IHL Group IDs Biggest Losers When It Comes To Out-of-Stock Failures

Out-of-stocks continue to plague the retail industry as one of the biggest causes of lost revenue and customer frustration. Now a new research study from IHL Group has helped to quantify just how big the problem is for the industry and also identifies the biggest laggards when it comes to in stock positions.

Consumers experienced out-of-stocks during approximately 17.8% of their shopping trips, which is about 123% higher than the out-of-stock rate claimed by retailers for themselves, according to the new report from IHL Group titled “What’s The Deal With Out-Of-Stocks?”

Breaking the out-of-stock issue down by verticals, IHL Group found consumer electronics stores are losing the most, with consumers saying that they leave the store without buying at least one item 21.2% of the time. The study also found warehouse clubs lose $1.78 and grocery stores lose $.68 in sales for every customer when consumers cannot buy that product or an adequate substitute.

"Retailers remain in denial when it comes to consumer's perceptions of out-of-stocks," says Greg Buzek, president of IHL Group, an analyst firm and consultancy that serves retailers and technology vendors. "Consumers don't care why the product is not available. They come in with money to spend at the stores and have to leave either because the shelves are empty, there is no one to help get a locked item, or the staff simply cannot find the merchandise even though the computer system says they have it. 9% of all consumers in our study have simply stopped shopping at one or more retailers in the last 12 months due to the problem."

The study applauds those retailers who have achieved best in-stock performance by naming Safeway as best-in-class among grocers (with only 14.7% of consumers experiencing out-of-stock of at least one item); Ace Hardware as best-in-class for home improvement, (with only 13.6% of consumers experiencing out-of-stocks); and Fry's Electronics in consumer electronics (with 13.1% percent of consumers experiencing out-of-stocks).

On the flipside, the IHL study also highlighted those retailers losing the most revenue due to poor in-stock performance. With an 18.1% out-of-stock rate, IHL estimated CompUSA is losing $1.16 for every customer, while Radio Shack, with a 22.7% out-of-stock rate, loses $1.46 per customer.

The other biggest revenue losers, according to the report, were: Office Max, which has a 30.6% out-of-stock rate and loses $1.96 per customer; Office Depot, which has a 26.6% out-of-stock rate and loses $1.67 per customer, and Circuit City which loses $1.65 per customer with a 25.7% out-of-stock rate.

IHL provides customized business intelligence for retailers and retail technology vendors, with particular expertise in supply chain and store level systems. Our customers are retailers and retail technology providers who want to better understand what is going on in the overall technology market, or wish to identify specific equipment needs for the retail market.

Case Study: Family Dollar Optimizes POS System With Embedded Apps

By Amanda Ferrante

While many other retailers are struggling, business is good at Family Dollar. The 6,700 store value chain is adding stores and posting increases in the 3% range. Not resting on its laurels, the company understands that competition means constant improvement to the in-store customer experience. The check out process is one of the latest areas where the chain chose to make an impact on that experience.

In early 2008, Family Dollar’s POS devices accepted only cash, checks, PIN debit, and electronic benefits transfer (EBT) cash. To remain competitive in the retail sector, Family Dollar wanted to expand its tender types to include signature debit, credit, and government-subsidized EBT programs such as USDA Food Stamps. The legacy systems in place could not support the complexities of these programs and required an overhaul of the application architecture and technical foundation.

Until recently, Family Dollar’s 16,000 checkouts were mainly equipped with aging POS terminals running proprietary application software. The single-threaded operating system meant that only one application could run at a time, while the 640k memory limit and outdated interface requirements restricted the addition of new retail application packages. Connectivity between stores and the corporate office was limited to a one-way, daily dial-up communication of summarized transactions with some capability for messaging.

“These initiatives were focused on providing avenues for new revenue growth, increasing employee efficiency and efficacy, and improving inventory management,” says Paul Rossi, Director of Customer Services for Family Dollar. “We also wanted to provide faster customer throughput and better customer service, as well as to create scalable, secure, flexible systems to support future growth and enhancements.”

Leveraging Assets
The technical tipping point came when Family Dollar decided to implement SAP Transactionware General Merchandise (SAP GM), SAP/Triversity's client/server point-of-sale application, which integrates with DOS, Linux, and Windows XP. Due to the extensive size of the rollout, new technology had to co-exist within the current environment. With 1,500-2,000 newer DOS-based POS terminals recently purchased, ROI for the new system was a pressing issue.

