Great article by Dinesh Sharma at Digitalist. A real head scratcher for retail business!
For hundreds of years, the notion of purchasing a product has led us to a physical store location, where a knowledgeable sales associate waited for us to arrive and helped us decide which product to purchase. However, in this last decade of digital transformation, the online retailing movement has created informed consumers at a frightening rate.
Now, when you step into a store, you will more likely know more about the product that you want to buy than the associate you’re dealing with. What will sales associates do now?
Even though online shopping is a huge part of the industry, in-store purchases still command 72% of the market. Yes, we are still going to the store, but things are still changing.
Recently, I heard a story about a big-box retailer struggling with in-store sales. The brand was getting slaughtered by multi-category discounters and Amazon. When asked about the role of its associates, executives commented that the store staff is scheduled to sell only 15% of the time.
This is startling, but all too common. To compete, stores have been utilizing their staff for an ever-increasing workload that involves everything – except the customer. In the long run, this strategy is a losing proposition; you can lay off only so many employees before there’s nothing left to cut.
The new digital masters in retail will embrace technologies that allow them to turn the 85% of associate free time on its head.
Let’s consider grocery retailers, for example. As customers exit the store, wouldn’t it be efficient to have their basket scanned and their credit card charged with the total purchase cost? What could this experience tell us?
At its headquarters in Moscow, Russian retailer X5 opened an RFID-enabled grocery store pilot in December 2012. The 2,500 square-foot test store carries more than 5,300 grocery SKUs, all of which bear RFID tags. According to store management, some consumers have already tweaked their shopping habits to move from their usual items that are not yet available in the RFID test shop for similar items that can be scanned simultaneously at checkout. More important, fewer staff required at registers means more employees in the aisles to provide a human presence that brings more value to shoppers.
Currently, food retailers generate an operating margin between 3% and 6%. Labor costs represent the second-largest cost, behind the cost of goods sold at approximately 75% of sales. Assuming a 25% gross margin, staff costs could account for about 10% of sales. Meanwhile, 60% to 70% of employees are employed in stores, accounting for only 6% to 7% of sales.
Now, if food retailers move to an item-level RFID model, inventory management may accelerate and increase accuracy, while the disappearance of checkout counters reduces store staff by around 30%. These advantages represent a 2% potential margin gain – and at the lower end of the spectrum this can generate 66% more profit. Of course, most of this gain could be reinvested in prices, but it could allow the retailer to shift more associates into aisles to help customers. The size of the opportunity makes it compelling for food retailers to get ahead of the game. In the end, technology is used to put sales associates where they could help consumers directly and influence purchase patterns.
As the trend of omnichannel shopping strengthens, new sales associates must become just as aware of customers as they are about the products their customers want to buy. In this case, the associate is a new point of the retail spear – the one who is in direct contact with the customer.
In essence, this is where all aspects of the omnichannel outreach come together – the rise of the product expert or advocate as the norm. If you consider Apple Geniuses, they are unabashed geeks who love technology and will talk about it all day. This authenticity is used on social and community channels to take on a trusted adviser role that has been eroded over the past decade in many retail segments.
As the skills needed to succeed in retail evolve, the hiring profile of suitable candidates will change. As technology handles more mundane aspects of retailing – such as order taking, inventory management, or audits – different attributes, including customer-facing acumen and technology expertise – should be expected. At the same time, staff turnover should decrease in this traditionally high-turnover job since experience becomes a valued skill in retail segments.
Ultimately, the sales associate of the future will have to be trained on new metrics that will shape retail in the future. If traffic 2.0 indicators – such as capture rate, visit duration, and shopper-to-staff ratios – aren’t understood and adopted by in-store teams, the physical retail operations will never evolve to take advantage of the best of both worlds.
Neil ran his first SAP transformation programme in his early twenties. He spent the next 16 years working both client side and for various consultancies running numerous SAP programmes. After successfully completing over 15 full lifecycles he took a senior leadership/board position and his work moved onto creating the same success for others.