. “Why do businesses always feel the urge to hide behind policy to justify not acting in the interest of customers?”; “What makes managers insensitive to their customer’s needs”; “Do they in fact empathize with their customers at all?” etc.
Are businesses missing out on something very vital to their very existence – being ‘Customer Centric’?
In another incident, I was convincing the HR head of a popular retailer to make certain investments in training their staff and he said “I don’t want to spend more than a lakh of rupees training my new recruits” “They will be gone in a few months and then I’ll have to spend on the new bunch of guys again…” he reasoned. I was only reminded of what Harry Friedman says “What if you don’t train them and they stay?!
That added a new question to my list. “Are businesses, particularly those in customer facing industries such as retail and hospitality, investing in enabling their staff to act in the interest of their customes?”
For starters, they need to start viewing things from the customer’s perspective; listen to their customers closely and align their product or service offerings in such a way that causes minimum dissonance between what the customer wants and what the business can lawfully yet profitably offer. In short; put the customer in the ‘Centre’. Make their business ‘customer centered’. I found this really simple yet practical definition of ‘Customer centricity’ on the internet. “Being Customer Centric is about an ability for everyone in the company to continuously learn about customers and the market. It is also the responsibility of everyone in the company to respond appropriately to what they learn.”
Therefore, how can retailers be more customer centric?
Retail businesses I’ve known have been slow in adapting a holistic approach to ‘learning about customers’. The least (or the most) some retailers do is to launch a loyalty program. Now, the problem with loyalty programs is that rarely if ever, do they go beyond acquiring and redemption of points for transactions made at the retailer’s stores. At times, customer information is used to invite loyalty card members to special product launches or offer them privileges such as assured parking or assured discounts. Retailers have been assuming that throwing such practical privileges will win them a permanent place in the hearts of their customer’s and absolve them of the ‘crime’ of not serving the customer in ways that matter (having the right product or the right size of merchandise etc. and helping customers make the right choices)
Are businesses listening?
Beyond loyalty programs and CRM, retailers should ask themselves the question – are we listening to our customers? It is good to have customer feedback forms – that has now become a ritual at the end of every shopping experience at a high end store; or a restaurant or an airline. I’m yet to receive a feedback from any of these sources – either thanking me for the feedback or acting upon suggestions I’ve made! If businesses have no intention to act upon what their customers are saying to them, they have no business wasting their customers’ time.
What are the various listening posts? (touch-points)
Apart from the many inanimate ways of knowing about customers – either through information from loyalty cards or from feedback forms – retailers can tap into what their sales associates find out while serving customers. I’m not sure whether retailers have formal mechanisms of capturing what their associates know. I’d believe it will certainly be a wealth of information that can yield competitive advantage when acted upon appropriately – for example; I’m sure I was not the first one who’d objected to being charged extra for a late check-out; had the hotel management been tapping into experiences of the front-desk; they should’ve long done away with such an ‘un-welcome’ policy. Budget permitting, retailers can also invest in Business Intelligence (BI) tools – both manual and digital -to capture and stream information to decision makers within the organization.
Next comes the task of ‘responding appropriately’ to what they learn.
My colleagues and I mystery shop regularly at retail outlets. Many a time, when we encounter a situation when we don’t find the right size or color of a piece of apparel; rarely do we get appropriate responses from staff – seeking to take down our contact details to inform us when they receive shipment etc.,
Excuses such as ‘out of stock’ or ‘size not available’ or ‘price not updated in the system’; ‘goods not dispatched from warehouse’ etc. are common on shopping trips. ‘Out of stock’ or ‘size not available’ could mean that the merchandisers did not anticipate demand for the style or size; or the sourcing and buying department did not release purchase orders well in time for the stocks to reach the stores. ‘Price not updated in the system’ could mean that although the merchandisers and buyers have done their job; the IT or the supply chain guys have not updated the system and hence the product cannot be billed out. ‘Goods not dispatched from warehouse’ could mean that although stock is available at the warehouse; either indents were not made on time or the warehouse has not been able to pick and dispatch the stocks as required.

Therefore,’ responding appropriately’ means, aligning the entire value chain – Sourcing; Buying, Merchandising; Supply Chain; Operations; Finance; Marketing; Information Technology and Human Resources -to meet or exceed customer expectation.