The answer for Family Dollar was Windows Embedded for Point of Service, a powerful operating system built for retail that offers a small footprint, extensive USB peripheral support, and POS for .NET™ designed to connect people, information, and peripherals in a familiar and standardized way. Development of the POS device itself was led by Toshiba TEC, which was able to leverage its Windows XP Professional experience, combined with Microsoft Retail Group support, to speed development of the Windows Embedded device.

Windows Embedded for Point of Service also could be “locked down” to prevent employees from installing unauthorized applications, surfing the web or downloading suspicious files. This was critical because the POS devices not only performed a mission-critical business function, but they also captured sensitive customer information.

Within three months, the new POS terminal was integrated with key peripherals using industry standards like OPOS, Unified Point of Service (UPOS), and POS for .NET, another retailer focused feature of Windows Embedded. After six months, the new checkout devices were being tested in stores. The entire project, including enterprise integrations, took less than a year from concept to deployment.

To date, Family Dollar and Toshiba have replaced or upgraded nearly 4,500 POS terminals in the field using a rotating installation method—DOS POS terminals removed from one group of stores are re-imaged with Windows Embedded to support the next group of stores.

Improving the Front and Back Ends
The POS equipment now includes a movable POS and PC keyboard, portable data collection device and the Personal Identification Number (PIN) pad for tender types—all connected through Windows Embedded for Point of Service. Family Dollar can now accept an expanded range of tender types like food stamps and credit cards. Additionally, reducing the total number of required registers reduced support costs and increased space for merchandise in the store.

The customer experience has improved dramatically. Customers now see a full-color presentation screen on a 15-inch flat panel display. They can view the rolling receipt, as well as promotions and advertisements. Lane efficiencies have been gained by eliminating older equipment and optimizing the use of the cash register as a multitasking device.

Reductions in shrinkage were also measured and attributed to enhanced functionality within the Point of Sale system and increased presence "up front" by store associates. Hardware and maintenance costs were reduced by eliminating the need for other back office computing equipment in the stores. Employee satisfaction has also increased. Family Dollar’s manager retention level is now higher. Employees are able to stay in touch with what’s happening at headquarters, like job openings, benefits and corporate emails.

The new POS terminal can communicate with the portable data collection terminals (PDTs) used for product cycle counts, price checks, and other barcode applications. Store managers upload the data to corporate back office systems through the POS terminal, and can even make data corrections on a Store Manager Portal page.

Northeastern Professor Gao Offers 4 Point Plan of Attack To Address New Retail Realities

As a well-published academic specializing in international retailing Tony Gao, PhD, Marketing, Northeastern University, has written about some of the most complex issues the business can serve up. How does “The Antecedents and Consequences of Organizational Commitment in the Korean Retail Context” strike you for complexity?. But when it comes to the current retail environment, even he is taking a strictly back-to-basics approach.

“Value can come in different ways: same product for less money, higher quality for same price, same quality for lower price,” he explains. “To retain loyal customers and cement relationships with new customers, the value-oriented strategy must be worked into the entire organization, from operations to merchandising to communication.”

But, he warns: “Be sure to cap spending without compromising service.” Gao names BJ’s Wholesale Club as an example of a retailer that has cut costs but not customer service. “BJ’s is better utilizing its open store hours,” he explains. “The stores used to be open from 9am to 10pm but now they are open from 10am to 9pm. With the savings in labor from those two hours, the company is focusing more resources on the quality of its products.”

4 Difference-Makers For Retail
Retailers striving to survive in the current economy should offer deals early and often, suggests Gao. His advice was well-heeded during the Thanksgiving holiday weekend. In the past some retailers, particularly smaller, independent specialty companies, could get by without offering promotions and discounts but today they must offer them to help keep customers coming back.

To summarize his theories that describe which retailers will be successful during a down economy and beyond, Gao has put forth four phrases that he says will make or break retail companies:

1. Create a buffer zone. Loyalty, internal support and historic performance are all keys to creating a strong buffer zone. Gao says retailers need to ask themselves: “’How many more mistakes can you afford to make before customers turn away?’ because this is the time when customers who are not loyal will be attracted away with deals.” Additionally, companies will strong support from the board of directors will have more leeway to tackle challenges and retailers that have performed well historically have a better chance of survival.
2. Implement innovative marketing programs. Retailers should literally think outside the box when planning marketing strategies. For example, Baby Universe has aligned with Costco.com, giving the company another source of sales. BJ’s is expanding its consumer base by targeting more traditional grocery shoppers with smaller packages of products compared to Costco and Sam’s Club.
3. Fit with today’s times. Retailers that offer necessities will fare best in this economy, Gao notes, including food, consumables, drugs and gasoline. Also, retailers offering great value to their customers will come out on top.
4. Offer diversification. Retailers should diversify their merchandise offerings, their geographic selling areas and their selling channels, Gao says. “Retailers like Walmart that offer a broad scope of merchandise will fare better than those who offer a narrow selection,” he says. “Walmart also receives 20% of its revenue from Europe. That is diversification.”

