Check it out yourself

A month or so back I had put a post on how Whole Foods is using a different approach to minimize check out times in its Manhattan stores. What I had noticed about Whole Foods was that they did not have any self checkout aisles. To me self check out is a very convinient option as I am very conscious about how many bags I use to fill my groceries. Often baggers at full service aisle, double bag and dont optimize the number of bags they use. But what I have often noted is that often a lot of customers get stuck with a bad label or produce item without PLU etc. That always use to make me wonder what is the benefit of this system. A full service aisle will help you checkout faster with experienced clerks entering and scanning your ticket items. The only explanation I could come up was perhaps the labor savings offset the investment. Turns out that self checkouts (SCO) isnt perceived any longer as a technology that helps you save some dollars but more of a customer habit. A very interesting article by Retail System Research's Nikki Baird talks about her experience at a user conference on self check outs. Some very interesting observations made by Nikki are summarized below,

• "...many of their customers are already trained on using self-checkout, and so are coming to expect that SCO is part of the shopping experience – at least for groceries. To these retailers, SCO is a customer service play required to keep up with larger chain competitors. They view it as a customer service benefit, increasing the amount of choice a consumer has over how they go about buying their groceries"
• "Consumers expect all of the same services at SCO as at any other register ". This is cited through an example of cash back transactions on debit cards. This is very convinient for a consumer as he doesnt have to take the trouble of stopping by an ATM. A lot of retailers dont provide this facility at self-checkout thereby affecting the customer convinience
• "There needs to be enough space within the “pod” of self-checkout stations so that carts can maneuver – not less than seven feet and more like eight". This is an interesting observation and more important in a self checkout scenario since all the material handling is done by the customer. Now this reminds me of this neigbourhood grocery store who had their SCOs facing the entry/exit doors. Well you'd think that is convinient but during winter time I saw many a troubled customers as every time someone stepped into the store a cold breeze would sweep the SCO sending shivers through potentially loyal customers!!!

India Retail contd...

I had a chance to listen to a webinar on an India Retail tour done by a Retail Forward analyst (Subscription maybe required). It was a very interesting approach where the analyst went to 4 major metro cities (Mumbai, Delhi, Chennai and Bangalore) and took a tour of some of the major stores in apparel, grocery and general merchandise specialities. It was more of study by observation then really looking at major statistics but regardless there were some interesting numbers thrown. Some key highlights

• India is among the 6 fastest growing retail markets with a CAGR of 10.4 % for non-auto retail.
• The more interesting part is that 96 - 97% of the retail sector is unorganized with over 12 million small mom and pop retailers. There is one exception to this - apparel, where the organized sector penetration is about 20%
• About 65% of the retail sector comprises of grocery. The spoliage rate is extremely high for produce going upto 35% of the total inventory.
• World over the real estate cost component comprises about 3 - 6 % while in India it is in the range of 7 - 27 % (!!!!) of the total operating costs.

Beyond the above numbers, some interesting observations were made by the analyst on what Indian retail does right. I am listing a few that I could note down

• India seems to offer a very high degree of development in visual merchandising. Right from the street fruit and flower vendor to the bigger departmental store, there is a big emphasis on making the merchandise visually appealing. Shopping is viewed as a family outing and retailers tend to make their store fronts as attractive for them as possible
• In addition to the visual appeal of the merchandise, smaller retailers seem to be very good at space utilization. Perhaps the higher than average cost component that the real estate has in the cost component is responsible for this. The report cites the example of a local panwallah (betel leaf vendor) shop where colorful merchandise is hung vertically to make as much use of space and at the same time display it to the potential customer
• There are some stores which are somewhere midway between organized and unorganized retail. Saravana stores in Chennai is cited as an example. This store targets lower to middle class customers with multiple levels selling apparel, consumer goods etc. Its unorganized aspect is its high reliance on manual labor to process orders where one associate packs, other provides a counter receipt, another is a runner who takes the ticket merchandise to the front desk for customer to claim. Its organized aspect is the fact that they have cut all middlemen and directly buy from the producers. Their model is low margin and high volume.
• From a branding perspective there is a trend of Indo-Western fusion. This is seen all the way from apparel to foreign fast food restaurants adapting a more local flavor and providing wider vegetarian options.

How India shops

A special report was published by Mckinsey Quarterly on the retail climate in emerging economies (Brazil, India and China). An article here talks about the apparel buying behaviour in India. I probably already mentioned before that more than 95% of the Indian retail sector is unorganized. Apparel however has a slightly larger component in the organized sector. Some of the key findings from the report,

• "nearly 40 percent of the mass-market Indian shoppers surveyed said that their most important shopping occasions revolved around special events, such as weddings and annual religious festivals—a figure dramatically higher than the one for shoppers in the other emerging markets"
• "greater extent than elsewhere, shopping is a family activity in India: nearly 70 percent of its shoppers always go to stores with family, and 74 percent—more than twice the average of Brazil, China, and Russia—view shopping as the best way to spend time with family." - this I think is unique. In most developed economies, shopping during annual holidays is seen more of a stressful activity while in India it seems like an activity for family fun.
• And this one is the most unusual - "India is unusual in that the market for men’s apparel is larger than the women’s market, where traditional Indian apparel still dominates". Somehow growing up in India I never noticed this. I always thought the women in the household has many more clothes/accessories. I would definitely like to see the numbers around this.

One interesting thing about the report is that they have surveyed only women to study the purchasing habits citing that - "women in many markets not only decide what clothes to buy for themselves but also influence clothing purchases for their children and husbands". I wonder what the basis for that assumption is but on a lighter note I was reminded of this ad from childhood while I was growing up in India. It centers around this quintessentially Indian family woman who is justifying why she chooses a specific detergent for her family. Its in Hindi and unfortunately without sub-titles but was one of the early TV ads on detergents and the ad agency looks like had the same idea in mind - that women make the key buying decisions in an Indian household.