In the case of the hotel’s excuse for having to charge me excess; it is a matter of making changes to the billing software (or to the company values to begin with)
When all these functions are well equipped to meet the business demands; now comes the supreme task of enabling people within the organization to optimize utilization of resources. And ‘enabling’ begins with ‘Training’.


Training is required at all levels of a retail organization – be it a product or a service retailer - to remain consistently ‘Customer Centric’. Training store staff; that represent the brand and reputation of the company is key to superior customer service. Customer Service Associates and all other front-end staff; that comprise more than half of any retail operations team; requires a focused training on selling and customer service skills. Team leaders, floor and store managers - that may not perform active selling but are customer-facing in nature – need to be trained in not just meeting sales targets; but also running store operations smoothly deploying people efficiently. Managers with responsibilities of managing a cluster of stores need to be trained on optimizing resources and building efficient and profitable retail operations.
While ‘customer centricity’ is a key differentiator; it can be brought about by making right investments in enabling the workforce to serve customers with a heart and not merely by a policy!

Go (mystery) Shopping

To the acute jealousy of my friends and colleagues I found myself recently in Las Vegas to attend a ten-day long training program at our Corporate Headquarters. I had trouble getting across the purpose of my visit to my friends and colleagues as they understandably got distracted at the very mention of Vegas! It also did not help one bit that I was supposed to travel with two female colleagues!!
My first visit to the United States - is in itself somewhat an act of eluded destiny - as I had ducked many invitations from family based there for close to two decades now. So much so that I was the sole family member who had not set foot on the US soil so far. Now that I’ve lost that distinction, I set out to do what I’m helplessly addicted to as I extended my trip to visit family. Go (mystery) shopping.
On one such occasion, I found myself at a large home improvement store in San Jose, California, with my sister-in-law as my local guide. After realising it was not a crime to click pictures inside the store, I proudly pulled out my Kodak and set my index finger loose on the trigger. No sooner was I in the ‘Lights and décor” section and had clicked pictures of a few well-lit aisles, did I hear…”Hey, you gotta be doing up your bedroom or living room if you were clicking pictures of our lights…” said an almost celestial voice. I turned around to see a store associate with a bright smile. “There you go”, I thought to myself…”a very good non-business opening line; with all the promise of a continuing conversation”…Now it was my turn to be taken aback and I unwittingly realised that I was getting a taste of my own medicine. “Well, I’m just checking out” I retorted sheepishly. “Guess what, if you are doing up your house, I can have an expert interior designer come over and give you some valuable tips…at no cost” he said; “these guys usually charge $200 an hour” he finished. “Well, I have no definite plans” I asserted. And my sister-in-law was silently enjoying the unfolding drama. As I tried to wriggle out of the unaccustomed level of professional customer service, I was already in the ‘Sanitary ware’ section of the store. “Now”, said this associate having followed us, “here’s something we can do for your bathrooms as well”. “I’m sure you have your home here?” he questioned. And I wasn’t in a mood to reveal that I was just a tourist visiting my brother. “Yeah” I said. “How old is your home?” he asked..and I looked at my sis-in-law, more for help rather than for the answer. And before I could find the legitimacy within me to answer that question, he had spread in front of me a brochure that had pictures of bathroom fixtures and bathtubs. Now, before you get ideas. He was trying to sell me a service at their store that would have bathrooms and bathtubs refurbished without breaking down walls or pulling down tiles. He said, he could check whether there was one of their architects in the vicinity of where I lived to see if he could come over and assess the bathroom of my (brother’s) house (that I was visiting!).
When I knew that I couldn’t continue anymore answering his questions with a straight face, I said “Well, thank you for the information, but I’m not looking at doing up my bathroom just yet..and when I do, I’ll remember you guys have this really fantastic service”. That should have indicated to him that I was just window shopping and he disappeared from the scene…or so I thought! I instantly slipped into mentally pumping my fist with a great sense of achievement, having warded off even the most persuasive salespeople. The associate showed up behind my back in a few moments with the same brochure in his hand. This time, he handed it to me and said “if ever you think of doing up your bathroom, you should call me. Here’s my name and number” he said pointing to the scribble on the brochure. “Thank you Alex. I shall do that” I said pocketing the brochure. Only my sis-in-law seemed very amused!
