Driving Improved Store Performance

01 Jul, 2023

In the first part of this blog we address current trends, issues and challenges to improve customer service and grow sales. In the second part, we have reviewed ways to improve expense management, eliminate or reduce costs and improve asset productivity.  We have reviewed the problems and challenges that face Store Operations and identified a range of potential solutions to be considered.

Operational performance in stores is a mixture of:

  • Customer Service
  • Sales
  • Expense costs, of which the biggest is store labour
  • Asset productivity (inventory and space)

Customer Service

The graphic below shows many things that make up excellent customer service. Not all of these apply to all retail segments, but most do.

All of them are important but the one that matters most is being in stock.  Great service is of no value if shoppers can’t get the product they want in your store.  And that is all about inventory management.  Much of inventory management is a Buying Office responsibility and sometimes a Supply Chain responsibility too, but stores do have a role to play.

A survey sponsored by Proctor and Gamble showed that 45% of stockouts on shelves occurred while there was still product in the store stockrooms.  Systems improvements since this survey was conducted may have reduced the percentage, but the problem still exists.

The chart below shows that the A items, the best sellers, account for typically 20% of all SKUs but 65% of total sales. B items bring the total up to 50% of SKUs, accounting for 85% to 90%+ of sales.  The C items, often referred to as the long tail, account for 50% of SKUs but only 5% to 10% or so of sales.

In most of the better retail systems, service levels are assigned to each category, so A items might have a 95%+ service level.  This means that for every hundred times, a shopper goes into a store to purchase an A item, they are successful 95 times.  B items might have a service level of 85%, say, and C items 70%.

Here’s an example of an ABC analysis of items a retailer sells.

Defining and achieving these in-stock service levels is the single most important aspect of customer service.  Items in the long tail, tend to have a much higher level of substitution than A items.  Providing store staff with ready access to substitute information to use when serving customers, is a good way to increase the level of service perceived by the customer, because they were able to complete their shopping mission.

Going back to the customer service chart seen earlier, providing a complete set of omni-channel services will also improve customer service, but also create opportunities for add-on sales when a customer comes into the store to collect an online item or stops at a kerb side pickup point.  Experience shows that done well, this can be worth an extra 12% to 19% of click-and-collect sales value.  The right level of service for collections (encouraging try on for example), can also help reduce the online return-to-store volume, as some items can be changed or accessorized immediately in-store.

It is helpful to staff to know what is inside a click-and-collect package, so they can plan ahead to maximize the “collect” opportunity.  For example, if the package has a shirt, staff could select one or two ties that complement the shirt really well. Or, if it is an iPAD, they could have some suitable protective cases under the counter.  When they ask the customer to open the package to check that everything is to their satisfaction, they can then engage in a low-key sales dialogue in a non-pushy way.

Maximizing Sales

This chart shows a tried and tested retail formula.  To maximize sales, we need to:

Maximize the traffic into the store (or to the website). The primary responsibility for this is shared between:

  • Marketing, who is responsible for driving traffic into stores
  • Buying and Merchandising, responsible for having the right products, assortments, pricing, and stock levels
  • Supply Chain, for getting products to the right places on time.

But stores make their contribution through:

  • Excellent customer service
  • Store and merchandise presentation
  • Returns management
  • Convenience of access
  • In some cases, the intelligent use of store-specific markdowns.

There are four ways for stores to grow sales:

  • 1

    Increase traffic

    by using word of mouth to spread their customer service reputation. They can do this by:

      • Making the store inviting to come in and browse
      • Impactful displays and use of signage
      • Sometimes offering samples or tastings
      • Using loyalty scheme data to run special customer events
      • Use of digital signage to promote special offers, new items, show products being used, etc.
  • 2

    Increase conversion rates

    by using CRM data. Create a decile analysis like the example shown below and optimize the store layout to suit the top 3 deciles.  These are your top 30% of customers and almost 80% of your entire sales.

  • 3

    Increase transaction size

    by using basket analysis to exploit product affinities and adjacencies and tune store layouts, signage and provide staff job aids including aids on tablets.