Day after Black Friday

As reports trickle in about the performance of various retailers about their performance on Black Friday some interesting finds through anecdotal findings and expert opinion where reported in this article on WSJ. Some key takeways,

• "Based on early feedback, Friday's results likely matched expectations for flat customer traffic but small growth in sales" - It will be interesting to see if this is just an effect of retailers being cautious on how much to discount by resulting in the average ticket sales to go up a little.


• As per one of the Accenture experts cited in the report - "It looks like retailers are hoping to make up margin dollars on the higher-margin items while pushing smaller products at deep discounts" - Sounds contradictory to me considering that the big lines on the electronic item shops was for big ticket high margin items like HD TV and Notebook computers


• "Some retailers highlighted cheaper merchandise in their ads this year, giving cautious spenders more of a reason to show up. Best Buy, for example, devoted the front of its advertising circular to products such as a Dynex 32-inch LCD HDTV, discounted to $449.99 from $749.99. Last year, Best Buy's ad for Black Friday gave more prominent billing to TVs that cost $1,000 and more." - This is a no brainer. I think retailers would have had to do this to attract more traffic.


• Some interesting numbers on online sales - "Online sales hit $52.9 million on Thanksgiving, on 1.09 million orders, according to the Chase Paymentech Pulse Index, which tracks payments generated by 10 of the top 30 U.S. Web merchants as ranked by Internet Retailer magazine. Last year, online sales reached $42.3 million, and 863,880 orders were processed" - considering the fact that store traffic was flat, this may come out impressive.

Lastly my own anecdotal report on this years Black Friday. I resisted the urge to go to Best Buy but the more I looked at the Sony laptop deal, inspite of heavy lunch, I dragged my self out to a nearby Best Buy in Kennesaw, GA. Reaching there made me realize that I moved 5 hrs too late. The below picture was taken at 10 pm on Thursday (pardon the bad quality). I wasnt surprised though with the outdoor tents and the gas burners used by enthusiasts to keep them warm

Black Friday coming

Before the early morning craziness begins and lines of shoppers rampage through stores, one last look at the holiday season outlook. This one by WSJ(subscription maybe required) speaking about the cautious approach to markdowns by most retailers. It might seem like the weakening economy might propel retailers to do faster and steeper markdowns but they are using IT tools to slim their inventory and use past data to forecast demands and perform more planned markdowns - "The industry has embraced price-optimization software that looks at past sales trends to determine where to set the initial price and when to trigger markdowns. The aim is to help store managers avoid panic-driven discounting if early sales are weak". It looks like apparel is one area where steeper markdowns might be seen cites the article - "Clothing is a prime candidate for more discounting as warm fall weather has discouraged purchases. John D. Morris, a specialty retail analyst at Wachovia Capital Markets LLC who tracks sales racks at clothing stores, says there were 5% more in his latest survey than a year ago". On the other hand high end speciality retailers are bucking the markdown trend and figuring out ways to increase traffic - "The most upscale stores, whose shoppers appear to be least threatened by the slowing economy, are eschewing discounts in favor of testing ways to increase store visits.". Some of them are offering gift items for bigger purchases.

Orderly Black Friday????

Looks like all the mad rush that you encounter the morning after Thanksgiving might be handled in a much more orderly way if retailers are going to successfully implement what is described in this news brief. Best Buy and some other retailers are planning for handling the line of customers that go all around the block in an orderly way with ample hands manning the check out registers to provide a good customer experience. One of the store managers explained it as "Just like a football team, if you're running to the right, the blockers need to know which way to block," he explained. Except Best Buy's employees don't aim to block anything; rather, their goal is to orchestrate an orderly flow". One of the things which is difficult to control however is the customer desperation to get to the sweetest deals before they run out. A few years back I remember waiting outside the Best Buy store the day after Thanksgiving and they did something very sensible. There were about 20 HP laptops which were offered at deep discount deals. Half an hour before the store could be opened, the store manager walked along the line asking for who were there for the laptop deal and handed out tokens. Once the tokens were over, anyone down the line wouldnt get the deal. Otherwise you can imagine two customers pulling a laptop from two ends and the store manager tearing off his hair. What I keep wondering is what if the store published a floor plan and the deals are mapped on them. If I am looking for a flat screen TV, wouldnt if be better if I knew exactly where it was so that I dont end up coming in the way of anyone else rushing for a deal in another area? Just a thought...havent been to a crazy Friday morning since a few years. Maybe someone has already implemented this idea.

Boomerang

I came across this interesting article in Store Front Back Talk magazine talking about the phenomenon occuring as retailers are moving towards a coordinated selling across multiple channels. The transition is not complete and the results are far from what the article refers to as "utopian" world of multichannel retail where a store manager can look up articles browsed by customers from in-store kiosks to determine what to order. Many retailers are using emerging channels to drive customers to in store purchasing. Example are cited of Wal Mart sending out alerts of instore items available over text messaging or an upcoming store in Madison allowing customers to read user reviews of product through a bar code scan. So where does the boomerang come from...well what is boomeranging is the movement of customer first from online to get information on products, promotions etc then to the store to try out products and again to check its user ratings back online. Now why exactly is this happening? could be multiple reasons - one of them being retailers still havent figured the right IT architecture to synch up the multiple channels at play. But is IT the only challenge here? there could be more - one of which is cited by the article as - "Such true merged channel data exchange would also require political changes, with senior management ordering that walls between channel business units be either brought down or at least made ultra-porous." In an environment like retail where distinct departments like merchandising, store ops, ecommerce, logistics, marketing have to work together change management effort and its successful implementation is critical for multi-channel success. Till that time customers will keep boomeranging!!!!
On a very separate and a very conventional note, the article states that "studies show that 25-30 percent of footwear customers leave the store as the sales associate goes to the back room to retrieve the specific size footwear for the customer." Something as simple as a handheld with software functionality to check back room stock and create a task to have the desired item retrieved from the shelf by alerting a runner could work as the store associate continues to engage the customer. Even in the emergining world of cutting edge retail technology good'ole scan gun and a personable associate can go a long way.