I’ve always believed Nordstrom was a heaven to customer service. Not surprisingly, I had my brother, this time in Minneapolis, Minnesota; drive me to the world’s biggest mall – the Mall of America. In the Nordstrom store there, I set the awestruck kid in me loose as I visited one section after the other. In the gifts section on level 3, I found drawn into an alcove of interesting gift ideas – made from brass, copper, porcelain etc. The charming associate Peggy, in that section was not only very cordial and warm but was very helpful in her assistance. She answered my questions on what certain products were made of; displaying excellent product knowledge and at times going the extra mile to find me a convincing answer if she didn’t have one ready. Like the unique bag I discovered on one of the counters; that, when folded looked like a ladies handbag, but would open into a nice shopping bag! It was a pastel green colour that did not particularly appeal to me and noticing that it was the only piece left, I asked her if they had any more colour choices. This was one of their impulse buy items and was sitting next to the cash till in that section. “I’m sure I had seen other colours in them and they must be there in other sections. I shall check for you in a minute if you’d kindly wait” she said, disappearing from the scene. As I browsed through the gift section, admiring the products and visual merchandising; she appeared in no time with two other colours – a light grey and a light blue. I was planning to buy one of them for my mother who was shopping with me; but she seemed unexcited about the really cool bag. I instead picked up a set of tomato shaped porcelain ‘salt and pepper’ shakers. And as I checked out my purchase, I couldn’t help impulsively adding a copy of the “Nordstrom Guide to Men’s Style” for an additional $20. I have heard stories of how Nordstrom associates are told to “use their best judgement at all times” while serving customers and I found that being lived upto in front of me.
As I slipped down to Level 1, to immerse myself in the men’s section of the store; I was awestruck at the immaculate and colourful display of men’s apparel. John, the associate in that section - in business casuals worn with a tie and checked brown blazer - was truly warm and friendly. He never tried to sell anything to me. There was no “Can I help you, Sir” either here or in the gifts section above. John appeared genuinely happy to see me in his section and he opened the conversation. I couldn’t help asking him how it felt to be working for one of world’s best retailers and he said it was really very gratifying and cool! And how they all love being part of the brand and mentioned how the Nordstroms themselves come to the sales floor from time to time, to not just mingle with the associates but to even serve customers!
I had no intentions of buying anything here; but like it always happens with me when I’m mystery shopping, I felt tempted to look at the light blue dress shirt, that looked well crafted. I had no hesitation at the $49.50 price tag as I was truly happy being there and being treated well. When I asked John what size I should pick up; he immediately pulled out a measuring tape from his pocket and, with my permission, had the circumference around my neck measured. “15 ½ would be good for you” he said and I suggested that I’d rather pick up a 15 ¾ just in case I decided to wear it with a tie. John liked my reasoning and happily packed a 15 ¾ for me. I continued to stray into the men’s footwear section, before I finally decided to join the rest of my family who were kind enough to wait for me in a restaurant on level 3.
Be it Alex, Peggy or John or any other retail store associate; Steve or any other cab driver or airline staff; I experienced a minimum credible level of “customer service” across the United States, that is so intangible to explain; but not too difficult to define and execute; as we, in India help most of our clients define theirs.

Hire the attitude; hone the skill

In ‘The True Differentiator’ last month, I spoke of the three ingredients for success in retail – a) sales people with the right attitude to serve and an aptitude to learn; b)a time-tested training curriculum that is enabling and empowering in its philosophy and c)choosing trainers that can empathise with the trainees and make training impactful and fun.

A willing workforce

“Hire the attitude and train the skill” is a popular statement. You can never train your salespeople to have an attitude to serve your customers. However, you can train them how to take care of your customers when they are in your stores. Attitude comes from ‘willingness’ – willingness to a) consistently respect and adhere to company or store policies and procedures and b) do whatever it takes to help customers make the right choices of products and services they believe will address their needs and wants. Store operations become complicated and chaotic – as they are in some retail environments – primarily because retailers unwittingly hire unwilling salespeople.

