Retail news? Barely a week goes by without another chain parading its woes: announcing profit warnings, negotiations with creditors and store closures. BBC News today reported that 22,000 retail jobs are at risk in 2018 alone. The finger of blame is frequently pointed at the growth of e-commerce and Amazon in particular, but is it really that simple? After all, Amazon has been around since the mid 1990’s so it is hardly a new challenger.
These troubled companies are not retail novices. Many of those struggling with falling profits are former industry leaders with more than 100 years of successful trading. Make no mistake these guys understand what makes a retail business tick.
So, what has gone wrong, is e-commerce really the demon, or is the problem an industry-wide fear of innovation?
Retail focus on cost base has missed the point
E-commerce has mopped up a lot of the volume that used to flow through department stores and supermarkets. This means that there is now too much retail space in operation for the volume of walk-in trade. There needs to be a reduction in most of these companies’ real estate portfolios as they face the future.
However, to simply look at adjusting space and cost base to combat reduced retail volumes is short sighted and missing the point. Those who went under in the 1990’s internet boom / bust often complained ‘if only we’d contained our costs better we would have been okay’ when the real problem was that they had done nothing to grow their top line. It is simplistic but nevertheless true to say that without a top line (preferably a growing one) a retail business is doomed whatever it does with its cost base. These struggling stores need to spare a little intellectual capital amongst the cost cutters and efficiency experts to study what can be done to impact top line sales and customer loyalty.
We need to dig a little deeper into how businesses (not just retailers) operate in the developed world if we are to learn how we got to this state of affairs: when a business is successful and develops a successful growth strategy, the logical thing is to focus more and more on the activities which are delivering results. Bonus driven senior managers and dividend driven shareholders will push the company along this route and initially the results are good. However, with this tighter focus and increased profit come some hidden diseases.
Fear of retail innovation has left stores on the back foot
With repeated success, companies become more and more reluctant to adopt new technologies and methodologies in their businesses. They fear that this will rock the boat when all is going well and tend to adopt an ‘if it isn’t broken don’t fix it’ attitude. This has the effect of divorcing them from changes in the wider business environment and stifles real innovation, as new projects struggle for funding in competition with yet more investment in gold plating the status quo. With every year of this approach it becomes harder to correct the direction of travel as the company’s infrastructure and expertise becomes ever more tightly focused on short term profitability.
Meanwhile both management and shareholders become ever more complacent about their performance. The responsibility of company boardrooms to cater for the long-term future either gets forgotten completely or is relegated to board minutes exhorting the staff to better and better execution of the existing model. If nothing changes, the company gets steadily left behind by the rest of the industry. Eventually tripping over its own ignorance as a competitor, seemingly out of nowhere to company management, walks off with their market share. The house of cards collapsing as panic and shoddy last-minute measures compound the problem.
This is the behaviour pattern that gives us a major department store who did not have a transactional website until 2010 and a smaller one which is only just starting to design one in 2018, 25 years after the birth of Amazon. This is almost suicidal / negligent behaviour in the modern connected world.
The effect of this situation in established retailers coupled with the meteoric rise of digital tools and techniques in the retail and media space serves as a catalyst to rapidly expose weaknesses in businesses which might otherwise have struggled on for several years before disappearing quietly. This explains a landslide of retailers in trouble. So what of possible salves to their wounds?
Change starts with the customer
The customer is the key player who often gets forgotten in these situations. The advent of ubiquitous communications, particularly with access to cameras, and the explosion in E and M commerce has irrevocably changed customer behaviour and attitudes to retailers. No longer is it sufficient to “pile it high and sell it cheap”. Customers arriving in store are much better informed than they ever have been. They are also less and less likely to put up with bad service and time wasting. Why would you stand for ages in a bad-tempered queue at an inefficient checkout when you could click on your tablet and have the self-same product delivered to your home while you stroll in the sunshine? Why would you tolerate a lacklustre response from a badly trained, oppressed sales assistant when the smartphone in your hand can deliver the answer to your question in seconds and in much more detail?
Store retailers need to catch up with the desires and behaviour of modern customers. Going shopping needs to be a happy and satisfying experience otherwise with the efficient alternatives available, why would anyone go to a store? Rather than joining a ‘race to the bottom’ in customer service stakes and automating as much as possible (often) at the expense of the shopper, stores need to make the best of their resources: including their much-maligned staff who can actually be the key to enhancing a customer’s experience – particularly if they are given the right tools and training. We are a social species after all. People like to interact with people. Especially those who are knowledgeable and a pleasure to deal with (otherwise I concede a machine may be far less hassle!)
Not all department stores have fallen into this rut: There are some shining examples of retailers who have grasped this and changed the way they look at their stores and customers to good effect: US beauty retailer ULTA has made itself into a destination for its customers by introducing in-store hair salons and nail bars as well as coffee shops and events. Harrods, famously “the top people’s store” has always had something of the theatre about its presentation but is now developing that theme further with in-store fashion shows and a revision of the role of its sales staff.
Retailers investing in innovation will emerge as the winners
I’m not sure if it was Niccolo Machiavelli in his writings or Michael Corleone in “The Godfather” who coined the phrase “keep your friends close but keep your enemies closer” but for all those stores who point at the digital world as being the authors of their demise that is exactly what they must do. With the advent of AI and Augmented Reality, digital technology can transform the role of a store and the sales assistant within. Making the stores of tomorrow a vibrant and desirable part of the retail process.
Other examples like investing in wireless technology and cashless payment can deal with queues for the till; RFID can ensure that staff find stock quickly and an app could even direct the customer to the right part of the store and save all that slogging around. Yet the best digital technology can be the enabler of the poor downtrodden sales assistant making them at least as knowledgeable as their customers (and ideally more so), relieving them of their current admin drudgery and transforming them into true apostles of the store to their customers.
It is unavoidable that retail real estate portfolios will shrink as the world changes. It is inevitable, but painful, that some of the less well managed companies will go to the wall. But this does not have to be the end of store retailing (as some would have us believe). If only the surviving companies would realise that the tools for transformation are within their grasp (and easy to implement).
HOLM’s in-store personal styling technology matches clothes to customers depending on their body shape (one of more than 4,000 body shapes for women alone, calculated by clever algorithms). Their USP is accurate recommendation from the off. Following a two-minute measuring process by your sales staff (theatre – tick, customer service – tick), shoppers are presented with a ranking of garments guaranteed to make them look great, not simply fit.
The result? Delighted, loyal customers who promote their experience by word of mouth; a thriving bricks-and-mortar store and a customer profile (data set) that boosts sales across all channels. Happy and motivated staff too, hitting their targets using an application that’s been carefully designed for simplicity and ease of use (so training is minimal).
About the author
Innovative and effective leader in the broadcast and distance retail sector. Richard Burrell was a founding team member of QVC UK in 1993 and pivotal to QVC’s move into digital TV and interactive media. Ultimately responsible for launching new markets and business opportunities in the EMEA area. Specialist in development of operational structures and implementation of disruptive technologies across large organisations. Now Chair to HOLM and consultant to a variety of small businesses since retirement in 2017.