Bracing for a difficult 2009
After evaluating relative success or failure following the holiday season, retailers can expect to be faced with a difficult economy throughout 2009 and possibly beyond, says Gao. “Retailers will have to adjust their mentality to react to this environment,” he notes. “Maybe it’s not the best time for major strategic investments, but it is a good time to fine-tune operations and focus on customer service.”

Gao cites Lowe’s as a retailer ahead of the curve with customer service. “Lowe’s executives argue that even though sales may not be as good as they were in 2005, the company is better in terms of having systems in place to better serve all customers. All retailers should be doing some of that right now.”

When the holiday numbers are finalized in March, expect to see some bankruptcy announcements, he says. “We may not see a lot of bankruptcies, but definitely some. I don’t expect overall economic conditions to be much better in March or April of 2009, so retailers that didn’t fare well during the holidays will be under deep pressure.”

Forecasting Substantial IT Spending Cuts In 09, Analysts Predict Projects To Make The Cut

Call it the “CSI phenomenon.” As coined by AMR Research retail VP Mike Griswold, it describes the current atmosphere in which every retail expenditure is under the kind of analysis reserved for a crime scene and accompanying forensics. As a result, retailers have moved from trying to guess how much their IT budgets will be cut, to focusing on the projects that they need to execute.

For the record, Griswold and his colleague Janet Suleski told the AMR Business Technology Conference in Boston last week that the 7% to 8% increase in retail IT budgets projected earlier in the year will in reality be a decrease in the neighborhood of 5%. This reassessment came on the same day that Best Buy CEO Brad Anderson joined Barnes and Noble CEO Steve Riggio in calling the current retail environment “the most difficult climate we've ever seen.” When it comes to infrastructure, customer relationship capabilities, and data analytics, retailers are no longer asking “how deep” but “what can I spend on?”

Griswold believes retailers will be predisposed to pick IT projects that show a quick and appreciable ROI, are implemented within six to nine months and have a low impact on everyday business operations. “The back office piece is still struggling at many retailers,” he said. “The customer facing piece of cross-channel retailing has received a lot of attention, now it’s time to bring planning and execution together. The disconnect between the warehouse and the store needs to be addressed.”

Here are the projects most analysts and retailers say will be affected, both positively and negatively, by the new budget dynamics:

Promotions Optimization: With marketing budgets at wire-tight levels, knowing the effectiveness of discounts and marketing efforts to support them is expected to be the single largest IT investment for retailers in 2009. Real-time information that can be spread throughout the supply chain is also a “must have” to optimize any spending that gets approved.

Workforce Management: Finding the right people to hire, and training them to be effective with customers is top priority on the budget “must have” list. Retailers continue to balance technology and humanity when it comes to the customer experience. Workforce management is where those two issues intersect.

Knowledge Management: Many key retailers have indicated that knowledge management is integrating quickly with workforce management. Customer and inventory knowledge is not being collected and disseminated solely for sales and marketing executives. “It is being used to help sales associates be more effective with customers,” says one major retailer.

Cross Channel Management: How many customer segments do I have and how do I get to them? Those are the questions that retailers want more information on as they continue to keep pace with “buy anywhere/fulfill anywhere” issues, and also maintain momentum for loyalty programs.

POS Upgrades: It is unlikely that existing initiatives will be scrapped, but POS upgrades may be at risk for retailers that don’t want to risk the business process interruption.

System Replacement/Upgrades: Total replacement and upgrades fail the quick turnaround and change management tests. Big ticket enterprise management projects are under review.

RFID, Digital Shelf Upgrades: Once again this can be expensive and not necessarily a higher priority than optimization, workforce or knowledge.

One thing is for certain, retailers and software vendors are not panicking. Most of the key players we spoke with were adjusting, not squashing their budgets. As Griswold says: “Retailers still want better customer relationships and that will continue to be addressed.”