I admit that attitude is intangible and is therefore difficult to assess. There are assessment tools to understand behavioural patterns of potential salespeople. But, if all that sounds very sophisticated and/or expensive and cumbersome to follow; store managers and retail HR personnel – through training - can be equipped with some tips and techniques to make such assessments during the interviewing and hiring process.

Determining salespeople’s attitude upfront – during the hiring process or at the earliest thereafter - also helps retailers in a) fitting people in roles that act as motivators and b) defining career paths for salespeople to aspire for and reach through consistent acceptable performance.

Not everyone is made for retail. While the glamour and glitz attracts many salespeople; for some it is another job that gets them their salaries at the end of the month. Retailers have the onus of choosing the right people – those with a passion to ‘sell’ and an aptitude to ‘serve’. One without the other is unhealthy. Those with only a passion to ‘sell’ tend to be pushy and can alienate customers faster than you spend to acquire them! While those with only an aptitude to ‘serve’ will only help you make an excuse of service what you fail to do through selling.

A robust curriculum

Have you ever liked a movie without a script - without a story to tell? It is not enough just populating your stores with people with a heartbeat and cladding them in uniforms who may or may not come to work everyday. It is important to have a screenplay (scientific training) with a script (selling skills) to enact. You need a script that sells – quite literally! Retail training programs have to be authentic and train salespeople in handling the different moments of truth on the sales-floor.

Training programs have to accomplish two crucial imperatives – a) train salespeople to become compliant with store policies and procedures and b) say and do the right things when they come in contact with customers. The most effective retail training programs are those that first help articulate store standards; develop the right scripts for various roles on the sales floor and train salespeople using a pedagogy that is known to deliver the desired results – sales increases and satisfied customers.

When you invest in a training program, you deserve only the best in the business – a training curriculum and pedagogy that is proven to be effective - a training program that embodies learning from being applied successfully across different formats and in different markets.

The transformers

You need expert screenplay and script writers (trainers) who know the retail business -retail trainers that understand the dynamics of retail – store operations; sales and customer service.

The true differentiator

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You may be shopping for that sophisticated business suit for your first job or for an ethnic attire for a wedding reception. You land up in a mall hoping that you can choose from a wide variety of brands and stores to make your purchases at. You have beaten the traffic; cursed half a dozen jay-walkers and motorists and have finally pulled into the mall. You park your car and step into the atrium.…and Viola! The glitter and glamour; lights and music; shining floors and sparkling ceilings; those riotous colours from the show windows….and the excited shoppers have all transported you to another world. When you bring yourself back to reality and try to recollect why you are there; you seem to be more confused than you were before you entered the mall. You find yourself on the horns of a dilemma as to which store to patronise for your purchase? Trust me. It’s not your fault. Malls look alike from the inside; you find the same brands in this mall that you found in the previous mall that you visited. Only that, this mall has a BMW parked in the atrium while the previous mall had a Merc – the so called bumper prize! So much so that even the clowns out there to entertain shoppers are also from the same agency!

You went to the mall with a specific requirement – of buying a business suit for your first job and that is a ‘planned purchase’. Planned purchases are usually well thought of and well considered purchase decisions that we make to fulfil specific needs; and they are usually preceded by two layers of decision making. The first layer – what (product) to buy? Eg: a formal business suit and when to buy it? say, before that all important first day at work; where you want to make the best impression. The second layer of decision making however - what (brand) to buy? What store (to buy it from?) and how much to spend? - determine the ‘consideration set’ – a choice of stores that come to your mind unaided; that would fulfil your planned purchase. But, malls being what they are – one indistinguishable from the other; and stores inside of the malls; all looking increasingly similar, you tend to stray into any store that scream out their discounts the loudest.

If you are a retailer; every time a customer chooses to enter your competitor’s store, you are so much farther away from influencing his or her buying decision - even the vantage location (place) where you are located; seems to have little or no impact.

Is it true therefore, that the loudest and brightest advertisements or announcements of discounts always snatch away a customer? Are you, as a retailer completely at the mercy of what may attract (or rather distract) a potential customer from entering your store? Do you also have to spend on full-page colour advertisements or do up your store windows or erect discount posts outside your store to attract customers? Is it then, a battle of the advertising rupee - that takes away any edge you may be able to derive through your smart marketing plans (promotion).

