With all the attention given to e-commerce, mobile shopping and all things digital, it’s easy to forget that 90% of all retail transactions still occur in stores. It’s also appropriate for retail executives to be focused on their brick-and-mortar locations when traditional retailers are closing stores, streamlining inventories and trimming payrolls.
At the same time, some major online retailers have decided to open physical store locations. They see the advantages in having stores to showcase their items, gauge the customer experience and build brand loyalty.
The lesson here is that there is still plenty of value in brick-and-mortar stores, even as the traditional view of retail is reinvented. At times, focusing on key areas of operations, including stores, will go a long way in driving improvements to business performance.
As major players close stores and let leases expire to avoid the cost of maintaining under-performing locations, retailers should view a store closing as an opportunity to pause and reassess their business strategy (e.g., the impact of an anchor store closing in a mall, co-tenancy considerations or overall assessment of individual locations). A smaller group of stores allows a retailer to focus on the most profitable locations and re-examine what works. It’s a chance to shift resources, such as inventory and labor, and upgrade the performance of the remaining fleet.
Actions retailers are taking today include opening smaller stores that offer a limited selection of specialized items and often drive higher sales per square foot and productivity, as well as taking a hard position with landlords to renegotiate rents where possible to improve the operating model. Some retailers are using their stores as mini distribution centers that allow them to stock and deliver goods in a more efficient manner to satisfy the growing demand of e-commerce and mobile transactions. Streamlining the number of brick-and-mortar stores offers retailers an opportunity to drive improvements, test new technology, experiment and evaluate, and create value. While a vacant downtown storefront or an empty shopping mall can be jarring for a community, it can present evidence that retailers are working to manage change as the industry evolves and reinvents itself.
With inventory being such an important component of the business, retailers need to drive improvements throughout their supply chain. Some retailers have trimmed costs by cutting back on inventory, only to end up with poorly stocked shelves, which spoils the customer experience. Striking a careful balance between holding down inventory costs and having the right inventory in the right location requires retailers to focus on all elements of the supply chain and actively manage the cost of owning inventory. The total cost of inventory ownership focuses on all costs throughout the supply chain — from the purchase of goods to transportation, warehousing and stocking, through to the sale of products to the consumer.
Retailers should study every aspect of their supply chain to make sure that goods are placed in front of consumers in the most timely and cost-effective way. This requires communicating and developing strong relationships with vendors, manufacturers and suppliers to improve the flow of information, encourage transparency and reduce the cycle time in the supply chain. Additionally, there is a renewed focus on the importance of merchandise planning and allocation functions, which are driving significant operational improvements and contributing to enhancing the store shopping experience.
Be driven by data
Data analytics is an important component in creating an efficient supply chain, as well as improving interactions with your customers. It begins in the checkout line, using customer analytics to better understand what consumers want and their shopping habits. Data analytics also enables retailers to examine consumer buying habits across multiple channels — in-store, web, mobile and social. After all, customers are channel agnostic.
Data analytics could enable retailers to improve delivery processes, ensuring that products are on the shelves without investing too much money in stock that simply sits in the back room.
Data analytics also allows retailers to measure the performance of their vendors by comparing cost, delivery times and returns. Data analytics is just one method for retailers to assess their vendor relationships, challenging vendors to be more efficient and enabling retailers to determine how best to manage the various elements of vendor relationships.
Invest in people
Retailers face a unique challenge in today’s marketplace as they confront the need to optimize labor costs while also retaining the best people. How does a retailer incentivize quality workers in order to keep them? Is it through higher pay and better benefits? Rewards and perks? Greater communication and coaching?
While retailers look to balance labor costs, they need to continue to engage and invest in their store teams so that they can continue to build relationships with their customers, including millennial shoppers who appear to be developing their own unique buying habits. Since quality employees are essentially ambassadors of your brand and a key part of the customer experience, retailers need to continue to invest in their associates in these challenging times. Investing in training and development results in better employees, which leads to an improved shopping experience and drives customer loyalty.
Engage with the customer
Retailers need to continually ask themselves how they are engaging with their customers. At the store level, what type of experiences and services are being offered to keep customers happy and wanting to come back? What types of products and services does a retailer offer to make a customer passionate about a brand and the store shopping experience? Retailers are experimenting with smaller stores offering limited specialty products. They are using unique merchandise displays, personalized products and superior customer service to create an enjoyable shopping experience, so that a store becomes an attractive destination.
Enhancing the customer experience requires a multichannel approach, using mobile and social media to present special offers that create a more personalized experience. This helps build customer loyalty. Once again, data analytics becomes an important tool to engage with customers through products they want and the channels they want them in.
When further considering the customer experience, scoring and evaluation of your store portfolio could determine which attributes of your most profitable stores drive performance. As retailers evaluate their fleet, there is an opportunity to measure store performance to identify best practices to apply to your lower-performing stores to drive improvements, enhance performance and increase overall value of your store portfolio, especially when a retailer is not able to exit a potentially underperforming location in a cost-effective manner.
Retail is experiencing significant changes and challenges, which some will view as a reinvention. Even though retailers are evolving to keep pace with the overall dynamics of the industry, a focus on the store should continue. The in-store shopping experience is critical to keeping the customer engaged and driving brand loyalty across all channels. Performance improvement throughout all elements of the supply chain will drive value for retailers — not only in stores, but throughout the organization.
Partner and Practice Leader
T +1 212 624 5270