Retail Rebound Not Expected Until 2010 According to TNS Retail Forward Forecasts

Brace yourself. For those retailers struggling in today’s economy, next year could be even more challenging, according to new forecasts from TNS Retail Forward. As part of the retail consulting firm’s 2008 Strategic Outlook Conference series, Senior VP Lois Huff presented a sobering outlook for the retail industry that the declining retail sales will continue next year and aren’t expected to rebound until 2010.

Driven by the plummeting values of the housing market and the aftershocks of the recent financial market meltdown, Huff pointed out that the ensuing economic drag will result in a mode of “cautionary consumption” during this holiday season and extending through 2009 before the retail market bottoms out.

Given the continued slump in discretionary spending, Huff projected that more retailers will “run out of runway” in 2009, resulting in further store closings, bankruptcies and liquidations. While Huff pointed out that many retailers will respond to the downturn by scaling back their payroll and closing even more stores, she predicted that the retailers need to prepare their strategies for when the retail industry comes out of this downturn in 2010.

Although Huff predicted there will be some pent-up demand once the economy starts to rebound, she cautioned that “demand won’t be matched by spending power” due to a tighter credit crunch. These factors will result in an “uneven rebound” at retail, with e-commerce and value formats positioned to benefit most, while mass merchants and department stores continuing to lose ground.

In preparing a game plan to win in the world of retail, Huff stressed that long-term success “requires improving competitive position,” which can be achieved by finding opportunities amid the challenges and making investments to gain strategic advantage.

NEXT WAVE OF RETAIL
One of the key investments retailers will need to make in order to have long-term success will be expanding their multi-channel presence. Mary Brett Whitfield, Senior VP of TNS Retail Forward, pointed out that major retailers including Best Buy, Macy’s, Kohl’s, Saks and Neiman Marcus have seen online sales growth of 20% or higher help to mitigate flat to declining brick and mortar sales.

However, Whitfield suggested that the old definition of being a multi-channel retailer simply meant having a presence with stores, catalog and online. However, the new world of multi-channel retailing requires “a bigger, broader brand presence…including new communications channels and touchpoints…some of which also are sales channels,” Whitfield said.

In establishing best practices for multi-channel retailing, Whitfield stressed that retailers be “channel agnostic” and participate in all relevant channels, and make information portable to allow shoppers to share information on multiple platforms.

In addition to expanding a multi-channel presence, TNS Senior VP James Marstiller offered a glimpse at some of the strategies which are currently working in retail, including:

• store brands
• personalizations
• and an overarching focus on value

Moving forward, in order to win in the brave new world, Marstiller suggested retailers “rethink competition” and rethink alliances as win-win opportunities. He also suggested a renewed focus on CRM, by developing best-in-class loyalty programs which leverage shopper insights to “enable segmentation and create value beyond discounts.”

What’s Wattles Have Up His Sleeve? Can A New Management Team Attract A Suitor For Circuit City?

Mark Wattles knows his way around retail. So when he acquired a 6.5% stake in Circuit City last year, he clearly saw an opportunity to cash in on the consumer electronics retailer either turning its business around or at least becoming a takeover candidate. Now that Wattles has been successful in campaigning to drive out Philip Schoonover from the CEO seat, there are still some big questions and hurdles in the way of Wattles and other stockholders cashing in on a buyout.

Industry analysts have been quick to hang Schoonover out to dry over his controversial decision to lay off 10% of the chain’s highest-paid salespeople. However, it’s important to keep in mind that James Marcum, Wattles hand-picked successor for the CEO spot, inherits a lot of the same issues that were holding back the chain’s turnaround. While the layoffs of senior salespeople sent a terrible message to staff, customers and even Wall Street, insiders say the bigger issues for Circuit City are:

• Bad Locations & Leases: Most current and former employees from Circuit City report that chain’s new locations, particularly those opened under “the city” banner, are meeting or beating their sales forecasts. However, Circuit City’s total sales numbers are dragged down by older, underperforming stores in bad locations. The only way to get out of these bad leases would be for Circuit City to file for bankruptcy at some point, but that clearly would not help the company’s current share value.
• Competitive Squeeze: Let’s face it Best Buy is no slouch to have to square off with on a daily basis, so grabbing share from the top player in the category is not going to be an easy task. Circuit City is also feeling pressure at the low end from discount giants Wal-Mart and Target, who have increased their presence in key categories such as games, and flat-panel TVs. Wattles knows this all too well through his experience in running the Ultimate Electronics chain.
• Category Softening: A lot of the core product categories in the consumer electronics industry flat to down in terms of overall sales growth. Sales of CDs and DVDs are getting squeezed by the growth of digital platforms, while other growth sectors such as video games are dominated by specialty chains like GameStop.