We know it too well that – one retailer can outdo the other in the choice and assortment of merchandise offered (product) and the price at which it is being offered (price). With that, the four pins of McCarthy’s marketing mix lie knocked down on the slippery floors of retailing!

But, for retailers, a potential customer lost is a customer lost forever in these days of shifting loyalties. Therefore, is there something that we have missed here? How can you as a retailer ensure that a potential customer, safely and surely walks past all the tantalizing cacophony out there and step into your store to spend some of his money?

We agree that ‘Retail’ is all about ‘brands’ interacting with their ‘consumers’. And shoppers are people that have emotions and feelings; reacting differently to different stimuli. Their reactions can be made favourable or adverse – they choose to become ‘buyers’ or simply remain ‘shoppers’ depending on the influencers that interface with them during a shopping experience. In-store touch points have a significant influence on our shopping behaviours. While the product, price, lighting and ambience – inanimate as they are - play a limited role as passive influencers of purchase decisions; it is the human ingredient – as animate touch-points hold the highest potential to influence shopping behaviours and they can be ‘trained’ to ‘behave’ in a desired way to bring about favourable responses from customers. This makes our sales people the most pivotal of all interfaces between a ‘shopper’ and a ‘store’ – sales people play the role of true “catalysts” that convert ‘shoppers’ into ‘buyers’ while remaining unaffected themselves.

It is small wonder then that ‘planned purchases’ comprise only 30% of all purchases made. The remaining 70% are influenced on the shop-floor – a good part of them by sales people!

Getting salespeople to be better catalysts should be at the heart of any training program. Training retail salespeople is unlike how a tiger is trained in a circus - jumping through the loop at the lashing of a whip. It is more like Pavlov’s dog - who gets his feed to the accompaniment of a ringing bell – a conditioning that offers a reward for every effort.

Unlike the inanimate factors, ‘sales people’ can be ‘conditioned’. Much as ‘actors’ follow scripts while enacting their assigned roles; to the requirement of the ‘director’; so also sales associates can be trained to put up a ‘show’ every time a customer walks into your store. Having untrained sales people on the shop floor is like having all the characters on stage and having no script to follow! It is essential for retailers to first acknowledge the need to train – provide a screenplay and a script for their respective ‘retail shows’. And, find the right store manager to direct the play - who works with and through his sales team to bring about a cohesive and seamless performance to the liking of his customers, that results in a resounding applause (sales target). When this becomes a habit for a store team; the audiences (customers) will begin to ask for an encore each time (they will have compelling reasons to patronise your store again and again.)

It is for want of training that we see sloppy customer service around us. Retailers will do well to ensure that every training investment has these three right ingredients – 1) trainees with the right attitude to serve and the aptitude to learn (just as ‘casting’ is very important for a movie to get the right people to play the right characters). 2) A time-tested training curriculum that is both, enabling and empowering in its philosophy and approach (as critical as having a screenplay and a script) and 3) trainers who can empathize with the trainees and make the training impactful and enriching. (Just as makeup artists can make an actor look either like a prince or a pauper!)

In my next piece, I’ll write more on how to go about choosing the three ‘right’ ingredients.

Retail flavoured chai!

‘Indian Retail’ is like ‘masala chai’. The adjective ‘Indian’ lends a certain flavour to retailing that is similar to how the adjective ‘masala’ tries to qualify an otherwise universally worshipped elixir-of- life called ‘tea’.

We have heard and read about how retailing in India is very unique and different from what it is in other parts of the world. How India itself is many cultures, languages and in fact; many countries wrapped into one and therefore, it is usually argued that mass customisation is never possible for the Indian market. Here, one size certainly doesn’t fit all! Retailers complain of not being able to apply a uniform merchandise mix or a uniform pricing strategy across their stores. They can’t also run uniform promotions and maintain uniform stock levels. They say, retailing is challenging and customers lack loyalty; they are bullish value-seekers; ruthless and unforgiving.

