Any retailer who wishes
to survive long-term in today’s competitive arena must be able to answer this
fundamental question; what makes your store(s) different enough for the consumer
to choose to do business with you?
The retail marketplace
is now oversaturated and the next decade will continue to see consolidation and
domination in our industry. Wal-Mart continues their incredible growth
strategies that are changing the way the world shops and, subsequently, changes
the way we retailers must operate.
Beginning in the 1970’s
the proliferation of large malls was the death of many downtowns along with the
locally-owned retailers and regional chains that inhabited them. Those that
survived adapted to the new retail environment. The 1980’s and 1990’s saw big
box category killers and national discount general merchandise retailers once
again change the retail landscape, putting competitive pressure on the malls as
the malls themselves once pressured the downtowns and their retailers. Those
that survived adapted to the new retail environment.
Consumer shopping habits
have forever changed. Faced with substantial loses in their 401Ks and an
uncertain job market, consumers of all income levels have become value oriented
shoppers. Supercenters, large discount stores with an all encompassing product
selection, are becoming the dominant retail force and are now a primary shopping
destination for most consumers. Recent studies have predicted that supercenter
sales are expected to triple in the next seven years. Triple! National chains
offering top brand names at deeply discounted prices are now in most every
market in America. Once again, locally-owned retailers and regional chains must
adapt to survive.
Wal-Mart continues to
hone their well-oiled retailing machine and apply their proven approach to new
markets, recently becoming the largest grocer in the United States. They
continue to expand in to new areas like gasoline, financial services and other
businesses. If Wal-Mart doesn’t sell what you sell right now, there’s a high
likelihood it’s only a matter of time before they will.
Beyond Wal-Mart is
Target, who is targeting (pun intended) a more fashion conscious consumer who
has become accustomed to value oriented shopping. Other dominant retailers
having a huge impact on local retailers and mid-size chains include Best Buy,
Home Depot, Kohl’s, Lowe’s, Marshalls, Barnes and Noble, and Staples. And retail
is no longer done just in storefronts but also online with internet pioneers
Amazon and EBAY, as well as countless websites that have made pricing
transparent and anything you want to buy a click away. So I ask again, why will
the consumer choose to do business with you? How will you adapt in this new era
of retail?
Retail Model
On a basic level, retail
is a combination of three components; Product, Process and People. Within these
components are elements that when put together form a retail model. This model
can be easily debated but my experience has shown that it’s easily understood
and encompasses the critical elements for discussion.
Here are the model’s
main components and elements.
Product
1. Product Selection:
Product selection is made up of three elements:
Market segment. This
determines the type of products to be sold>
Scope. The range of
the segment(s),
Quality. The
characteristics of the segment and scope.
2. Price: The price the
consumer pays for the goods offered by the retailer.
Process
3. Operational activity:
Includes inventory procurement, inventory management, and all necessary
administrative activity.
4. Structure: The
organizational structure necessary to operate the retail enterprise.
5. Location and site
management: The physical plant and location.
People
6. The customer
experience: What the customer experiences when conducting business with the
retailer.
7. The employee
experience: What the employee does and experiences when working for the retailer
and interacting with the customer.
8. Services: Services
such as delivery, installation, in-home sales, and personal shoppers are just a
few examples. Services are considered a people component as they are most often
performed by people and their quality is determined as such.
A retailer’s aspirations
and mission drive the choices and activities within each element. Strategic
decisions and tactical execution of the elements make up the retailer’s identity
in the marketplace.
Success Formula
It is impossible for a
retailer to be all things to all people, though many companies have failed
trying. Companies must choose - either consciously or unconsciously - the
element that is to be their primary competitive position. Without a primary
competitive position there is no key strategy and no identity, resulting in
overall mediocrity, a sure formula for failure.
Wal-Mart’s primary
competitive position is pricing. 7-11’s primary competitive position is
location. The Gap’s primary competitive position is product selection. To have
long-term sustainable success a retailer needs to be a market leader in their
primary element. The market is determined by both geography and competition.