Given all of these realities, it will be interesting to see what James Marcum and Mark Wattles can do to speed up Circuit City’s turnaround or make the chain a more attractive acquisition target. After Blockbuster dropped its purchase bid, Best Buy is the only other retailer in the category with the synergies and cash to consider some kind of merger. The recent acquisition of Napster probably means the folks in MN will have their hands full and are probably more interested in digital growth.

Of course, there is always the possibility of a financial player moving in to acquire and remodel Circuit City, the current credit crunch makes that option appear less likely, especially since no venture players have made a play for the retailer while its share price has hovered down between $1 and $2.

To Schoonover’s credit, he has improved Circuit City’s positioning by making the shopping experience more customer friendly across all channels. In addition the success of ‘the city’ format could serve as a nice platform for a future owner.

Circuit City is scheduled to announce second quarter results on Monday of next week, which could either be a stepping stone toward future momentum for Marcum or further consideration for the company’s Board to consider taking some more drastic measures.

Stay tuned.

Skiwear Brand Spyder Gears Up For Growth With SaaS Solutions

By Debbie Hauss, Executive Editor

Spyder Active Sports is poised for growth using Epicor Retail’s Software as a Service (SaaS) solution to provide merchandising, POS, sales audit and analytics tools for its growing specialty skiwear business. Spyder is currently the largest specialty skiwear brand in the world and outfits the U.S. and Canadian Alpine Ski Teams. Since 2006, Spyder has opened five retail stores in the U.S. The company also sells its products to more than 550 specialty retailers in the U.S. and Canada, and in 50 countries around the world.

“The Epicor implementation began in late February 2008 and went live in three Spyder stores on June 1,” says Bard Higgins, retail business analyst for Spyder. “Since then the other two stores also have gone live.”

Spyder chose Epicor’s SaaS system after realizing that its current system would not support future growth. “Our first POS system was basic, rudimentary, and entry level,” Higgins notes. “When we took a high-level look at our long-term strategy, we realized that our original system would not support what we wanted to do. Epicor’s Software as a Service managed hosting model allowed us to add merchandising, POS and analytics very affordably.”

The pay-as-you-go SaaS pricing model allows small- to mid-size retailers to build an IT platform without breaking the bank. The Epicor solution includes implementation, integration, support and maintenance, as well as ongoing updates and upgrades. Upfront costs include a one-time start-up charge and a fixed fee.

“Epicor offers a tremendous value proposition for small to medium retailers such as Spyder,” according to Kevin Smith, CIO of Spyder, in a recent press briefing. “With Epicor we can have an end-to-end integrated solution that offers best-of-breed capabilities, the likes of which are used by large retailers, with minimal up-front cost and turnkey service and support…this basically eliminates all of the traditional barriers to entry for small to midmarket retailers.”

Four months to market
Spyder and Epicor took an aggressive approach to implementation, completing the project in just over four months. “While it might have been nice to have another six to eight weeks, just because we were also phasing in other things at the time, there was no negative impact from the aggressive schedule,” notes Smith.

To track the success of the solution, Spyder is monitoring specific metrics including dollars per sale and units per transaction. “We have seen improvement in time per transaction,” says Higgins. “And using Epicor’s tools for suggested selling and upselling, we have seen an uptick in both of those areas.”

Preparing for the future
Although Spyder does not currently sell products through its Web site, the Epicor system will facilitate growth into additional selling channels as well as more brick and mortar stores. And, with the acquisition of Cloudveil Mountain Works in 2008, Spyder has the option to quickly enter ecommerce through Cloudveil’s site. “If we move in this direction in the future, our Epicor Retail SaaS framework will enable us to support a seamless consistent experience across all of our channels…,” says Smith.

Cloudveil Mountain Works sells technical outdoor, mountaineering and fly fishing apparel. The company operates a flagship retail store in Jackson, Wyoming and sells online at www.cloudveil.com.

Find a good fit
Higgins recommends that retailers conduct a complete review before choosing an IT system vendor. “Every company we dealt with promised their system could handle every situation,” he says. “We were sold on Epicor after talking with client references who shared with us exactly how they use the system.”