Yet another free shipping post

Firstly to start out, I have been a little behind on posting here due to travel and holiday shopping and celebrations :-). Continuing with the holiday season discussion and how a shift has been happening in buyer behavior to shop more online, as a follow up to my previous post on free shipping, I found an interesting article on how different online retailers have determined their online free shipping strategy. All the 3 online retailers that were interviewed in this article emphasized on knowing their shipping cost structures and its effect on their margins to decide whether to offer unconditional free shipping or not. Some of the key observations cited in the article are,

1. How do you view your free shipping charges?: As one retailer put it, "It's simply the cost of doing business, like having a state of the art distribution center and a world-class team of highly trained sales engineers"
2. How do you time your free shipping offers?: Depending on the nature of your business, you can either use it to drive your holiday season volumes high or as one retailer quoted in the article put it "We concentrate our free shipping or shipping discount offers to our off-peak season which helps generate revenue during the slower summer months."
3. How do you estimate your free shipping chares? As one of the spokeswomen from UPS quoted in the article said "If your product falls into a larger-load category, or does not conveniently fit into a box, shipping charges can go beyond the cost of the actual product. If you do not know the dimensions of your final package, the total shipping charges can show up on your bill after the customer has already received the order, leaving you responsible for the additional charges, so it's critical to know your products shipping dimensions and weight — and use a carrier that offers a variety of shipping options"

Multipronged approach

It goes without saying the tremendous growth seen in retail online sales. However this has resulted in parallel companies (stores, website, catalog) operating within a retail organization which seem to be sometimes disconnected in their approach. Some retailers have integrated these functions to an extent in terms of look and feel. The question however is whether is that sufficient to stay competitive? I came across an article which talks about some of the best practices implemented by retailers ahead of the curve in the multi-channel world. Below are listed some of the key observations

1. Cost Effectiveness: Carrying the right assortment in your stores and offering wider ones in your online store can help cut down costs and at the same time provide opportunities for customers to buy the items. Penny's is cited as a good example of that "What are the secrets to Penney's success? For one, its Website offers almost three times the number of products available in the merchant's stores. This gives the company a cost-effective way to sell bigger-ticket, often slower-turning items."
2. Flexibility: Being able to fulfill customer demand from across channels gives the customers flexibility and the retailer the brand value of being customer centric. The article talks about some retailers using drop shipping as a means to drive that - "That kind of channel inventory flexibility requires a willingness to ship (or allow customer pick up) from different channels to make the sale and satisfy the customer. Some direct businesses are gaining significant sales with drop-shipped product. One major retailer with direct sales exceeding $200 million has 20% of its sales drop-shipped from its merchandise suppliers." From a retail systems perspective, having a common master data, inventory planning and replenishment system can help achieve this flexibility . The article mentions about the effect of inflexibility - "An inability to move or ship product from other channels to make the sale means inventory is frozen in one channel when it's needed in another. You need to aggregate or roll up inventory needed in a specified time frame ito place purchase orders and plan receipts. "
3. Uniformity: Often you go into a store and you dont find the same deals as you see online. Many retailers provide a loyalty program only in their stores. This approach doesnt provide the customer a uniform experience which is key to building loyalty - "Returns and customer loyalty programs should also operate across channels" and how to achieve this - "The key to cross-channel consistency is having single operational data stores and data warehouses across all channels for access to cross-channel product assortment"

Just another manic monday?

As online retail traffic continues its upward trend with every holiday season, new business terms keep getting defined to explain the phenomenon. The latest addition to the list is "Cyber Monday". Created by the National Retail Foundation it represents the first monday after the Thanksgiving weekend when consumers return to work and spend time shopping online to make purchases for the holiday season. I came across a very interesting article on how cyber monday sales can be boosted by not just online ads but by complementing them with non online ads. The article says - "One limitation in the search space is volume. There are only as many searches as there are people multiplied by the queries they do." The publisher of the article found that - "20% of all search volume can be correlated to TV GRP volume. So, while we've always known that TV creates an interest that search can fulfill, this gives us sufficient evidence that it creates a volume of interest which can substantially move the impression needle, and therefore increase CTR and potentially CVR for your campaigns". So in a time where ad spends are progressively shifting to online media, looks like there is still some steam that can be driven off of traditional media to drive traffic to online sites.

Get it to your doorstep for free

As holiday season is getting closer and closer, and consumers are shifting more and more to buying online, a host of retailers are offering free shipping. A recent report by CNBC interviewing Shop.org president, Scott Silverman talks about how nearly 50% of the US population will make online purchases this holiday season. An interesting part is that free shipping is become very common. A random check on the websites of top retailers (Macy's, Targer, Neiman Marcus, JC Penny's) shows free shipping offers of some kind. In most cases they are conditional upon the total purchase. The shipping option is however restricted to only standard shipping. Any kind of expedited shipping will be charged. Also if the boxes are to be shipped to multiple addresses, only the delivery to one shipping address is for free. In some cases, the option of free shipping is available only if you choose to put the items in minimum possible boxes which is very intuitive since most parcel carriers charge by the box, unless you exceed their 100 wt requirements. So it seems like free shipping is no longer a promotion, its become a cost for doing business. This entails, the retailers to rethink their contracts with standard parcel carriers. Another aspect of free shipping is service level - how soon is the customer going to receive the package. Standard UPS Ground shipping can take anywhere between 5 - 7 business days. So is the customer going to buy something that he needs to gift and choose a free shipping option? One way to support a high service level and still provide free shipping is by doing what is referred to in the small package industry as zone-skipping. The idea is to identify regional parcel hubs and sort your packages by those hubs and line haul (fill a truck) it to the regional hub. Basically, you are avoiding your packages going through multiple sortation points in your parcel carrier's network. At the same time this strategy can help the retailers negotiate better rates as they are effectively doing a lot of the sortation work that the parcel carrier would have to do. Of course with more retailer joining the free shipping bandwagon, the rate negotiation advantage might tilt towards the parcel carriers.