I feel, just as the ‘masala’ in the chai can be cardamom; cinnamon or ginger or a combination of all of them; retailing in India comes with its unique flavours and idiosyncrasies. Here, I am trying to sniff and smell retail and decipher from the different layers of evolution (from experience both, first-hand and second-hand), the deep rooted influences of the times; just as a tea-taster would look for the colour, aroma and flavour of tea to decipher its season and grade.

It doesn’t seem unusual that hailing as we are from the oldest civilizations; we Indians began to trade with each other much earlier than the rest of the world. I recall from my fading memories of school history textbooks that the exchange of goods and services in India predates the birth of Christ. I guess our ancestors pioneered the barter system and used it very successfully until currency was invented. I understand that the hunters, gatherers and agriculturists began to exchange one produce for the other - that lay the foundation for trade in India. Stones used in making weapons and metals used in making jewelry were amongst the most popular of accepted currencies that formed a precursor to coins that came into existence around 680BC. It is small wonder therefore, that we are known as a nation of shopkeepers – the supposedly 12 million retail outlets bear testimony to the fact that we are innately wired for trade, commerce and entrepreneurship.

Exchange of goods first happened between individuals – say, where one with a surplus of wheat but in need of sugar; and another with sugar in surplus but wanting wheat; exchanged the two commodities in a simple face-to-face transaction. This perhaps paved way to where a bunch of guys with different products each, got together and discovered they could benefit from exchanging them with each other, causing the creation of complex commerce much like what happens on e-bay today; but sans the virtual infrastructure and credit or debit transactions.

I guess the next stage of evolution in exchange of goods was through community congregations in small villages and towns – known popularly as fairs or flea markets. In a way, these flea markets were makeshift malls – a collection of merchants, each selling a different produce; capitalizing on the collective power to draw traffic due to the ‘destination effect’ that merchants, as individuals could not attract by themselves. Next came the nomadic versions of these fairs; that moved from one village to another and camped at each village for a certain period; providing the local consumers with opportunities for shopping; leisure and entertainment. For most of the six lakh villages in India, such fairs and flea markets are the primary sources for meeting their routine family shopping needs.

Somewhere down the road, Indian merchants came to accept the fact that it is important to reach out to their customers. They stepped out of fairs and ventured in search of their customers - a true case of the mountain going to Mohamed! Thus evolved mobile retailing – a model that every product category from ice creams to water purifiers has embraced in the modern times!

Tradesmen went on foot from street to street and house to house carrying their wares. They announced their wares (marketing – ATL to be precise) as they walked the lanes so that people could be drawn out of their homes. When they were successful in piquing people’s curiosity; they tastefully displayed their wares (visual merchandising). The merchant carrying bangles would carry a bundle each over both his shoulders; with those glass bangles glistening in the scorching sun; blinding the greedy housewife that looked at them longingly. They stopped by and accosted the woman and got her into a conversation (not necessarily with an intention to sell, but to very innocently drop the fact that the neighbour two doors away had become the proud owner of the latest bangles in town!). The merchant didn’t have to take lessons in psychology to know that women generally don’t pass an opportunity to be one-up against their neighbours and so she would begin examining the bangles. The merchant then allowed her to touch and feel the bangles and he even slipped a few bangles on her slender arms (with her permission of course!). When she was smitten by their colours and designs and was convinced that they would look better on her arms than on her plump neighbours’, she would not hesitate to part with her savings - stashed away in the earthen pot atop the attic, from the prying eyes of her drunkard husband. The merchant knew how to induce purchase through free sampling (BTL if you will). He of course possessed in abundance, the gift of the gab to talk her into buying – ‘selling skills’ that made an instant connect with the customer.

Having successfully acquired a customer; he would then proceed to understanding her preferences – knowing precisely what colours and patterns his customer liked so that he could come back to her with new stock – building “loyalty” through “customer intimacy”. Merchants dealing in different merchandise adapted different means of transport. The bangle merchant went on foot; the utensils seller used a push-cart with his wares hanging from wires strung around four posts at the corners of his cart; the vegetable vendor would tie a circular basket or two on his bicycle or would tastefully display his fresh produce on a gunny bag spread over a push cart.