Epicor also was a good fit for Spyder, Higgins adds, because of its experience in the specialty retail arena. “We are a specialty business and a lot of their customer base fit that model. And since our implementation, five or six other similar companies have gone live with Epicor.” Some of Epicor’s other retail customers include Aeropostale, American Eagle Outfitters, Ann Taylor, Zales, and Zumiez.

Queue Science Helps Retailers Recover Revenue at Checkout

By Debbie Hauss, Executive Editor

If you aren’t managing the checkout area of your stores, now may be the time. The old adage, “You can lead a horse to water, but can’t make him drink” unfortunately proves to be true in too many retail situations. Retailers can lose hundreds of thousands of dollars each year per store from customer walkaways due to poor checkout management.

If an average transaction value is $35, for example, and you have 200 walkaways per week, then you could be losing $364,000 in sales per year in each store. One retailer was losing exactly that much using lane-per-lane queue management. After switching to single-point checkout with the help of Lawrence Metal Products, the retailer saved $345,800 in a year in incremental revenue from reduction of walkaways, according to Richard Prigg, president of sales and marketing, Lawrence Metal Products.

“Retailers spend huge amounts of time and money creating pleasant shopping environments, yet they subject their customers to stress and uncomfortable experiences at checkout,” says Prigg. “It is the last touch point with customers — the last chance to make a good impression, and too often we allow them to leave the store feeling annoyed and frustrated.”

Giving up space to increase revenue
Many retailers overlook checkout because it is a “specialist” area, says Nick Byrne, vice president of sales and business development, Lawrence Metal. Retailers also believe dedicating extra space to checkout cuts down on profitable merchandising space in the store.

Recently Lawrence worked with an 800-store retailer, proving that allocating space for proper checkout reduced checkout time from six to 1.5 minutes. “Revenues went up and sales improved,” says Byrne.

For this retailer, Lawrence instituted single-line queuing with electronic call forward. The organized queue line created efficiencies that the retailer did not anticipate. In addition, Lawrence helped the retailer set up product merchandising in the queue area which added to the total average transaction value. Items that sell well as impulse purchases in the queue can experience uplift in sales of 400 to up to 1,000%, says Byrne.

In addition to reducing walkaways by 92%, the single-point cueing helped to eliminate “sweethearting,” a practice in which store employees give away items to friends by not ringing up every item. With the single-lane system, customers can not choose their cashier. Single-lane queuing also eliminates the need for queue buster personnel – employees who help direct customers to the next available line. With efficient queuing in place, queue buster personnel can be redeployed to other area of the store, improving overall customer service. In a recent test of single-point queuing with U.S.-based TJX stores, customers reported a 94% approval rating of the system. Since the test, the TJX company has committed to convert every one of its stores.

As little as $200 per store to implement
n many cases a retail store may already have retractable barriers in place, and by adding signage and receiving some organizational help, that retailer may be able to improve their queue management situation for $200-300 per store. In other cases, if a retailer wants to add electronic call forwarding, the price could be up to $10,000 per location.

U.K.-based Lawrence Metal has achieved business success working with companies like Virgin Megastores abroad, and the company is making inroads into the U.S. with TJX and other companies including Staples and CVS.

Drawing Up Plans For Retailers To Find a Financial Connection With Social Networks

By John Gaffney, Senior Editor

If I knew exactly how to monetize social networks I wouldn’t be writing this column. I would probably be strumming my vintage Gibson Hummingbird on the deck, and wondering if the family and I would be touring Europe for the summer, or just visiting the Caribbean.
Nobody knows how to monetize social networks at this point. Not even the companies that are betting their business models on it. Retailers know that social network and review sites cannot be ignored. They are a clear window into what customers love and hate, spoken without prejudice. Spoken as if you , the retailer, are not in the room. That is invaluable information but it doesn’t translate into currency. Yet.

Social networking needs a new look from retailers. It will become a revenue center when retailers have attracted their most valuable customers into networks that add value to their customer lives. If I’m a supplier that values your most valuable customers, I’ll advertise on your social network all day. But I won’t call it a social network. I’ll call it your “community of influence” and it will be a line item in the marketing budget just like print, TV, FSIs, search, and the internet. There is a reason Yahoo just agreed to sell advertising on Wal-Mart’s website. That website has become valuable real estate, and now Wal-Mart can take a cut from it without hiring its own sales staff. An April 2008 study for eMarketer and Collective Media showed that 73.2% of agency executives surveyed plan to advertise on social media networks.