Introducing Retail 101

As part of my effort to cover diverse areas of retail, I am planning to include a post once a week which will describe some key concept in retail using published articles or information gathered from academia. The idea behind it is that it will help better understand some of the terms which are often taken for granted in standard industry white papers and news briefs. So starting this week with the concept of Demand Forecasts . In retail there are 2 key things customer satisfaction and lesser inventory. Now if you always had full stock of every item that you had to offer, there will never be any stock outs and thereby a customer will never go back not being able to buy what he wants to. But there is a cost to it - till the time that someone buys the item, your money is locked into that item. That money could have been invested somewhere or kept in your savings account and would have earned some intrest. So what am I getting to? If you could read the minds of all your customers in terms of what they want (kind of like Mel Gibson in What Women Want) then there wouldnt be a problem. You could place orders accordingly and satisfy your customers and keep your inventory low. Sadly, very few people (or maybe no one) has that kind of clairvoyance. Thats where forecast comes into picture. So like in every relationship, as time goes by you begin to understand the other person/party better, as time goes by you gather an idea of what your customers buy, how much they buy and at what time they buy. And using this information you start predicting what they would want in the near future. That is in some way a forecast. Ofcourse its easier said than done. Several forecasting models have been created and its as much an art as a science to select the correct forecasting model. There are other factors like promotions etc. which can change your forecast. I came across a very good article in Supply and Demand Chain Executive by Atul Mandal who is a project manager with Plan4Demand a boutique consulting firm. Mr Mandal is ofcourse more experienced in forecasting and explains very well some of the underlying concepts behind choosing a forecasting model. Thats our Retail 101 for this week...stay tuned for another one next week.

Less is more

I came across a very interesting white paper by Kaon Interactive on how to create a "wow" factor in the retail customer's experience. The paper begins with citing some very common obstructions to achieving this in the retail stores. A summary is given below

1. When too many product features or categories are available, customers find it difficult to understand and evaluate options. This results in them either choosing the cheapest product as price is something they can easily evaluate. This leads to them being dissatisfied at a later stage due to lack of features.
2. The space available on the shelf is insufficient to provide a informative presentation of the product assortment to the customer leading to an underinformed customer
3. While overcoming customers’ inconsistencies in decision making and physical space limitations are both challenges for retailers, finding the sales support to help customers make a purchase, and more importantly, make the right purchase is perhaps the retailer’s greatestconcern.

The paper talks about generating a positive emotional response in the customer while shopping - "Emotional response is also kindled when consumers better understand and appreciate the product they are about to purchase. While providing product information that details how a product is used, or clearly explains why a feature is present sounds obvious, it’sactually a rare occurrence in the retail world"

The first factor cited by the paper is corroborated in a recent presentation "Re-imageering Retail" given by Thom Blischok of Information Resources Inc. As per Mr. Blischok "84% of shoppers are fully satisfied with 23% of the merchandise at a typical store". This is also seen in terms of a trend towards "express" store formats which is expected to "grow from around 20 locations today to 4,000 by 2010"

Global Effects

Retail is probably as old as civilization itself. From the time that our ancestors bartered grains in exchange for cloth, the idea of retail has been in existance. However, the growth in globalization has led to it being governed by so many diverse factors. A large proportion of everday retail pertains to basic needs like food. I came across a very interesting article in the Boston globe on how the grocery bills are rising in the US due to a multidimensional supply-demand tug-of-war. On on side you have rising oil prices leading to increased transportation and packaging costs which are passed down to the consumers. On the other side you have growing demand for basic food commodities like oil seeds due to economic emergence of BRIC (Brazil, Russia, India and China). An interesting fact was cited in this article - "China will import almost 50 percent of the world's oilseeds within a decade, becoming the world's largest importer, according to estimates from the Organization for Economic Cooperation and Development." I wonder if another green revolution of some sort will be required to dramatically increase productivity so that the growing demand for food commodities can be satiated. At the same time efficiencies in storage and transportation might be required to curb the seeming growing spiral of increasing costs.

Crumbling Wal?

For the last decade or so the retail landscape has been dominated by the Bentonville giant. Numbers from as recent as 2004 reflect the hold it has on retail market. But like changes in every field, the one in retail also came swooping and W*M has some challenges on its plate. I came across a very good article by Paula Rosenblum of Retail Systems Research on the challenges facing the giant. Some key observations cited by Ms. Rosenblum that I found interesting were pertaining to how retailers have responded to W*M's presence - "In a post Wal-Mart world, retailers could not differentiate on operational efficiencies, or selling commodities. Wal-Mart owned that space. Retailers like Target, who made hay by selling really cool stuff cheap (or somehow making commodities seem cool), Costco who made warehouse shopping chic, and Whole Foods, who gained its customers trust by being at the forefront of eco-friendly and healthy, started knocking the ball out of the park by NOT being like Wal-Mart". The article goes on to recommend how W*M can use IT to bring back its "mojo". One very interesting part of this recommendation was the use of RFID instore to track stock movements. However given some of the technological (hardware) problems related to RFID, I am not sure how practical that is. Only the future will tell if the Wal's crumbling or the Mojo's Risin.....

Glocalization

A very interesting report on the future of Retail in 2015 was published jointly by TNS Retail Forward and Retail practice of PriceWaterhouseCoopers. The report talks about 2 distinct groups of people emerging based on the age profiles - the Baby Boomers: 65 and above who will still go for the big box retailers and the The Millenials: 35 years of age who are more environmentally conscious, technologically savy and purchase based on lifestyle. Another interesting prediction is the growing diversity in the population where more than half of the population under 25 identifying themselves as non-whites. The study talks about how "The 'one-size-fits-all' approach of the 1980s is not going to work as the population becomes more diverse and tech savvy during the next decade.'' The report talks about trend as "The best way to define this trend is through the term 'glocalization:' retailers will need to serve customers across major geographic, cultural, legislative and regulatory boundaries, all while catering to local tastes, traditions, lifestyles and economies."