Because of the internet and the proliferation of dominant retailers nationwide,
geography has become less of a market factor.
Successful retailers
also focus on secondary elements; those elements at which a retailer can
outperform the market standard and complement the primary competitive position.
When a retailer is a market leader in their primary element and has one or two
secondary elements in which they outperform their competition, they are on their
way to market dominance.
You must always meet the
market standard with all your elements in the model. These often changing
standards are set mostly by consumer expectations and the competition’s ability
to achieve them. Below market standard on any element may neutralize the primary
and secondary elements.
Using Wal-Mart as an
example, we know their primary element is pricing but they also dominate in
product selection as well as in all of the process elements. Kohl’s is moving
towards market dominance by having price as a primary position and location and
product selection as secondary positions.
Note that marketing is
not one of the elements. Marketing is the activity that communicates the primary
and secondary element to the consumers and drives them into the store.
Do you know your primary
competitive elements? The fact is many small retailers don’t. Are you a market
leader in it? Do you have any secondary elements that you can exploit? And most
important, is the customer choosing you because of it?
The Future of Retail
As discussed, the
marketplace is more competitive than ever with big box retailers and national
chains dominating the marketplace and predictions of even tougher competitive
conditions ahead. Caught in this change will be mid-size chains, small stores,
and any retailer who cannot be a market leader in their primary position. This
change may or may not mean that these retailers won’t exist in the future. If
they do exist they’ll be faced with no or reduced growth, thinning margins, and
limited profitability.
The trouble ahead for
many retailers is this: a good number of small and mid-size retailers today
identify a product element as their primary competitive position, the same
component in which the dominant retailers of today and tomorrow are leading the
market. Not long ago a retailer could carve out a niche in the market with a
well defined product selection strategy. Because of shorter product adoption
phases, quicker commoditization of products in almost all product segments,
rapidly changing customer tastes, and a wider product scope being carried by
dominant retailers, this is no longer the case. Few retailers and even fewer
smaller retailers can be market leaders in any of the product elements. The fact
is these retailers must shift their primary competitive position away from the
product component and differentiate themselves in some way or else face an
uncertain future.
Why a
People Position?
The greatest opportunity
for many retailers in this situation is to differentiate themselves by shifting
their primary position from a product component to a people component. At the
same time they must maintain their product element(s) as their secondary market
position. While this is not an easy feat, the customer will likely reward those
who can make such a bold transition. Another alternative, depending on market
segment, is for a retailer to create differentiation by maintaining their
current primary position but develop a people component as the secondary
position.
Remember, the people
elements are customer experience, employee experience, and services. These
elements have some advantages over product elements. They cannot be
commoditized, they add value to your customer’s lives beyond the product itself,
and they are difficult for large retailers to execute, rarely exceeding customer
expectations.
People components focus
on outcomes by putting the customer and employee as the focus of the retailer,
not the products or processes. This is not customer service. Customer service is
a phrase so overused today that we don’t even have a common understanding for
what it is. And when we do, it refers to “waiting on someone”. Retailers who
“wait” on someone will be waiting for profits.
Experiences are how
customers act and feel as result of being engaged with your employees, your
products, and your physical store. It’s taking key in-store activities like
selling, merchandising, and collateral and using them to better educate your
customer and give them the best possible experience. It’s an entire company
focused on delivering a “WOW” to the customer. Customers who receive above
market experiences are more likely to purchase, be a loyal customer, and
recommend your store to family and friends. You have no better advocate than a
customer who receives a great in-store experience.
Retailers who are
leaders at customer experiences are also leaders at employee experiences. They
understand that employees are the company to their customers. They see employees
as people and not as a line on the expense statement. Most important, they know
that if they want to have employees give their customers an experience, the
company must first deliver one to the employees. Many retailers treat employees
well, so focusing on employee experiences is not a difficult transition. Many
other retailers lack respect for their employees and they don’t treat them as
well as they should. For these retailers the transition will be challenging. The
greater problem is the number of retailers who think they treat employees well
but in fact don’t do as good as job as they think. The tell tale sign is a
company’s employee turnover rate and how it compares to the industry average,
although as an industry our turnover rate is much too high.