Retailers then must start the journey toward building their communities of influence. Wal-Mart has launched a back to school promotion with Facebook (see related story) that definitely hits the right audience with the right products. Cabela’s doesn’t play it’s blog up very much but last time I checked there were 45,353 posts on the subject of “shooting.” Now if I’m a rifle manufacturer, I want a piece of that. On the opposite end of the spectrum Victoria Secret’s youth line, Pink, has a downloadable music widget for use on MySpace or Facebook.


Any retailer that has a strong multi-channel brand should find a touchpoint for customers to engage in communities. Sporting Goods retailers have their extreme athletes. Grocery retailers have their organic customers and the portion of their customers that want to discuss the reasons prices have shot up for some goods. Issues forge a link between customers and retailers. Issues need communities.
I think retailers should establish the following practices for a retail community of influence, with an eye toward building a quality and quantity that drives revenue for the long term.

• Differentiate it: Let Facebook and LinkedIn be who they are. Find the reason that consumers want to engage with your brand and your unique experience. If you’re a high-end fashion retailer, be a high end fashion community.
• Brand it: Maybe the brand for the community is not exactly the same as the retail brand. A local bookseller could appeal to local book clubs, for example. Don’t knock off the best seller list opinion blogs that dominate the bigger book retailers.
• Niche it: Take a page here from consumer products companies. The best customer feedback came from some of the earliest blogs that connected with the most esoteric customer groups. GMs small-block engine blog served up access to key GM execs like Bob Lutz and the car geeks flocked to it.

Communities come back to the reason a customer does business with you. If you don’t know that save your time and effort building social media networks. I would argue though that the same reason different customers do business with you are the same reasons they will engage in a community. Create and support the community now; monetize it later.

Retailers Counting On Conversion Analysis To Drive Store Metrics

By Amanda Ferrante, Assistant Editor

With physical expansion slowing, many leading retailers are taking a harder look at the performance metrics of their existing locations. Given the more intense focus on metrics, forward-thinking retailers are adopting sophisticated traffic counting systems and developing conversion rate analytics to precisely track how many shoppers are actually making purchases.

“Knowing your conversion rate lets retailers see how well they are doing, how much the shopper felt the promise of your brand at the door, delivered on the rack, and how much money you might be leaving on the table,” says Bob Phibbs of The Retail Doctor, a sales training consultancy specializing in the retail sector, who has worked with organizations such as True Value Hardware.

Given the economic slowdown and increased pressures to show top and bottom line growth, missing out on capturing customers while they are in a store is becoming an opportunity retailers can no longer afford to miss. Major retailers such as Virgin Megastores, Marks & Spencer, and Crabtree & Evelyn have served as a few of the early case studies for the benefits of measuring and improving conversion rates.

Virgin has credited the analysis with uncovering variations of up to 20% in average transaction values between stores, as well as a 15 point difference in conversion rates between its highest and lowest performing stores. Jason Toy, a division manager for Virgin Retail, said the analysis has been beneficial in highlighting store level performance, as well as regional customer profiles. “From the outset we linked the FootFall information to our store customer service program which has been extremely effective in creating a clear understanding of how service drives conversion,” he said.

Once retailers start collecting the performance analysis from individual stores, they are often surprised by the results. “If you were to ask a retailer how many shoppers they convert, the assumption is typically north of 50%,” said David Smyth, Vice President of sales operations for Experian FootFall. “In reality, the average conversion rate ranges between 20% and 40% for most retailers. Using that average, that means about 70% of shoppers are leaving the store without buying anything. That means retailers are leaving an awful lot of money on the table.”

With major retailers realizing that even a 1% improvement in conversion rates can equate to millions of dollars dropping to the bottom line, more and more are utilizing traffic counting analysis-- not only at the headquarters level, but also providing the analysis directly to store managers and other personnel. For example, Marks & Spencer has used its visitor count system to build staffing plans that better match the customer to each department within a store. “By making small, simple, sustainable changes in staffing, product availability and service based on our findings, Marks & Spencer has been able to drive measurable improvements in conversion, units per transaction and basket size,” said Bill Donald, a manager with Marks & Spencer.


TRACKING AD IMPACT

In addition to highlighting operational opportunities for staffing and merchandise adjustments, industry analysts point out that traffic counting and conversion rates also help to measure the effectiveness of a retailer’s marketing efforts. “You can see if your advertising creates more traffic or more sales from the existing traffic,” says Mark Lilien, Consultant with Retail Technology Group, which has worked on strategic initiatives with clients including Circuit City, KB Toys, and Coach.