Consumer Behavior

Continuing from my last post on "Active Design", an interesting article appeared in the NY Times on how more and more marketers are using consumer behavior rather than consumer perceptions obtained through market studies and then figuring out what fits their profile the best. Behavior based marketing is taking a step further and looking at what the consumer actually buys and identifying correlations to design the product offerings. In other words, if you know how your consumers "Acts" then you can design for her to act and offer her what she acts for. The article talks about the role of new media in helping identify consumer behavior and also market product offerings identified through an understanding of consumer behavior - "The ability of new media to monitor what consumers are doing — like keeping track of which Web sites they visit — is fueling the interest in behavioral targeting"

Active Design

Retail consumers are a changing bunch and its very important for a retailer to stay on top of what her choices are and how to make her "Act" on those choices. A very interesting article by Jonathan Dodd of G2 Worldwide published in the Hub Magazine delves into the idea of "Active Design".

The Need: Mr. Dodd says that experience based shopping can no longer be restricted to the high end retailers like Printemps, Slefridges etc. "....in a world where virtually every product category is suffering from brand proliferation and time-pressured shoppers are being enticed by ever more sophisticated retail offerings, effective design has to do more. It must work for the benefit of the shopper as well as the retailer and brand owner. It has to sell actively." An interesting statistic provided in the article states "According to POPAI, supermarket shoppers are exposed to 1.6 pieces of instore material every second. And yet less than one in five is noticed"

In the article, Mr Dodd enunciates some basic principles of "Active Design" through the example of Apple stores and says that the same idea can apply to supermarket stores which carry a much wider assortment.

Green is in

This month a lot of industry magazines seem to be focusing on the emergence of green trends in retail. Chain Store Age had a green theme for its October issue where it discussed several trends emergining in green retailing. A few interesting findings from the perspectives section

1. Cost of Going Green: An interesting excerpt on cost of going green - "Despite popular notions to the contrary, it does not cost more to build an environmentally conscious facility than a traditional building, according to a recent report by Davis Langdon, a San Francisco-based consulting business that helps architects and building owners manage construction costs.Green building, however, does require a different mind-set, advised Langdon. Sustainable features are too often tacked onto a project as an afterthought, making them appear as an added cost that can be easily cut.“Until design teams understand that green design is not additive, it will be difficult to overcome the notion that green costs more, especially in an era of rapid cost escalation,” according to the Davis Langdon report, “Cost of Green Revisited,” which studied 221 new construction projects." With the fuel prices rising by the day, the recovery even for an added investment into greener technology might be fast
2. Young Generation's Perspective: The young generation seems to be spilt into half when it comes to retail preferences based on whether the retailer has green/environmentally friendly policies and infrastructure. An excerpt from a recent survey "According to the latest Maritz Poll, “Environmentally Friendly Retail Marketing—All Hype or Consumer Preference?,” Gen-Y shoppers (defined as being between the ages of 18 and 30 for the purposes of this survey) are split down the middle on influence of retailers’ environmental policies on their spending habits.Of the 1,062 Gen-Y shoppers surveyed, less than half (46%) said they would shop at a retailer more if the retailer were to go green. The research also revealed:Fifty-four percent said green doesn’t influence their buying decisions;Nearly half (47%) said they would pay more for environmentally friendly services, products and brands"

As green trend continues due to changing customer opinion and lifestyle, sooner or later going green might become a necessary criteria rather than just a differentiation strategy. Like technology trends, it might have its own leaders, followers and laggards but an eventual adaptation might become a reality - probably sooner than later.

Smart Cart - Post Script

As a follow up on my earlier post on Smart Cart, I found an interesting take on it featured on the Store Front Back Talk website in reference to its feasibility/useability in the US market.

Of Gigabyte Spreadsheets and More - II

Continuing with the details of the seminar on 3 Pillars of Store Operations Planning, Marianne Gregory of Retail Benchmarks shared some of the best practices linked with the 2nd pillar - Payroll Planning. Payroll expenses are one of the biggest source of expenditure for a store. Not just that but the right staffing of store personnel helps in maintaining the level of customer service. An interesting finding from the benchmark study showed that leading retail companies had HR involve in owning the payroll plan in addition to corporate ops and finance. Now as more and more speciality stores are opened, a store associate is not just a person who helps out the customers to locate a box of cereal in an aisle. Well trained service staff can be an asset and establishing customer relationship and improving the level of customer service. Another interesting finding was that the leaders planned the payroll and staffing not just by forecasted sales but also considered the anticipated traffic. When selling items on special promotions, this becomes critical as more then expected number of people will show up needing not just customer service on front end but also increased replenishment to avoid promotional item stock outs on the shelf. From the above 2 results, its very clear that leaders dont look at their payroll as an expense line item only. They look at it as an investment that if planned well can be leveraged to provide greater customer service.

Of Gigabyte Spreadsheets and More - I

I had a great opportunity to watch(and listen) to a webinar given by Marianne Gregory, President of Retail Benchmarks and Dean Tarpley, Sr. VP of Palladium Group as part of the Stores Knowledge Series organized by Stores magazine. The webinar was titled "Fortifying the Three Pillars of Successful Store Operations". I went into the webinar expecting for the presenters to talk on store level details but it turned out to have a very strategic angle to it. We all know how People, Processes and Systems(or Enabling Technology) - PPS or PPT are crucial to running a retail organization. Mr. Tarpley gave a very interesting perspective on the PPS alignment from a Store Ops perspective. He mentioned that with the exception of Merchandising and Store Operations there is not much difference between a retail organization and any other organization (e.g. manufacturing). But its the planning and execution of precisely these two functions that differentiates one retailer from the other. Now the 3 pillars of Store Ops Planning are

1. Sales and Margin Planning
2. Payroll Planning
3. Other Expense Planning

Lets look at the first one - Sales and Margin Planning which is basically allocation of what target revenue and margins are expected from what stores. Mr. Tarpley shared from his experience with several retail clients that this aspect of planning in a retail org is essentially carried out in a silo-ed fashion. So you will have the financial organization doing their annual planning using a certain idea and then you have your merchandizers who plan differently and then at the store level its planned differently. All this happens mainly through spreadsheets where layers and layers of planning logic has been built and in some orgs these sheets almost measure a gig in size!!!! So essentially there is no alignment in information and process and ofcourse the people involved (financial analysts, merchants, store managers) arent communicating on a common platform. The impact of this fragmentation of process and information is that each of people involved in planning spend most of their time preparing the data that they are going to use to draft their plans and communicating the new plans to the other groups. This leaves them with barely anytime to actually measure and update their plans for meeting the strategic goals. Mr Tarpley suggests that the retailers who follow best practices(and not common practices) in retail planning have a common information platform like a common datawarehouse with BI that gives each function specific view on data and helps them build their plans collaboratively with the other functions. A change in the plan by corporate will be trickled down to a correponding change in the merchandiser's plan. Similarly an updated promotional event at the store level is aggregated back up to reflect on the margin for a specific category.

