Retailers Are Winning by Focusing on Customer-Centric Systems -- Not Whining About the Economy

April retail sales were better than expected, but economic doom-and-gloom is everywhere. A Retail Systems Research report shows why those retailers who think long-term about customer service technologies and employee-facing tools are winning now.

The recent economic evidence was overwhelming and distressing: gas prices hitting new highs, rising food costs cutting into average Americans' wallets, a depressed real estate market, a seemingly intractable credit crunch and persistent job worries. The retail industry would surely be in trouble. March had been bad, as had February before it.

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But April's sales reports from many of the nation's retailers, released this week, were surprisingly better than expected, despite the mounting economic despair. Wal-Mart, Saks, Costco, BJ's Warehouse, TJX Stores (T.J. Maxx and Marshall's), Family Dollar and J.C. Penney either met or exceeded Wall Street's expectations for same-store sales for the month, which is a critical retail metric. According to an early tally from Thomson Financial on Thursday, as reported by the Associated Press, 19 retailers beat estimates, while nine missed.

Of course, it could be said that the successes of many of those retailers was due, in part, to U.S. consumers' shift to low-price discounters and wholesale food stores. And retailers like Wal-Mart, T.J. Maxx and Family Dollar deliver that every day—though that would not explain the respective months of Saks and J.C. Penney. (For more on Wal-Mart's technology initiatives, see "Did IT Help Wal-Mart's Quarterly Financial Results?" and "How Wal-Mart Lost Its Technology Edge.")

To Paula Rosenblum, a managing partner with Retail Systems Research (RSR) and former retail CIO, these lean times for retailers are what she calls "the thinning of the herd" in the retail segment. "That's healthy for the industry," she says. "This country and Western Europe have been over-retailed for decades."

Given the state of the economy, logic would dictate that bargains and big sales would be the sole focus of both consumers and retailers now—a sort of "slash the price and they will come" mantra for retailers facing tough times. According to Rosenblum's latest research, however, low low prices aren't the only draw for consumers. They want good customer service as well.

"Much to our surprise, we found that customer centricity remains in the forefront of the minds of both retailers and consumers," Rosenblum writes in a May 2008 RSR benchmark report, called "The Customer-Centric Store."

What was noteworthy about the RSR research was how the different classes of retailers—winners, average and laggards, as defined by RSR—have reacted to the downturn in the economy. For example, retail laggards (which RSR defines as those whose year-over-year comparable sales performance lags their peers and inflation) are seriously concerned for their own futures and survival in the down economy. (See "How IT Systems Can Help Starbucks Fix Itself" for more on IT's ability to help retailers.)

On the other hand, the better a retailer's past performance, "the less it focuses on short-term economic conditions as a business driver," Rosenblum writes. The data showed that 40 percent of retail laggards believed that the economy was one of the top three business challenges they face; just 12 percent of retail winners felt that way.

To Serve (Your Customers) and Protect (Your Margins)

Retailers are aware of the need for better customer service offerings and tools for both the customers themselves and the employees who are supposed to serve them, according to several RSR studies.

"The customer is alive and kicking, and even in tough economic times her expectations for quality customer service in retail stores remain high," Rosenblum writes. "Retailers recognize this, and customer-centricity continues to be the Holy Grail for those who seek to come through these economic times as sustainable winners." (See "Retailers' No. 1 Tech Priority Is Business Intelligence" for more on how retailers are aiming to serve customers better.)

But the top challenges for retailers, who have been hearing about their customer service failings for years, are still tall. The number-one cited business challenge in the survey was "improving customer service while holding the line on payroll costs." Number two was its corollary: the need for more consistent store execution. In other words, Rosenblum points out, "retailers, while inured to the noise, are even more acutely aware of the need to fix the problem."

According the survey results, retailers admit that they suffer from the same fundamental problems and challenges, however, "the more successful a retailer is, the more likely it is to see opportunity in the current economic haze," Rosenblum writes. For example, retail winners are "specific and emphatic on the importance of employee-customer interactions," she notes, "but they also recognize there are customers and situations where self-service technologies are as or more appropriate than finding and conversing with employees."

In the RSR survey, 90 percent of the 126 survey respondents reported that employee-facing tools and technologies had at least some priority in their strategy to drive customer satisfaction, versus only 67 percent in a similar study done in 2007. Also, 85 percent of respondents said that customer-facing tools had at least some priority in their strategy to drive customer satisfaction.

That perception and importance that winning retailers place on enabling their customers (and employees) with technology tools is evident from the survey data: 93 percent of retail winners says there's opportunity in adding customer-facing self-service technologies, versus just 33 percent of retail laggards. In addition, the laggards identified by the survey data appear to be "fighting a death spiral" against new IT-enabled technologies, Rosenblum notes.

For example, 53 percent of laggards find little to no value in customer-facing self-service options that help describe product features or benefits; 47 percent find little to no value in providing the ability to locate and sell merchandise from anywhere in the company; and 36 percent find little to no value in providing employee selling tools on the sales floor.

But laggards aren't the only one having IT-related problems: 55 percent of all the respondents believed that their existing technology and infrastructure was preventing them from moving forward with new retail solutions.

What Retail Winners Do Better Than the Rest

Every retailer wants to know what other retailers are up to, Rosenblum points out in the report, especially those retailers who outperform their peers. "There are some clear differentiators between winners' use of in-store technologies and those of their peers," she writes.

Specifically, the RSR study discovered that the following technologies had been used for longer than a year by retail winners (as opposed to the rest of the survey population):

Modern POS Hardware and Software: 57 percent of winners have had this in place for more than a year, versus 37 percent of average performers.

Customer Facing Technology Touch Points: In use by 40 percent of winners versus 20 percent of laggards.

Distributed Order Management: In use by 36 percent of winners versus 7 percent of laggards.

Self-Service Price Checks: In use by 28 percent of winners versus 13 percent of laggards.

Contactless Payments: Used by 15 percent of winners versus 6 percent of average performers and no (zero) laggards.

In-store Rewards and Coupons: In use by 46 percent of winners versus 27 percent of laggards.

Cross-channel Customer and inventory Synchronization: Used by 20 percent of winners versus 12 percent of average performers.

Overall, Rosenblum notes, RSR's findings show that retail winners don't merely do the same things better, but they most often do different things with their businesses. "They think differently. They plan differently. They respond differently," she writes.

"There are clear indications that retail winners seek to satisfy their otherwise frustrated customers for the longer term," Rosenblum writes. "It's also clear that former better economic times masked fundamental problems that have come to the forefront as sales have softened."

Copyright © 2008 IDG Communications, Inc.

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