Maximizing Retail Store PM040614 - RIS News

Maximizing Retail Store Performance Management

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Table of Contents

I. Impetus for Action ........................................................................................... 3

II. A Retail Performance Management Framework.................................................... 4

Repeatable Methodology .................................................................................... 4

Retail Performance Improvement Mandate............................................................ 5

III. Retailing Challenges Become Opportunities ........................................................ 6

IV. Today’s Retail Solution Realities ........................................................................ 9

Customer Value Builds Loyalty .......................................................................... 10

Incremental Sales & Revenue Opportunities ........................................................ 11

Leverage Store Operations with Technology ........................................................ 11

V. Call to Action................................................................................................. 12



I. Impetus for Action

Historically, retailers have functioned largely in the shadow of Consumer Goods (CG) manufacturers. In many cases, the retailer’s role was one of passive distribution of products for which demand creation and consumer “connection” was the responsibility of the CG organization. Those CG manufacturing and marketing organizations long ago embraced analytical applications and business intelligence in the pursuit of performance improvement. Marketing driven organizations were pioneers in adopting technology for dealing with large external data sets from syndicated data providers and the information explosion that came with commercial availability of detailed scanner-based sales data. What began as a performance management technology revolution largely in the Consumer Packaged Goods (CPG) or grocery sector, recently has expanded significantly across virtually all CG sectors, and has provided value to many CG organizations.

With few national grocery retailers in North America at the time, and fewer still that carried influence beyond native borders around the world, even the largest of them had little reason to look beyond basic store operations – well-stocked shelves, clean aisles, well-placed POS stations with civil clerks and plenty of parking – for key performance indicators. Store traffic was a critical metric, and CPG product marketers provided the pull. Space limitations gave retailers some influence in determining distribution levels for lower-volume and new products, and some retailer private labels gained a following.

Outside of grocery, there was a different balance of power. National general merchandise retailers were the rule. No shopping mall could get development funding or survive for long without the big-name “anchor” general merchandiser. Most of these retailers had powerful store brands that often overshadowed other brands they carried. The retailers themselves drove the marketing and promotion agenda. Competition occurred within carefully defined price-quality tiers, and products tended to follow. A few manufacturers managed to establish brand image and loyalty, enabling them to gain feature status.

Enter the retail super-store, with general merchandise and grocery under one roof, not to mention a gas station and garden store in the parking lot. These “destination” retailers don’t need and don’t want a mall context to be successful. Before long, grocery categories were added to general merchandise, and the lines between traditional retail classifications began to disappear. With strong marketing awareness, consumer loyalty and the power of global presence, the retail name has become a “brand” that matters. In this new context, CG marketing and distribution is increasingly homogenized, with virtually all retailers being held up to the big box super-merchandiser standard.

In order to compete and prosper, retailers today face a mandate to operate at an optimal level of performance to meet financial and organizational expectations. This mandate is transforming the way retail organizations do business. This evolution is driving higher



standards of competence in day-to-day store operations and adding new pressure to increase stakeholder value up and down the enterprise. In today’s business climate, the agility with which a retailer manages and optimizes performance can directly impact market position and profitability.

Smart retailers are in a unique position to leverage technology and actively drive their influence to the point of shopper interaction inside the store. These retailers take the initiative to better understand their shoppers, optimize the shopping process for themselves and shoppers, and align inventory and supply chain operations with objective achievement. Retailers can bring the people, processes, and information together to the benefit of all by deploying enabling technology.

II. A Retail Performance Management Framework

Repeatable Methodology

Performance management is a business strategy and methodical process to manage execution within an organization toward a common set of goals and objectives. The performance management process enables individuals to understand, optimize, and align business and achieve optimal performance through intelligent action (see Diagram A). Companies achieve this by aligning business and IT to leverage technology, providing timely and appropriate information for strategic, tactical, and operational purposes.

Diagram A: The Performance Process - PerformanceCycle™

Understand – To comprehend the status through modeling, accessing, discovering and interacting with information.

Optimize – To make effective as possible through forecasting, collaborating, integrating and actions.

Align – To adjust action through goal setting, scoring, notifying and automating performance management.

The performance mandate and the processes are not new. Interactions among people, reports, and physical meetings are still the standard methods of management. This creates hurdles to responding to opportunities in a timely manner along with managing the overwhelming amount of information from inside and outside an organization. To



overcome these challenges, organizations leverage technology and information to provide relevancy and timeliness by capturing and automating key steps in managing operations.

