Tweaking retail operations to deal with changing customer behavior

I am getting ready to teach my service operations class next term and that has had me plowing through articles on retail operations and there have been a number of them recently. Let’s start with an apparent problem. Many stores are supposedly seeing more competition from Web-based retailers. This is apparently very true for retailers like Best Buy who live and die with branded goods that are easy to research on line (Best Buy Sales at Risk as Surgical Shoppers Lose Impulse: Retail, Businessweek, Oct 17). That has put a premium on good customer service that converts traffic into sales and possibly gets shoppers to buy more.

“Most retailers are geared for people to come buy,” said Maddocks, a former chief marketing officer at Nike Inc.’s Converse. “Retail has to start gearing itself to sell, to get more out of every person that walks through the door.”

[Bill] Martin [chief executive officer of ShopperTrak] has been analyzing shopping patterns for the past 15 years. Typically traffic and sales growth rise or fall in tandem. Last year he spotted something new. Even as retail sales grew 3.5 percent, according to the NRF, traffic declined 0.5 percent, he said.

When the trend continued this year Martin didn’t know how to explain to clients what was happening, so he asked his researchers to dig for answers. They discovered Americans were turning into what he calls “surgical shoppers.”

Men were the original mission shoppers, and they adopted e- commerce first because it saved time. Faster Web connections and a better shopping experience drew in more women. This has accelerated change in shopping behavior because women outspend men and retailers have long focused their efforts on them.

“Women now go into a store, hoping to go right to what they need like a man would,” said Delia Passi, CEO of Hollywood, Florida-based Medelia Inc., which advises companies such as Home Depot Inc. on how to appeal to female shoppers. “The science of retail shopping has changed, and unfortunately the retailer hasn’t.”

The article goes on to argue that during the recession, retailers held off on sprucing up stores and cut staff. That has left them playing catch up, adjusting their operations and trying to get better use of their people. Here is how Greg Wasson, CEO of Walgreen’s put it in an interview with Chicago Magazine (Walgreens’s CEO Talks Business, Nov 2011):

One of our major initiatives is to enhance customer experience. We are starting from a pretty good base. …

Understanding what gets in the way of employees delivering the kind of service they want to. How do we get to be less task oriented [e.g., stocking shelves] and more customer-service oriented?

The president of Office Depot expresses similar concerns in a piece in Harvard Business Review (Office Depot’s President on How “Mystery Shopping” Helped Spark a Turnaround, Nov 2011). The background here is that Office Depot had a pretty aggressive mystery shopping program that routinely gave stores great scores; the problem was that it focused on things that were easy to measure (is the bathroom clean?) that didn’t necessarily make a difference to the customer. That led them to focus on customer service and as with Walgreen’s an emphasis on freeing up workers from other tasks in order to spend more time with customers.

Many of the changes we made were done behind the scenes, in parts of the business that customers don’t see. We altered the way our supply chain operates so that we could accept deliveries from vendors even when no one was in the store to sign in the merchandise. We began separating stock onto U-boats (the narrow stocking carts we use in aisles) assigned to different parts of the store and delivering the U-boats to an optimal spot—marked with an X on the floor—to minimize the labor required by associates to stock shelves. We also divided the store into zones and began having the same associates stock the same sections repeatedly. Becoming expert in one area of the store allowed them to restock faster, reducing labor.

Many people think that in order to improve service, you need to hire more frontline workers. But in fact, by finding ways to reduce the time employees spend on functions such as stocking shelves, we’ve been able to repurpose their time for selling to customers. Each of our stores employs 18 people on average; by finding ways to work smarter, we’ve been able to save 80 hours a week—the equivalent of hiring two full-time salespeople but at no added cost.

What this emphasizes is that there are two parts to running a store. Part is service oriented. That is greeting customers, helping them find items, explaining alternatives and so on. The second part is much more task oriented. Someone has to refill shelves, sort through new arrivals, or chase carts in the parking lot. All of those things are important to letting customers buy stuff but all of them take staff away from answering questions or demonstrating products. Fortunately, this is the kind of activities that operations is really good at streamlining. There should be a best way to bring materials out to the floor (or at least one should be able to show that a new proposal is better than current practice) and those improvements free up staff time for the interactions that create value for both customers and the firm.

And that gets us to Apple. Apple’s retail outlets generally get high praise. The way the stores are set up, there is very little busy work tasks like restocking shelves for the staff to do. Outside of some iPhone cases or packaged software, everything involves consulting with a salesperson. Hence, they put a lot of well-trained people out on the floor and if you can get a hold of one, you get good service.

The “if” there is important. In my experience, the stores are often so crowded that it is hard to get a sales associates attention. Further, some of the staff are committed to training sessions for customers that are set up through a reservation system. If you need something that is simple but not out on the floor — the last time I was there, I was on a quest for a laptop battery — it can be very frustrating. Enter the Apple Store App (New Apple Store app launches Thursday; here’s how it will change Apple’s retail operations, bgr.com, Nov 1).

The app does some interesting things that both relieve some bottlenecks in the store while also setting standards that the staff has to meet.

If a customer orders an in-stock product, pick up will be available approximately 12 minutes after completing the order. Why 12 minutes? Well, the order goes through the system to the designated Apple Store in about 3 minutes. Apple’s back-of-house employees have 2 minutes to set all of the products aside on a shelf from the minute it was ordered. There is then a 7-minute grace period for employees to get everything else in order. Around 12 minutes after purchasing, customers will be able to walk into the Apple Store, skip lines, skip registers, get their products, sign for them and leave. We’re told Apple is really excited about this, and it’s something customers have been seeking for a while. …

We have been told customers who opt to purchase online or through the app will be given priority when they walk into the store over a customer waiting for a retail specialist, and that Apple expects the majority of customers over the next few years to use the in-store pick up option as their default method of buying products. This will help with foot traffic in retail stores while also reducing the cost of shipping for Apple, and possibly even reducing the number of stores Apple needs to open to accommodate sales.

But that’s not the coolest part. The app also allows self-service check out.

Here is how this will work: after you find the item you want to buy, like an accessory, you launch the Apple Store app on your iOS device and there will be an option to buy a product in the store. You scan the product with the camera on your device in the app, click purchase, and it will charge whatever credit card is associated to your Apple ID. You then just walk out of the store.

So at one level, Apple, which is generally one of the most lauded retail operations going, is back pedaling a bit on service while Office Depot and Walgreen’s are trying to up their game. However, I think it is more accurate to say that Apple is trying to make sure that they provide the right level of service that a customer needs. Trying to settle on the perfect laptop is very different than snagging a new iPod case. It makes no sense to put every customer through the same process. The app, particularly with self-service check out, lets Apple serve both ends of the spectrum.