The final element in the
people component is service. Service is both a differentiation opportunity as
well as a profit opportunity. Services are often cumbersome and difficult to
execute, which make them more suited to the smaller companies, although many
large retailers are successfully outsourcing them. Home Depot’s Expo stores have
changed how stores sell service and installation, giving consumers a one stop
shop. One key point about this element: if you make it a primary or secondary
competitive position you must do it right. Often this is the last contact point
with your company. A poorly executed service can be detrimental to any repeat
business. Bad service is easy to do and is done by many retailers. Exceeding
customer’s expectations with service is difficult but consumers will reward
those who do it well.
Theory or Practice?
Executing customer and
employee experiences as a primary competitive position is what we at Dynamic
Experiences Group refer to as Experience Based Retail. This is a systematic
approach to implementing employee and customer experiences. It’s executed by
focusing on four strategic areas that we call the 4 Es of Experience Based
Retail. They are Environment, Engagement, Entertainment, and Education. We will
discuss these in greater detail in later papers.
Some believe this is
more theory than true practice but there are successful retailers who execute
Experience Based Retail and the market has rewarded them handsomely. The reason
we don’t hear or see it much is because, as discussed, most retailers are
product focused.
One retailer who is a
model for those wanting to execute a people component strategy is The Container
Store. With 28 stores in 15 markets around the country, The Container Store is a
great place to shop and a great place to work. They have been named the top one
or two best places to work by Fortune Magazine the last four years in a row.
They average 20% sales growth yearly and employee retention rates far above the
industry standard.
Another great example is
a Boston based chain, Jordan’s Furniture. If you’re from Boston or visit here,
you know about Barry and Eliot Tatelman, the two brothers who run the four store
chain that was started by their grandfather back in 1928.
There are many elements
of Jordan’s Furniture that has made them a success including operational
refinement, a phenomenal advertising strategy, and knowing and hitting their
target market. Most important is that Barry and Elliot turned buying furniture,
a tedious and uneventful task into an incredible customer experience.
How successful have they
been focusing on people? The average furniture retail chain averages between
$150 and $200 of sales per square foot. Jordan’s averages close to $1,000 a
square foot. The average furniture chain spends about 6% of their annual revenue
on advertising and runs countless sales. Jordan’s spends only 1% to 2% of their
revenue on advertising and never runs a sale. Jordan’s was recently acquired by
Warren Buffet in an all-cash deal worth about $225 million dollars. The
Tatelmans maintain total control of the day to day business. Not bad for two
guys who love to laugh and have fun with customers and employees alike.
Into Action
Creating and executing
an Experience Based Retail strategy takes both commitment and a willingness to
change. For some retailers, especially those who want to create customer
experiences as a secondary competitive position, it may require less change.
Either way, it is quite rewarding to put people at the heart of what you do.
There are numerous ways
for retailers to begin to take action and create incredible customer and
employee experiences. Many retailers may choose to put together a new strategic
direction for their company.
Others may want to put into action some of the following suggestions. Either
way, you’re on your way to differentiation though experiences. Here are some
suggestions:
Educate your customer: Help your customer obtain the information
necessary to make an intelligent purchase decision. Retailers who focus on
product are interested in getting a product out the door but retailers who focus
on people want their customers purchasing the right product. This can be done
with seminars, in-store trainings, and product demonstrations. Group product
demonstrations and showings are the most under-utilized sales methods in retail.
Why sell one-on-one to a customer when you can sell to a group?
Focus on benefits:
Most market segments are focused on price and product features. Customers don’t
buy features but rather they buy products that improve their lives. Retailers
who translate what they sell into benefits for customers will be rewarded.
Be inviting: One
of the first steps toward a better customer experience is to make sure customers
are welcomed to the store. Customers like to be acknowledged and greeted but not
pounced on. Teach employees how to welcome people as well as thank them for
their business. I wish I had a dollar for every time I said thank-you to a
cashier and they said “no problem”. I feel like saying, “no, that is a problem
and didn’t you learn any manners from your parents?”