This leads to the obvious conclusion that enabling performance improvement without information and its supporting technology is simply not feasible. This conclusion sets the business tone for retail organizations to focus on and prioritize existing and incremental IT investments to leverage maximum return.

Retail Performance Improvement Mandate

Today, retailers can easily leverage existing technology to achieve the performance mandate. At the core of such efforts is the foundation of existing operational systems – enterprise resource planning (ERP), inventory, POS and supply chain management (SCM) and customer relationship management (CRM). These applications and transactional systems contain the operational data critical for driving performance improvement up and down the retail organization.

Retailers have the opportunity and capability to align and enable store-level initiatives as a priority from within the IT organization. Translating business requirements into IT solutions has always been risky when investing in and deploying new systems. Smart retail organizations with strong business leadership in partnership with IT can leverage technology with reasonable incremental purchases, to develop innovative retail solutions.

A common example of a business and IT disconnect is the business need for information and analytics as part of a business intelligence (BI) project. In response to these requests for information, IT often delivers reports, or perhaps more accurately, online access to reports. Though the reports are critical, they only address the most fundamental “Understand” step in the PerformanceCycle. The goal is to execute more fully, leverage the information foundation, gain optimal insight through appropriate analyses, and align operational elements to achieve goals.

The good news: this is not rocket science. Successful BI initiatives effectively move beyond reports to provide a business solution covering the entire performance process. They provide an information network that enables self-service throughout the organization. They help optimize business actions through planning, forecasting and predictive analytics that align individual performance with higher enterprise goals and objectives. They use dashboards and metric driven notification that provide guidance and not just measurement. Adopting the performance management mandate is strategic and should certainly be driven as a top management priority. The greater value is realized in the operational trenches – in the retail store.



III. Retailing Challenges Become Opportunities

Retail competition today occurs increasingly at the micro level, where in-store execution has a measurable impact in differentiating value and maintaining a trusting relationship with consumers. Today’s retail manager can have the means to proactively address the challenges associated with managing intra-day activities, including product movement and placement, workforce performance, and the customer experience.

The value proposition for today’s retailer is not so easily established at the macro level. Centralized business intelligence and merchandise planning solutions driven largely from headquarters or a regional office perspective do not typically bring striking value at the store level.

Software applications exist today that provide local retail managers with the means to capably address local marketing tactics, workforce performance issues, customer relationships, inventory controls, and supply chain management. The smart retailer doesn’t wait for competitive threats or outside issues to be imposed upon it as unanticipated hurdles, it tackles these issues as performance improvement opportunities.

Corporate Performance Mandates – It is the nature of global business that local operational units are challenged with executing centralized corporate mandates. For the most part, revenue and margin goal setting occurs in a top-down fashion. Once these goals get parsed down to the store level, the smart retailer challenges itself to make them meaningful, aligning all levels with enabling management tools. At its best, this effort will creatively address workforce motivation, performance effectiveness and cultural adoption issues within the organization while simultaneously clarifying the objectives for every individual and work team.

A great example of bringing people, processes and technology to bear on this scale exists within one retailer that has focused its business intelligence systems, objective-setting processes, and management coaching responsibilities into an integrated performance improvement initiative. In context with corporate growth goals, every store is assessed and assigned specific goals for achieving improvement in just a few metrics. The specific metrics can vary from store to store. They can be aimed at measuring storewide or departmental inventory management, workforce development, shopper experience, or other issues of import. However, these metrics do share two key attributes: they are controllable by store manager action, and they are tracked within the firm’s business intelligence system. Dashboard access gives store and district managers timely feedback on progress. Furthermore, incentives are tied to performance and every store-level visit by district managers focuses foremost on forward planning to achieve success in these key metrics. All management levels understand objectives in context, grasp the importance of the role they play and are aligned to the same metrics of success.



Supply Chain, Inventory, Operations Management – Much of what occurs in retailing is based on logistical processes. Supply chain movement and inventory management make up the retailer’s job in large measure. Supply chain efficiency has been a focal point of new technology application for some time now, and Wal-Mart has become the visible poster child of the movement.

Not every retailer can or should expect to achieve such levels of efficiency, but effective application of the right technology in the right situations can have great impact. Automatically triggered inventory alerts from POS systems can simultaneously invoke scheduling routines to assign an associate to restock shelves and issue a re-order with the supplier/distributor. Beyond application to product movement and logistics, the technology thus extends to workforce scheduling and intra-day reassignment, or even customer traffic monitoring and prediction of checkout bottlenecks. The smart retailer can challenge itself today to embrace the changing landscape as opportunity for growth and competitive advantage, and to establish the framework for taking advantage of enabling technology.