The seminar also had some insights on Payroll Planning (2nd Pillar) best practices. I will discuss that in my next post.

Technical Detail

I have added an RSS feed to my blog. You can copy and paste the following URL - http://feeds.feedburner.com/Heads-o-retail in your Google or other Feed Readers to get updates.

Smart Cart

Continuing with the trend towards retailers going green a concept of a smart cart with an installed computer is being explored reports the Wall Street Journal in this article (subscription maybe required). A study by EDS as per the article indicates that this cart can be used by customers to scan the barcode to get most of the nutritional information which would otherwise be crammed into excessive packaging on the items and thereby taking up more resources. The other side to it is that it will help a health and environmentally conscious customer be better informed on the contents of the item from a calorie, ethical treatment perspective. So in a way its another extension of service to an increasing creed of customers who are more health and environment conscious. But does this end here? So what do retailers have to leverage out of this? The details of the on board computer arent revealed to examine its capabilities but some of the things that come to my mind are

1. Item correlations: If there is a way to store the information on what items were scanned by the customer in a specific aisle, it gives some good data to plan assorments in a specific department
2. Travel time: The computer data can possibly be used to identify how much the customer travels on an average between picking up items. Can the aisle/shelf positioning be improved so that the customer can get to what he needs faster saving her some time?
3. Promotions: On scanning an item, can the computer display any special promotions that are going on for that item
4. Private Label: For every branded item scanned by the customer, can the system reveal the price and location of an equivalent private label item.
5. Recipes: Can the computer suggest some quick meal recipes in which the scanned item can be used. If the customer finds it interesting, maybe it can lead her to buy the other ingredients to complete the purchase and also print the recipe.

Maybe I am reading too much into the smart cart computer. I will watch out for more details on it and follow up with the post.

Shopping Portfolio

I alluded to the US retail market possibly moving to more innovative store formats driven by greater diversification of the customer base due to more varied life style choices in my previous post. I found a very interesting observation made by Brian Gildenberg of MVI in this article featured on the Hub magazine. Mr Gildenberg explains how Tesco could be capitalizing on the rapid change in the US markets indicated by the following 4 trends
"1) The apparent end of retail consolidation; 2) fragmentation of consumers and retail formats; 3) shoppers using a portfolio of formats to meet their needs; and 4)natural foods, energy efficient processes and an environmental message." Each of the trends are discussed with insightful details but the part which struck the most was an interesting statistic
"store sizes are becoming more polarized. When you aggregate stores that are more than 100,000 square feet and stores that are less than 15,000 square feet, both are actually growing markedly faster than the market average".
This might indicate that there are big store formats getting created to cater to a certain segment while more innovative formats are getting created at an equal pace to cater to a different demographic. A unique buying pattern is seen to be emerging where a customer uses a collection (portfolio) of stores to meet their requirements -
"The continued proliferation of the U.S. retail landscape into a variety of formats is leading to what we call a “portfolio theory” of shopping behavior. A typical shopper might visit a combination of club store, supermarket, specialty grocer and chain drug store to fulfill a variety of specific needs based on which format meets each need best."

Re(t)a(i)l-Politic

The news of Reliance Retail shutting down operations in northern state of Uttar Pradesh(UP) and other states is being looked upon as an eye-opener to the landscape of organized retail in India. I did some online research to see how the agri suppy chain in India looks like. I found a presentation made at Images Retail Forum by Ashok Singhal who is the chariman of KSA-Technopak, a leading consulting company in India in the retail and CPG verticals. A snapshot of the different players in the agri supply chain from Mr. Singhal's presentation is shown below

As agricultural produce moves further from the producer (farmer) there is wastage happening at every stage and margins added to the costs which eventually build up to 3.5 times the cost at which the farmer sold his produce. The table below (obtained from Ashok Singhal's original presentation) gives the breakdown of the margins at every stage.

So the claim of the Reliance Retail (through its "farm to fork" strategy) is that by bypassing the intermediaries it can provide value to the end customers and offer 'fair' prices to the farmers. In an ideal world that makes sense but the existing Indian retail environment is much more complex with many socio-political forces at play. I came across a very insightful article by S.A. Aiyer (Editorial contributor to Times of India) on the agricultural landscape in India. In a gist what Mr. Aiyer explains is that over the past decades as Reliance was building its businesses, it had to mainly deal with politicians, bureaucrats, bankers etc but with retail a hotch-potch of trade groups, comission agents and most importantly farmers have to be managed to get the operations going. Inexperience in dealing with such a complex group is back firing on Reliance. Its not that no one has managed in such a tough environment. The e-choupal scheme run by ITC is cited as an example of a successful model.

Club Loyal(e)

I came across one of the most comprehensive and insightful research (signup required for access) on Customer Loyalty Programs. The research was conducted by RSR by interviewing a wide range of retailers some of whom ran a customer loyalty program and others who did not. They have essentially categorized the respondents along several axes

1. Winners, average performers and laggards: This is based on their average same store sales growth, GMROI etc.
2. Length of time for which the retailers have been running the loyalty program: More than 5 yrs, Less than 5 yrs
3. Whether the retailers had any kind of loyalty programs

Some of the key points as per the research:

Purpose of the Loyalty Program: "Loyalty programs pull two of the most effective levers in retail performance. They have the opportunity to increase basket size, and also increase the frequency of shopping trips for existing customers. The original marketing rule of thumb is that it costs more to acquire new customers than it does to increase the value of existing customers – and loyalty programs offer an opportunity to do exactly the latter."

