Get real, and use the recession as a positive agent of change

Nik Davis, Director of Consultancy Services at Retail Assist, believes that retailers cannot afford to wait for the recession to end in their quest to improve sales and profitability. She advocates taking a robust approach to looking at their operations that will help them both to thrive in todays climate and to build stronger businesses, capable of adapting to tomorrows challenges.

Not a day passes without a comment from some source or other as to where the recession is on its cycle. Have green shoots been spotted? Are we starting to climb up out of the trough or are we heading for a second dip? Regardless of where we are on the cycle (and its only with hindsight that we will really know) the retail market has definitively changed and will continue to do so.

Boom times, as we knew them, are unlikely to return in the short term and the effects of this recession will simply be replaced by new challenges. So, in order to prosper, retailers need to accept, understand and adapt to this reality before the next set of changes occur. Now more than ever, they need to run themselves differently and that includes challenging every aspect of their business from the customer proposition right through to internal operations. In short, they need a new methodology to beat the recession and turn themselves into more agile businesses going forward. And this change will require a mindset that combines intuitive retailing nous, a fixation on customer needs and a keen eye for operational efficiency.

Firstly, they need to accept that society has changed. Numerous external physical and social factors have brought about a fundamental shift in how we live our lives. Greater affluence in past years has meant that everything is accessible to everyone, and the snobbery of fashion and brand has become diluted. Shoppers are now far more savvy and selective and with the volume of competition out there they can pick and choose as they wish.

One of the greatest casualties of the recession is customer loyalty. Thats not to say that loyalty no longer matters. It does but, in this climate, differentiating loyal customers from disloyal customers is a false categorisation. With so much competition for their attention and wallet, shoppers are only as loyal as the last experience enjoyed (or not) with you and are, effectively, all equal. Therefore retailers need to fight harder and more persistently to ensure customers are loyal to them.

Retailers should approach every customer engagement as a first date. In a market where customers have less money to spend, loyalty comes from the complete offer, not just from the brand. For retailers with weak offers, there is nowhere to hide. We have 15 boom years to thank for that, during which time customers have been over-shopped.

So how can retailers make their business more robust and better able to thrive in a world where loyalty is only skin-deep? The answer lies in crafting an offer that combines great products, attractively priced, with an alluring environment to create a memorable customer experience. Thats the brand of the future, not the retailer name or product label.

The necessity to change is particularly critical for store-based retailers. The world of e-commerce has irreversibly changed the purpose of store shopping. Because of the ease with which purchases can be made online, a store visit must be about more than simply buying a product. The store-based experience is now critical in a way it has not been for many years. Stores need to look at how to tie in the customer, enticing them to buy on the spot rather than just look and then buy online from the alternative cheapest source, or encouraging them to buy subsequently from their own online site

The changes needed to adapt to the new order and compete in todays market may seem daunting. However, they can be addressed more easily by asking 3 key questions:

1. Where do we really stand in the market in terms of the segments in which we operate and compete?

2. To what extent do we represent an experience that will encourage customer footfall and spend?

3. How agile are we when it comes to shaping our offer to the emerging retail environment?

The Market

A pragmatic, robust assessment of your strategic position to realistically show your strengths and weaknesses in relation to market segments and competition is the starting point. Pioneered by BCG, McKinsey and General Electric amongst others, this is not a new concept, but one that has been proven and adapted by successful business for many years. Strategic position looks at market attractiveness (is there opportunity for profitable growth in this market, how big is the market?) and your competitive position (how well do we compete in terms of our offer and operational effectiveness?).

Top tips:

1. Be brutally honest about the market you are in and your ability to compete. Dont just rely on gut instincts and perception. Analyse the facts to prove or disprove where you think you are
2. Dont be afraid of change. If the market cannot deliver growth and profit, dont fudge the issue. Face up to it and look at all of your options
3. Dont assume you understand your competition. Shop with your competitors and compare what they do to your own stores
4. Dont assume the entire management team has the same view on life. Bring your management team together to go through this process and involve your employees and suppliers

The Customer Experience

What is it about your offer that draws customers to your stores to make them spend? Define the type of experience you want your customers to have. Look to examples of retailers that offer very distinctive customer experiences, for example: bargain (TK Maxx), entertainment (Build-a-Bear workshop, Hamleys), expertise (Apple, ELC), lifestyle (Whole foods Markets), hedonism (Godiva Chocolatier, Agent Provocateur) and design (Prada). Each can be equally memorable.

Top tips:

1. Think about retail/business models that you can aspire to: not necessarily your competitors, just retailers who have done something that resonates with you. Visit their stores, thinking about the experience you are having and why what is it about such concepts that evoke a response and what learnings apply to you?
2. Experience your own stores through the eyes of a customer not just through formal market research. Use staff to visit stores they dont work in, get friends and family to give honest feedback, chat to customers in store, and get comment from social networking sites
3. Run brainstorm workshops with managers and employees to define your desired customer experience their first hand experience, whilst not a substitute for your vision, brings a practical perspective, and their involvement aligns them with your vision
4. Translate that experience into a customer service programme and the culture, skills and behaviours you need to have within the business

An Agile Business

This is about ensuring processes are efficient, costs are minimised and hard measures in place to ensure that the business is on track. Assessment of the market and customer experience will identify the critical processes and highlight priority areas for improvement within the internal operations of the business.

Top tips:

1. Carry out a high level key performance indicator analysis to identify areas of the value chain that are not performing to requirements
2. Drill down to those areas to understand what needs to be improved. Talk to people, and test those perceptions against reality by looking at performance data
3. Summarise the key issues that are causing the majority of your pain and carry out a root cause analysis on them. Keep asking until you get to the bottom of the problem
4. Look at how different functions work together are they collaborating, do they share goals?
5. Structure a simple, hard-hitting and focused programme of activities for improvement. Ensure the programme has dedicated resources with clear terms of reference and can deliver improvements quickly. Immediate benefits should certainly be achievable within 3/4 months.

These three elements constitute the key facets of a business, and must be in balance. Each is needed, and is only part of the picture.

More than ever before, retailers need to get the fundamentals right and the rest will flow from that. Call it business basics, reality or the roots of retailing. This recession and whatever economic climate succeeds it may just reconnect us with what it takes to make and grow a successful retail business.