Radio frequency identification (RFID) tags are a great example of an emerging technology expected to revolutionize the industry, with experts painting a picture of replacing UPC scanners with individually tagged merchandise that triggers automated readers at checkout. This will take years to become reality, but retailers that begin to tackle implementation and investment issues can benefit immediately.

RFID applications in the supply chain at the case and pallet, or even the truck level can improve understanding of product movement through the supply chain to the store. The smart retailer can push itself to apply this understanding to optimize in-store processes, such as scheduling re-stocking, automating reorders, and the like. Forward thinking retailers will link existing POS information with inventory and supply chain systems. The goal is to align supply chain collaboration and store inventory management with consumption and consumer pantry inventory.

Effective Category Management – Not long ago, category management was considered a role of the manufacturer/marketer. Retailers resisted adopting the practice. Now, some might argue that retail focus on category management represents a barrier to moving forward with more consumer-driven approaches to merchandising, pricing, and supply. The retail name brand has developed to the point, in some cases, where it is even more important to the consumer than the category or product brand image. Field execution of programs often requires the flexibility to accommodate localized competition or local market demographics. Effective promotion execution and promotion spend management are areas where increased attention is being paid due to regulatory compliance. Today’s retailer understands that centralized merchandise-centric category planning is best taken to the store with the flexibility of local data-driven execution options.



We can learn from an example of a retailer that left the store manager with too few execution options. In this case, a product promotion was so successful that it resulted in frequent out-of-stock conditions at some stores. Policy dictated that consumers be provided with a voucher for purchase at the promoted price at a later date, once inventory was replenished. A store manager faced with such high demand for the promoted product found herself assigning an employee to full-time voucher duty. Her pleas for a more effective solution resulted in her being provided with a word processing solution for automated generation of vouchers. Today’s forward-thinking retailer will address this as a promotion forecasting and distribution issue, aligning local store demand with the centralized planning function, and enabling the store manager with intra-day alerts and proactive inventory control mechanisms.

Understanding the Consumer Value Perception

The consumer’s shopping experience has been elevated in the retail success equation. Consumer choice exists on an unprecedented scale across a widening choice of retail formats, and across channel choices for interacting with a single retailer. In the midst of this choice array, consumers expect cross-channel consistency. Segmented consumer groups with fragmented requirements make it increasingly difficult for a retailer to maintain its “share of wallet” with even loyal shoppers.

Smart retailers challenge themselves to use this near-chaotic scenario as a springboard to competitive differentiation and advantage. Shopper choice behavior history, product preference claims, image perception of retailers and the products they carry are all measured, stored in data warehouses, and endlessly reported on. At the store level, it is possible to link loyalties, perceptions and preferences to shopping behavior to improve customer retention and share of wallet. The key factor in making this relevant in the store is to provide a solid value proposition to the shopper.

An example in the realm of shopper value perception is the use of RFID tags to identify the shopper. A gasoline retailer has used a keychain device to allow its customers to identify themselves at the pump, simplifying the credit card payment process for both parties. A fast food retailer has extended the same purchase choice to consumers with the device. This is largely a technology driven initiative on the part of both retailers, enabling cross-channel revenue opportunities and building shopper loyalty through ease or payment. But one element lacking in the execution is a clear incremental value proposition to the consumer. At the gas pump, credit card payment is no less convenient than the keychain device, thus limiting adoption. Low usage incidence in the fast food store has recently led to discontinuation of the program. In both cases, there is evidence that the technological advance alone failed to trigger shopper loyalty. Deeper understanding of the consumer value perception might have improved the incremental value proposition.



In summary, the storefront is the organization’s face to the customer, the final link in the brick-and-mortar demand chain. Competition at the store level can make the difference in achieving goals. The smart retailer is doing what it can now to enable and influence the pursuit of performance improvement.

The product manufacturers and centralized retail merchandise planners drive product mix, pricing, and promotion execution. Labor-intensive store operations make it important to impart new skills and keep costs in check while maintaining margins without sacrificing quality of service. Store traffic populated with actively engaged customers will bring the expected incremental revenues. Challenged and motivated employees are much better equipped to understand the part they play and the impact they have on store performance. Supply chain and POS-heavy storefront technology investments of the past are giving way to store and consumer-centric investment. And when it comes to the consumer, new incentives exist to actively engage them with the store and its employees throughout the shopping experience. Forward-thinking retailers stepping up to these challenges can aggressively embrace today’s enabling BI technology in support of store performance.