An interesting paradox elicited by the research (which rings true in today's cut-throat retail environment): "retailers are challenged to figure out how to appeal to“loyal” shoppers, while also reducing the costs to acquire new customers"

According to the research - Retailers who have been running a loyalty program for more than 5 years did so to provide a higher value proposition to their more frequent customers and to understand what their needs were and to provide better customer service. Customer data as such was not considered that much of a benefit or objective of the programs. However in recent times more and more retailers are looking at loyalty programs to get customer data which can be analyzed using latest data analytics tools and designing new promotional offers.

Having said that the research emphasizes that like everything else in retail - "Having a loyalty program is not nearly as important as executing a loyalty program well, should a retailer decide to pursue it as a customer service strategy."

One interesting fact that the research found was an across the board lack of good metrics to measure how well a program is doing. A loyalty program is no good if it’s not leading to an increase of avg basket value (top line growth) and at the same time not losing huge amounts of margin and affecting the bottom line growth. Also with the emerging trend of multi-channel retailing, a need to reflect the loyalty program across all the channels is not being executed well by most retailers. The research gives an idea of this through an interesting statistic - "barely one third of respondents let their members check their loyalty program status online, and only 20% of respondents credit loyalty program members for purchases made across any channel"

To summarize, the retail space is full of retailers that run as well as do not run a loyalty program. Loyalty programs by themselves cannot make one any more profitable. Recent instances of Albertsons and Borders significantly reducing their programs is a case in point. On the other hand groceries like Publix without a loyalty program are still able to get fiercely loyal customers. The challenge is really in executing a program by measuring its performance and improving it through a good organizational structure and technology.

Green-Back

I used to always think that going green (i.e. to adopt more environmentally friendly processes in business) on the part of retailers was a branding or a corporate philosophy thing. But an article here talks about a CA based organic food retailer United Natural Foods making it into a revenue generating proposition. UNF has a distribution warehouse where they have installed a solar power generating unit generating 1.5 million kilo-watts of electricity in a year. The unit not only generates power for the facility's needs but trades excess power to the state electricity supplier for which it gets credit. Add to that other tax incentives that they might get because of their green energy policy.

Virtually Real

A very interesting article by Ellen Brown was featured in Wall Street Journal on Kimberly Clark and other CPG companies investing in building virtual reality studios to test store display concepts and how consumers would respond to them. The idea is that rather than testing a concept in a store which takes longer time and is more costly, virtual reality prototypes can assist the manufacturers and retailers to gauge consumer responses. The article talks about a test where a customer is made to walk virtually in a store and pick up a pack of Huggies diapers. Now if the idea is to determine how easy it is to locate the product with the new display then probably this might work. Also it may give a good 3-D visualization for executives considering ideas. But what is not intuitive to me is how does this enable them to determine a consumer's choice. Now when we walk into a store, its an overload of stimulus in all forms - visual, audio, olfactory etc. Add to that group dynamics of a collection of people in a store. So just by having a sample consumer do a virtual reality walk through an isolated display and checking the eye movement would not be sufficient. There is no other display to attract the consumer's attention. There is no nagging baby on the cart diverting mommy towards the candy aisle. Human mind and its interaction with the surrounding is much more complex so I wonder how much a virtual reality gizmo will help.

Climbing the Wal

As Walmart's same store sales growth has slowed down, some interesting insights have been done on the reasons behind it. I found one such insight on Reveries.com website based on an article in Wall Street Journal by Gary Williams. One thing that I found interesting was "The pricing gap between Wal-Mart and rivals has narrowed, and more customers are now choosing convenience over wading through a supercenter". I used to wonder if I was the only one who got lost and confused in a gigantic WalMart super center. There was just too much signage and the one in my neighbourhood was so crowded that it would be difficult to find an associate to help out. Which brings in another interesting point - on an average (as per a study which I need to dig up and link it here) a shopper spends 22 mins in a Wal Mart store but how much of that is spent searching and how much is spent doing aisle crossover (which is what the super centers are counting on to up their avg top line sale)? I wonder if this is a fundamental issue with the supercenter format itself? As life becomes faster (can it get any more faster???), if its time for more smaller lifestyle dedicated convinience based formats? Do I see a Tesco lurking somewhere!!!!!

Carrying Forward

I came across a news article on Carrefour entering Indian market with Cash N Carry business. While a lot of foreign entrants are looking at domestic JVs to get into the retail space in India, this move by Carrefour seems to be more cautious and sensible. The round about way to get to one of the world's largest pool of consumers is mainly because of Indian laws that prohibit foreign retailers from running 100% ownership ventures unless they sell single brands. But the interesting part is that setting up a cash and carry operation helps in creating the supply chain infrastructure that can be easily ramped up to support retail network when it is put into place. Currently the Indian retail environment is in a state of flux where retailers like Reliance are facing a stiff opposition from smaller mom and pop stores who happen to form a large political constituency. A wait and watch game might be the right way to go till the promised land starts reaping retail bonanza

Real Time to Change

I came across this excellent article publisher by RSR (Retail Systems Research) on how technology has been an enabling factor in helping retailers react faster to customer demands. What I liked though is found in the last part of the article - "Technology companies love to talk about technology. Retailers love to talk about their people. Finally, process – empowered and accelerated by information and the technologies that deliver it – is finally getting a hearing in retail". How many times have retailers thought that just putting a technology will resolve their problems. Well technology is a solution that can enable a better process but cant substitute for it. On the other hand being able to use technology to adopt quickly to a changing business environment can be critical in a business like retail - "In his 1999 book entitled Adaptive Enterprise: Creating and Leading Sense-And-Respond Organizations, author Stephen Haeckel took the position that the rate and discontinuity of change in the business environment overwhelms organizations’ abilities to correct mistaken assumptions in their business plans. Therefore, he argued, businesses must architect their processes and supporting technologies to be able to respond very quickly to changing conditions."