Be a great place to
work: Happy employees make for happy customers. Pay your employees well with
creative compensation plans that allow them to share in success. Create
recognition and reward programs along with fun and engaging contests. Empower
people to make decisions and give managers the opportunity to run their
businesses. Communicate openly to your employees, think of them as partners and
not subordinates. Be flexible. Make work fun. Most important, respect your
employees and let them know how much you appreciate them.
Be a fun place to
visit: Jordan’s Furniture is a fun place to shop. Their flagship 130,000
square foot store in Natick, Massachusetts is based on a New Orleans Mardi Gras
theme complete with a greeter who offers you beads upon entering the store.
Every hour “Bourbon Street” comes alive with an exciting animatronics show
complete with Elvis, The Village People, Louis Armstrong, and Barry and Eliot
themselves. Adults and children alike come to the store to see the show and eat
lunch at Kelly’s Roast Beef, and maybe when they’re there they look at or
purchase furniture. And chances are if they don’t purchase on that trip, they
will purchase at Jordan’s when it’s time. Most of us are not in a position to
make this large of an investment to entertain customers. But with a little
creativity and effort, you and your staff can create a fun place to shop.
Keep the focus on the
customer: Well-kept stores are important. Replenishing inventory is also
important. Focusing on the customer while they are in the store is the most
important. Executives and managers need to make sure they are always
communicating this. I once worked for a company that had a noble goal of
maintaining perfect stores. I learned a lot about myself and managing people in
attempting to achieve the goal. Unfortunately the company’s actions communicated
the message that a clean store was more important than helping customers.
Whenever the chairman of the company was in the corporate jet, destination
unknown, 75 stores stopped focusing on the customers and instead were feverishly
cleaning their stores. I always wondered how much revenue was lost on those
days.
Invest in your
people: Find great people and keep them. Invest in the employee’s training
and development. At The Container Store every first-year full-time salesperson
receives more than 235 hours of training, over thirty times the industry
average. Each Container Store has full-time employees who are dedicated to
training all store employees on the features, advantages and benefits of each
product, as well as specific training on how to best service and sell to their
customers.
Have a retail floor
strategy: Most chains have a CRM strategy, an inventory replenishment
strategy, an IT strategy, and so on. What scores of retailers lack is a well
defined retail floor strategy. Don’t confuse training employees with a floor
strategy. A well defined retail floor strategy should define the desired outcome
for customers and create tools for the employee to engage the customers.
Expectations must be set for the employees along with mechanisms and rewards to
drive the desired behaviors and outcomes. At Bose, our retail employees knew
exactly what was to happen at any given time, much like a well diagramed
football play. Most stores could execute it like clockwork.
The Road Less
Traveled
Delivering experiences
is considerably more challenging than selling “things”. Most retailers are not
willing or able to take on the challenge of delivering experiences. The good
news is that the road less traveled is often faster and more scenic. I hope to
see you on the road less traveled. Good luck and keep it fun.
- Doug
About the author:
Doug Fleener is founder of the Dynamic Experiences Group. He is a veteran
retailer with more than 25 years of hands-on retail experience with world-class
retailers including Bose Corporation and The Sharper Image. He has also owned
and operated his own specialty stores. His new book, The Profitable Retailer:
56 surprisingly simple and effective lessons to boost your sales and profits
published by Acanthus Publishing.
Doug is now president and
managing partner of Dynamic Experiences Group LLC, a Lexington based retail
consulting firm dedicated to helping retailers create unique customer
experiences that results in higher sales and profits. Learn more at
www.dynamicexperiencesgroup.com or call Doug at 866-535-6331.
Fleener also shares his
knowledge of experience based retailing in a series of custom key notes and
workshops designed for stores, businesses, corporations, non-profits, and trade
associations of all sizes. His casual style and quick wit make him not just a
crowd pleaser but also an incredible motivator, encouraging people to take
action and deliver extraordinary experiences to customers and employees alike.
Learn more at
www.dougfleener.com.