IV. Today’s Retail Solution Realities

Although there is no right or wrong way to integrate and fully leverage available store operations and shopper information, maximizing the potential of retail systems in the store allows operations management to shift from a merchandise-driven mind-set toward more data-driven decision making. Leverage is gained by linking operational metrics to information requirements across all management levels and focus areas of the organization, employing an interconnected performance network.

In a retail setting, the means exist to provide everyone, including the in-store shopper, with timely access to information and the contextual understanding of how his or her actions influence improvement throughout the store. Store managers get equipped with the tools and supporting applications to more effectively manage inventory, product placement, in-store conditions, workforce performance and resource allocation with awareness and clarity in context of market and enterprise objectives. Each store employee is empowered to understand what is expected of him in the context of store performance and customer service, and to creatively carry out his role in daily operations. The consumer benefits from a shopping experience she can truly enjoy. The good news is that proven enabling technology exists, has shown itself to have solid payback and can be deployed today.



Customer Value Builds Loyalty

Consistent application of technology toward understanding and catering to shoppers has been elusive. Many, especially grocery and drug retailers, have employed frequent shopper programs to track and understand purchase behavior, and presumably foster loyalty among consumers. Others, typically soft-goods retailers and department stores, have used in-house credit cards in lieu of loyalty cards as a means to track purchase history to understand loyal shopper behaviors and preferences.

A common thread among most “loyal shopper” efforts, even when the execution is deemed effective, is that they focus on addressing the consumer outside the store, or at best as they leave the store. Direct mail for special sale fliers, seasonal and specialty catalogs, e-mailed offers for online special sales are typical retail applications of customer databases. In the store, applied consumer behavior technology most often manifests itself in immediate discounts and coupons provided during checkout for use on the next visit. Programs designed to elevate the customer experience and leverage loyalty inside the store are the focus of forward-thinking retailers.

Today’s competitive environment favors retailers that actively engage with the consumer. Retailers can collect and use loyal shopper information to cater to every shopper as she enters the store, not as she leaves. Loyalty information can and should foster familiarity without invading privacy. Ample precedent exists to suggest the value of this approach: hospitality, travel, online commerce, financial services and banking provide the paradigm of customer check-in. In these examples, most often the check-in requirement came first; behavior tracking, club status, personalized service, and enhanced consumer experience followed. The lesson for retailers is that technology enabling all those follow-on features is already in place and ready to be applied in the store, where it counts most.

For retailers not prepared to attempt such detailed personalization, it’s still a straightforward process to infer shopper lifecycle stages, creating special offers and/or shopper clubs catering to their specific lifestyle needs. Purchase behavior provides ample information to classify households into groups that have specific lifecycle needs. For example, purchase history can tell a retailer which shoppers likely have pets, babies, toddlers, or teenagers, and which are mature adults. Why not, for instance, offer food products that appeal to weaning infants several months after the first purchase of baby food? The non-threatening familiarity in such an offer makes it even more powerful than the ubiquitous example of the online retailer’s “others who bought that were also interested in this” cross-sell pitch.



Incremental Sales & Revenue Opportunities

Store traffic was once the performance metric that defined ultimate retail success. In the current competitive environment, attracting shoppers into the store is no longer sufficient for success. Hand-in-glove with elevation of the customer experience, it is now even more important to take measures to drive incremental revenue from those shoppers. The knowledge base enjoyed by retailers with loyal shopper programs is rarely leveraged in this way.

The retailer’s private relationship with its shoppers is unique in all the business world. Every other aspect of the retail demand chain mix – promotion tactics, pricing, product mix, service approaches – is or eventually becomes public domain, and therefore knowable by competitors. Interactions between the retailer and its customers, however, remain proprietary. Today’s retailer uses this information to the advantage of both itself and its customers, driving incremental sales with existing traffic.

This leverage starts with knowing who is in the store. Armed with the understanding that comes from the purchase history and preference information embedded in loyal shopper databases, retailer systems can be deployed to interpret purchase cycles, anticipate the shopper’s needs, and make suggestions. From historical shopper information, it is possible to impute pantry stock estimates, giving the smart retailer the opportunity to extend the VMI (vendor-managed inventory) concept into the home, becoming the vendor that manages the shopper’s product inventory inside the home. This can manifest itself in purchase suggestions at the moment of check-in at, for instance, a kiosk near the store entrance, during an online shopping session, in an elite shopper e-mail communication, or text message to the shopper’s registered wireless device.