Laura Davis-Taylor, Founder and Principal with Retail Media Consulting, suggests that the bigger opportunity for retailers is learning more about the in-store behavior of shoppers. “Frankly, any retailer that is interested in shopper insights that unveil the desires and causal triggers for the human behaviors of the people in their aisles benefit from conversion rates,” Davis-Taylor says. “What we are doing is finally bringing the best practices of marketing into the store environment. It's interesting that it's taken so long, as those insights lead to the knowledge on what works and does not work to positively affect these valued people.”



She adds that in order to gain better insights into moving a shopper from an exposure to a purchase, retailers need to move from a “Find Me/Sell Me” approach to a “Know Me/Help Me” strategy that applies to “every touch” to customers. “We can't know and help people if we don't know what they want to make their shopping experience
better and deliver on this with relevant, welcomed communications. It's just that simple: give people what they want and we are much more likely to turn them into purchasers.”

New Study Reveals Sales Staff Driving Shopper Defections

By Amanda Ferrante, Assistant Editor

The phrase “sales help” may prove to be an oxymoron in many corners of retail. A recent study found that front-line sales staff are actually winding up to be more of a hindrance than a help for many consumers.

The Retail Customer Dissatisfaction Study, conducted by The Verde Group and the Baker Retail Initiative at the University of Pennsylvania’s Wharton School, show that sales staff are the single biggest detriment to the shopping experience, resulting in more lost business and negative word of mouth than any other shopping problem. The study also estimated that the defections caused by a lack of sales help or a poor associate experience ultimately results in a 6% loss of business for retailers.

Compiled from 1,000 American consumers surveyed by phone in March 2007, the research found that one in four Americans who experience problems when they shop are ignored by sales staff, receiving not so much as a smile, greeting, or even eye contact. This turns 3% of consumers away from the retailer permanently and is the number one problem customers are likely to share with others—increasing detrimental viral impact.

“It’s odd that retailers are hiring associates who avoid customer contact,” says Paula Courtney, President of the Verde Group. She suggests that part of the problem could be that associates are charged with too many distracting tasks, such as restocking shelves. “Are you asking too many tasks of them? Where’s the priority? Are you rewarding for A but hoping for B?”

The most critical retail shopping issue of all, not being able to find a salesperson for assistance, is experienced by 33% of all consumers who reported a problem. Many shoppers are so annoyed by the lack of assistance that they won’t go back to the store at all. This, in turn, results in negative word-of-mouth, and a whopping 50% of shoppers said they have chosen not to visit a particular business because of someone else’s poor experience- this is not counting their own.

Courtney suggests retailers look to other industries for examples on strategies for dealing with dissatisfied customers. For example, she pointed to the telecommunications industry, where customers who call into a call center for service are often routed to a "save desk" if they are threatening to leave due to a problem or are reporting a problem that puts them at risk for defection. For retailers, the comparable strategy might be for in-store reps to ask customers "did you experience any difficulty or, “What could we have done differently to improve your experience today?" at the end of the purchase transaction.

Other key findings of the study:

· 25% of those surveyed said they found sales people, but it made little difference since the store employee ignored them;

· Long checkout lines, over-solicitous and insincere sales people, and being ignored by sales staff alienate the shopper and make retailers lose big bucks;

· 22% reported aggravation with product stock-outs;

· The average number of problems experienced per consumer were highest among those 18 to 29 years old;

· Stores specializing in a particular type of merchandise (category killers), such as electronics, home improvement or office supplies, account for the largest proportion of shopping trips and drew the most complaints and lowest shopper loyalty.

Based on the findings, the team at Verde Group and the Baker Retail Initiative at Wharton has identified the four core competencies salespeople must have in order to drive loyalty and keep customers coming back for more:

· Educator- explains product, makes recommendations, and tells the customer where items can be found.

· Engager- approaches the customer, smiles, makes eye contact, and helps the customer no matter what else they are busy doing.

· Expeditor- sensitive to the customer’s time constraints and helps them speed through long checkout lines.

· Authentic- lets customers browse on their own if they want and is genuinely interested in helping, regardless of whether a sale is made or not.

The Verde Group and the Baker Retail Initiative at Wharton are also developing a customer experience measurement systems, which is expected to be introduced later this year