Creature of Habit

Something very interesting that I came across in an NY Times article referenced on one of the retail e-letters that I subscribe to. Retail customers (that includes most of us) seem to be creatures of habit. So much so that a lot of them were upset when Macy's decided to do away with coupons as part of an initiative to make it easy for customers. Retail customers apparently like to get a deal even though most retailers actually budget for promotions so its not that someone is really getting a bargain. It was already accounted for to yield that much margin. I have also heard that some retailers like to give a treasure hunt kind of feel to shopping in their stores where some unannounced deals are selective placed in different aisles which give their customers a sense of achievement when they find them adding to that "I got a real smart deal" feeling. Its like "you win when you let them win".

Check this out ...fast

I promise this one is going to be my last post that involves Whole Foods for sometime to come. I came across this article in NYTIMES a few months back and couldnt help but recollect my grad school queuing theory class. This was such a simple application of that which I have never seen in a grocery store here in Atlanta. The challenge however is how do you manage the perception of the customers when they see a longer queue. It is not intuitive directly that longer doesnt mean slower. Infact having a common line means the next open counter is available to you and you dont get stuck because someone has loaded a pile in his cart ahead of you. In queuing theory lingo M/M/n queue is faster than n M/M/1 queues!!!!

Tote-al Visibility

I have been a regular shopper at Whole Foods for a few years now. And I have seen the crowds grow bigger with each passing season. The organic foods category has been getting more and more consumers which has contributed to increased sales for retailers like Whole Foods. But is that all that makes them successful? There are several examples of smart retailing practices that Whole Foods uses but I would like to share one that I had an experience of. Now we all know that Whole Foods has been quite active in promoting and using environmentally friendly things in their stores. One of them is a cardboard tote that I purchased at the local Whole Foods (formerly known as Harry's Farmer's Market) few months back (image below)

The reasons I bought them was carrying the paper bags was a hassle, plus the contents of the bags spilled over in my car trunk. The cardboard box was easy to handle, sturdy and had sufficent space for my weekly grocery. So why I am telling all this???? Well it all began with a conversation I had with a co-worker. I was telling them how Whole Foods is building and preserving its brand through the example of the cardboard tote by citing the following

1. Addressing the environment friendliness by providing means to avoid plastic
2. Giving it a more personalized feel to grocery shopping as compared to baggers quickly stuffing your buys into translucent plastic bags
3. Cost savings for customer in the form of a 25 cent refund everytime you used the tote. The tote box cost me $1.5 which I recovered in a month and a half through weekly trips.

And my co-worker responded saying .."and add to that the additional customer service you get!!!" And I thought aloud "Customer Service???" and then it struck me, as I carried the tote through all the aisles, I was a walking sign board to every store associate that I am a repeat customer and needs to be given attention. Now isnt that how you sustain profitability in retail ...through repeat customers and making sure they are given the best service!!!

Lessons from across the big pond

Tesco's entry into the US market is old news now. But I would like to refer to a very interesting article published by The Economist not so much from what Tesco is trying to do but the challenges it faces due to some fundamental differences in the way US Retail Operations are structured in comparison to Europe. Here is an excerpt which I found very interesting
"....In trying to compete with discount retailers such as Wal-Mart and Costco in a large country with good roads and cheap land that lends itself to big-box retailing, America's supermarkets have concentrated mainly on trying to take costs out of their supply chains. Labour is also cheaper in America. This has encouraged supermarkets to make two sorts of food: that which lasts long because it has been dried, canned, frozen or otherwise preserved, and that which is prepared from raw ingredients on site. "

However the preference for organic food and new age stores like The Whole Foods offering a range of pre-cooked food that has a shelf life of a few days, that might be changing.

On the other hand here is the contrast in the environment in which the European retailers compete

"...British supermarkets, in contrast, operate on a small, crowded island with restrictive planning laws. Whereas American stores are good at moving goods hundreds of miles and keeping them cheap, British retailers specialise in regular, frequent deliveries to heaving city-centre stores. Their supply chains are more sophisticated because they have to be. Stores can be so small that they have to switch from selling sandwiches at lunchtime to selling ready-made suppers in the afternoon.
Expensive labour and a shortage of space have encouraged British retailers to seek economies of scale from centralised food preparation. Rather than cooking on site, they make a wide range of meals that can last for a couple of days. These are not just staples such as macaroni cheese or lasagne. A typical London supermarket now stocks more than 50 different meals, including treats such as organic beef in wine, Keralan prawn curry and Asian noodles with vegetables. "

Bloody interesting ainhhh!!!!!!

Fitting the profile

I recently read an article on an Economist article talking about a very smart algorithm written for Tesco to classify their wide assortments of items based on their loyalty customer behavior. Tim Manner (of Reveries.com) has given a good explanation of what it essentially does. The classifications drive the determination of what promotional material gets mailed to you. How many of us have got absolutely mindless coupon/mailers show up at our homes week after week. I would be delighted the day something useful shows up at my house that I am genuinely interested in. I think the sender would command some kind of brand loyalty from me. On the other hand I wont be surprised if the brand image takes a beating if they keep sending useless stuff. One company that has consistently impressed me in terms of presenting the right items through email and their website is Amazon. Wonder what algorithm they use!!!!

Beginning of Journey

About a year back I switched my job. From being a professional in the logistics industry who dealt with warehousing and transportation issues, I made a transformation to the world of retail. I had dealt with retail clients earlier but from a distribution point of view, never the bread and butter retail stuff like merchandising, pricing, promotions etc. As I get more exposed to these ideas, I realize what a fascinating and interesting world it is out there. I have started walking into stores a different person. Now my eyes look for holes in the shelves (read stock outs). They look for end-caps crammed with irrelevant stuff. They get delighted at a well posted signage. With this blog I hope to chart new areas of retail and share my experiences and hope to learn from fellow bloggers. And what a time to start - right before holiday season when virtually all retailers are getting stocked up as item seasonalities come into play and the challenge to make the most before the year closes!!!!