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Retail Success Still Depends on Core Principles

Guest Blog by Joel Alden and Adam Pressman

A.T. Kearney’s Achieving Excellence in Retail Operations (AERO) study uncovers insights into how retailers worldwide can improve their operations.  With more than 100 questions, the survey probes the strategy, tactics and execution of retailers in more than 20 countries.  It covers multiple sectors, including apparel, health and personal care, mass-market and hypermarket, electronics, food and grocery, and cash and carry. The framework of the study provides the means by which to look at every aspect of operations – areas that enhance store value such as store technology, operating-expense control and real estate life-cycle management; aspects that drive store value such as store business planning, channel strategy and voice of the customer; and facets that deliver core store value such as merchandising, supply chain interfaces and field leadership.

As we were setting out to do research on our 2013 study, we were aware of the huge changes that had occurred just since our previous study, in 2010. Three years ago, we did not ask retailers anything about social networking. We covered far fewer options for deploying technologies to customers—and for getting information back from them. And although we asked about multiple channels, the notion of integrated channel retailing was at best a distant mirage. But look what happened with our results in 2013: Despite the changes, the AERO study demonstrates the importance of many traditional core principles of retailing. It confirms that running a successful retail operation is all about people: employees, customers, and the interactions between them. One of the biggest secrets to success is the simple notion of engagement: listening to your staff and your customers. Another is cutting back on administrative burdens to get managers out in the field. And although the new wealth of technologies and available data is a great boon, often the most productive uses of it are in addressing familiar challenges such as managing shrink and out-of-stocks.

Sure, it is both fun and important to look at new technologies and the insights you can gain from them. Yes, there is some value in the gee-whiz imaginings of a Jetsons-like retail future. But when you dig deep into what actually generates profits for today’s most successful retail companies, it turns out that they’re simply good at what great retailers have always been good at: the nuts and bolts of operations. They identify the right metrics, analyze them appropriately, and act intelligently (Measure, Analyze and Act). They support field leadership with tools and processes to improve their decision making. They rely on, and seek insights from, front-line staff. And they view technology as neither a threat nor a toy, but as a tool that better enables them to achieve ancient ambitions such as customer insight and engagement, operations efficiency, and customer service.

One critical area where the Measure, Analyze and Act approach plays a huge role is in out-of-stock performance.  We found that leading retailers used this principal to improve operational performance, for example reducing the percentage of out-of-stocks. Respondents who set in-stock goals at the stock-keeping unit (SKU) level, rather than by store, category, or subcategory, performed 47 percent better on this key operational issue.  Why? Because they know when an important SKU is out of stock. When you aggregate out-of-stocks to the store level, you may not know that you’re missing a particularly high-volume or high-margin SKU, so your overall out-of-stock performance will seem better than it really is.  By measuring in greater detail, leaders are better able to identify and address problems.

In a sense, then, the more things change, the more they stay the same. In an information-soaked environment, amid the emergence of multiple retail channels, it’s important to understand how to take advantage of the changes. But it’s equally important to keep a hand on the pulse of core principles: people, customers, and physical store layouts.

Fifty years ago, some of today’s retail technologies would have been inconceivable. To think that most homes would have a computer through which you could search for, examine, and purchase items without ever having to go to the store… and yet similar alternatives actually did exist. Substitute the word “catalog” for “computer.” And yet over all of these years, shoppers have preferred the in-person store experience.

We can’t predict what technologies will be available in 50 years—or even five years. As options proliferate, bricks-and-mortar stores may indeed play a smaller role. But at heart, retail is a people business, with traditional principles that center on maximizing the value of human interactions. As always, retailers should seek to improve analytics to drive better performance, support field leaders to reduce their administrative burdens, highlight the value of their front-line staff, and achieve meaningful goals. Despite the latest inventions—or even because of them—the funda­mental principles represent the soundest road to success.

The A.T. Kearney Achieving Excellence in Retail Operations (AERO) examines the insights from the A.T. Kearney 2013 AERO survey to show how retailers are turning great operations into profits. To download the full AERO report, go to www.atkearney.com/AERO.

Joel Alden is a partner with A.T. Kearney and is the co-leader of the AERO Study. He is based in Toronto and can be reached at joel.alden@atkearney.com. Adam Pressman is a principal with A.T. Kearney and is a co-leader of the AERO Study. He is based in Chicago and can be reached at adam.pressman@atkearney.com.

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