  • 4

    Reduce returns

    especially online returns to stores, which is growing rapidly.

This chart shows that the A items, the best sellers, account for typically 20% of all SKUs but 65% of total sales.  B items bring the total up to 50% of SKUs, accounting for 85% to 90%+ of sales.  The C items, often referred to as the long tail, account for 50% of SKUs but only 5% to 10% or so of sales.

In most of the better retail systems, service levels are assigned to each category, so A items might have a 95%+ service level.  This means that for every hundred times, a shopper goes into a store to purchase an A item, they are successful 95 times.  B items might have a service level of 85%, say, and C items 70%.

Here’s an example of an ABC analysis of items a retailer sells.

What are the four biggest expense costs in retail?

In this blog, we dive deep into the four biggest expense costs when it comes to Retail.

Read more

Inventory Management

Inventory is an asset that needs managing. The bulk of inventory management tasks are managed by the Buying and Merchandising Division at headquarters. Some are managed by Warehouse Management and some by stores.

Stores are responsible for:

  • Receiving deliveries speedily and accurately
  • Replenishing store fixtures
  • Checking fixtures regularly to see if they need topping up
  • Facing up shelves and other fixtures so the store always looks as full as possible
  • Carrying out periodic stock counts
  • Minimizing damage to product and display packs
  • Carrying out their security and loss prevention responsibilities
  • Notifying the relevant Buying Office team if they do not receive adequate replenishment.

Reduce inventory carrying costs:

It is important to use the available inventory as efficiently as possible. Doing so, will reduce inventory carrying costs, which are roughly 12% to 15% per annum of the cost value of the inventory.

  • Using handheld devices to scan inventory receipts and update store stock in real time.
  • In bigger stores, or where space permits, use location control to track inventory in stock rooms, so fixtures can be replenished quickly when stock levels get low.
  • When scanning receipts, if the inventory records show the item scanned as being out of stock in the store, move it straight to the fixture, fill the fixture appropriately and take any surplus back to the stockroom.
  • For online orders returned to store, scan them in and put them back on the fixtures to be back on sale as quickly as possible. If the item is not sold in that store, scan it back in and place it on a sale rack if that is in line with company policy.  If it has to go back to the warehouse, send it back when the next delivery is received. Or keep it there and let the central order management system allocate it to an online customer order.  Then take it to the local post office and ship it to the customer.  The cost of doing this will be a lot cheaper than the cost of an end-of-season markdown if the item does not get back to the warehouse quickly.  (Some returns take up to 6 weeks to get back to the warehouse and be ready for sale again. During this period, it is effectively out of stock).
  • Depending on store size and the extent of the product range, consider using computer vision to detect gaps on fixtures and issue alerts to staff to address them.
  • Use computer vision technology to reduce inventory losses.
  • If your product margins can support the cost of RFID tags, you can save labour hours on stock counting as mentioned earlier, but you can also save shipping extra items to stores for click and collect orders, if you have the confidence that the store stock records are accurate. The speed of counting with RFID enables more frequent counts to guarantee this level of accuracy.  Some fashion stores count the entire store every day using one person for 30 minutes a time.

Summary

In part one of this article we reviewed how to improve customer service and grow sales. Now in part two we have reviewed ways to improve expense management, eliminate or reduce  costs and improve asset productivity. We have reviewed the problems and challenges that face Store Operations and identified a range of potential solutions to be considered.

HSO can assist you in in implementing these solutions various ways. These include:

  • Various customer service solutions including mobile point of sale and mobile point of service solutions, integrated omni-channel best practices and customer self-checkout in appropriate environments.
  • Inventory management systems and processes to maintain optimum on-shelf availability and minimize unnecessary overstocks.
  • Store focused sales and gross margin reporting, space and store staff productivity analysis, all with a focus on improving Store Operations overall contribution to the business.
  • Customer relationship management solutions that help drive store specific merchandise assortments and targeted customer service improvements.
  • Financial systems and reporting to support effective management of store controllable expenses.

The next blog article in this series will address online operations. It includes a section on payment systems, which is equally applicable to stores and should be reviewed even if online operations is not your direct responsibility.

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