This notion of enabling incremental sales inside the store brings practical reality to the concept of increasing the retailer’s “share of wallet.” Shoppers will eventually act on the need; the smart retailer is recognizing and anticipating that need proactively, and acting to attract the spending before it takes place elsewhere. Incremental sales are in fact recovery of sales otherwise lost to another retailer.

Leverage Store Operations with Technology

The future promises great advances in retail store operations built upon developments underway to establish common worldwide product coding, RFID tagging for supply chain logistics efficiencies, automated product scanning and payment, and more. While these advances are expected to foster the next retailing revolution, each will require capital investment and time to reach maturity.



Today’s smart retailer can make affordable immediate changes, yet realize very meaningful incremental gains in effective store performance from the back room of the store operation. For instance, real-time linkages of POS systems with shelf and backroom inventory can trigger shelf-stocking and reorder alerts that address out-of-stock conditions well before lost sales opportunities merge. With small cost increments, these proactive inventory management processes are further linked with supplier order and planning systems to enable more accurate forecasting and production planning.

Data-driven workforce performance motivation, management and monitoring are other areas where enabling technology can apply today. Aligning each associate with store objectives not only provides him with greater understanding of his role in achieving success, but has been shown to improve overall customer service levels in the store.

Smart retailers take advantage of enabling technology wherever it can bring added value to the operations. In many cases, these incremental improvements take advantage of technology already in place, or leverage advances in other areas such as high-speed wireless communications. Technology is applied to monitor and manage physical plant functionality such as lighting and environmental controls, to understand and optimize traffic flow through the store and align checkout staffing based on check-in traffic volume, and to provide direct wireless communication among employees and to shoppers in the store to improve customer service. The smart retailer understands the value proposition of such investment and challenges itself to pursue such initiatives.

V. Call to Action

Retail performance improvement initiatives today can leverage technology to enable managers to focus beyond fundamentals and create operational advantage. This means value at the store level can be realized across the spectrum of retail pain points, including product and category management, inventory and supply chain efficiency, and improved customer awareness. But it almost never means tackling the entire effort at once. Few retailers can afford the cultural and procedural upheaval that would accompany wholesale adoption of new data-driven ways of doing business. Doing nothing is not an option either. But how does one get started defining the adoption path?

It begins with a realistic examination of existing systems, processes and people and then building the business case of available means to leverage the organization. The focus of this assessment is on driving positive change. The perspective gained from this examination helps drive priorities for defining an achievable path to a solution that makes sense for the individual retailer.

In the best of cases, small steps are taken in the journey from merchandising-driven to data-driven management. The journey is best traveled with incremental value gains to



demonstrate progress at many proof points along the way. Technology should be deployed in stages with realistic expectations of evolving organizational capacity to absorb change. The acculturation process will extend beyond the technology to embrace the needs of individual stakeholders, including store managers, associates and shoppers.

The enlightened retailer uses technology to incrementally apply information relevant to individuals at all levels, providing insight and knowledge to drive intelligent action. Well-conceived, technology-enabled operational initiatives will become part of the organizational DNA because they make the job of retailing and shopping easier and more fulfilling.

About The Report Sponsors


ProClarity Corporation

The competitive retail industry demands high-performance business intelligence solutions. From the back office to the storefront, retail success hinges on the effective management of diverse, complex, and overwhelmingly vast data stores that must be leveraged to make intelligent business decisions. ProClarity provides an easy-to-use yet powerful interface for building sophisticated retail analytic solutions. ProClarity puts the analytic power in the hands of those who need to make informed decisions fast. ProClarity provides the analytics you need for:

Microsoft Corporation

The Microsoft "Smarter Retailing Initiative" delivers, along with our partners, technology and support that helps retailers compete on much more than cost. It can dramatically improve customer service and selling opportunities through better access to customer and product information. It can also help retailers deliver a shopping environment that is compelling, inspiring, and accessible. By implementing existing and emerging technologies from the Microsoft portfolio and from Microsoft partners, retailers can revolutionize their in-store environment. Learn more about the Microsoft Smarter Retailing Initiative: http://www.microsoft.com/industry/retail/SmarterRetailing.mspx

- Market Basket Analysis - Category Management - Price/Profit Optimization

- Customer Affinity Goals - Brand Loyalty Metrics - Store Productivity

- Merchandise Performance - POS Indicators - Inventory Measurement

More information about Proclarity retail analytics visit www.proclarity.com/retail.

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