I suspect that the credit for the sobriquet that India is a nation of shopkeepers; should squarely go to the Indian middle class and its business savvy. Middle class families that owned pieces of land were smart in making investments that bore fruit. They knew about annuities and cash flows more deeply (but crudely) than today’s wealth management experts. When they built a building on their piece of land, they added a couple of small eight by eight or ten by ten compartments on the ground floor facing the road and fixed shutters on them. This instantly converted the ‘shops’ into a revenue earning annuity when they rented them out. This ensured that the family would never go without food even if the bread winner were unable to earn. All they had to do was to find an enterprising soul to set up his wares there. I would imagine a hitherto travelling salesman - who had amassed enough credibility or had enough savings to serve as capital; or both - would make an ideal candidate to establish a ‘shop’. The first obvious choice of format was a shop that catered to the day-to-day requirements of its immediate neighbourhood – thus emerged the kiranas . Other formats that made their presence alongside were a tailoring shop; a bicycle repair shop (that would later metamorphosis into a two-wheeler mechanic); a laundry; a men’s salon and a few assortment of shops. This rash of raw ingenuity, when replicated across the million lanes and by lanes of India; spawned entrepreneurship; market penetration; new format introduction and what have you.

For a middle class family; the shop on the ground floor also served as an outlet for an entrepreneur within the family – either as a pass-time for ageing but active elders or for the second or third son of a wealthy farmer - who was more adventurous than his agriculturist father – and decided to forward integrate into retailing to sell the produce his old man produced on his farm. He typically catered to two or three streets in either direction and would therefore know the man and his wife and their children of the one hundred odd homes in the vicinity. Besides knowing the head of each family by their first names and occasionally (by their second wives); the shopkeeper would soon learn their personal preferences – brands; pack sizes; quantity required by each family; their periodicity of purchase and viola; he had his buying plan. He would by now have figured out how often his vendor’s salesman visited his village and would therefore order just the right quantities to last for the week or the fortnight as the case may be. There was no question of unsold or dead stock. Therefore, there was no markdown – planned or unplanned! There was also no shrinkage until his business grew in size and necessitated employing assistants! Only that a tube of toothpaste here or a bar of soap there or a kilogram of rice would go missing only and when the shopkeeper – out of sheer samaritanism - employed his second cousin’s good-for-nothing son as a store help!

So, what middle class families did to ensure a continuous source of income by creating shops in their premises; turned out to be a bank of juicy real estate for budding and aspiring retailers. It also became a capital investment for a family member who wanted to set up a business. When the second son of the farmer got married - as if in one masterstroke and a very strategic one at that – he acquired a pair of hands that could serve him as store help for practically no cost – just as a prince would marry the daughter of one of his vassal kings; settling politics with pleasure! If the business thrived; he would rope in his siblings or cousins and occasionally his parents and there he had an extremely successful store fully manned with reliable staff at zero manpower cost!

The shopkeeper had barely gone to school and so had his new wife or other store help. Therefore, education never figured in the scheme of things, and least as part of the eligibility criteria for the retail store. Apart from offering meaningful occupation to the entire family, this phenomenon fostered entrepreneurial spirit. It required very little working capital as the shopkeeper bought small quantities of merchandise each time and also enjoyed supplier credit. His low inventory model and quick replenishment ensured freshness of stock; facilitated a deft introduction of new products; increased stock turns and therefore a healthy GMROI. Add to this, practically no manpower cost and no shrinkage and (if the shop was located in the family-owned premises as most often was the case) there was also no rent outflow. Therefore, there was very little operating expense and that left little difference between gross margins and EBITDA or even PAT!

Indian entrepreneurship is too resilient to go out of fashion; and more so, its retail entrepreneurship. Panning our vision to modern retailing, we soon realise that customers have changed in their awareness and preferences. “Value” - an intangible that could take the form of price; quantity; durability (but surprisingly not so much quality) keeps customers and retailers go round and round in circles. Product and price differentiations are obliterating boundary lines between brands and retailers.

Only lessons culled out from this evolution - rich in essence and potent in sprit – can come in handy for every retailer to get closer to his customer. Home-made recipies may serve well for ‘Masala Chai’ but, retailing requires more than a fair share of willingness to constantly learn. Any retailer who cared to invest in applying these learnings to suit his business model; would benefit from the blessings of time-worn retail basics.

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”

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!