What is in store for store? 2014

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Even though most of retailers current growth is coming from digital channels, shoppers continue to visit stores and will for many years to come. Their demand for a more relevant store shopping experience, however, has retailers asking How can we rejuvenate the in-store experience? in order to return stores to their rightful place in the retail ecosystem. This report seeks to examine this question in detail. Some highlights of the report include the following: While showrooming and omni-channel pressures dominate media conversations, fundamental and traditional pressures rise to the top of store-based issues. Find out what retailers report as their top Business Challenges Retailers sales performance dramatically affects their perception of what will make their stores more interesting places to shop. Winners have already had more success prioritizing their employee work schedules. Where else have they made gains? All retailers face similar Organizational Inhibitors, but the technology infrastructure problem appears to be winding down for the best performers. Instead, Retail Winners worry that - for one - putting technology in the hands of store personnel can be a distraction rather than a useful tool. Retailers know their stores are in a tough spot: in desperate need of systems overhauls for both customer and employee facing technologies. Find out which technologies hold the most value and budget to help them get there in the Technology Enablers section of this report. Based on our data, well also offer several in-depth and pragmatic suggestions on how retailers should proceed. These recommendations can be found in the Bootstrap Recommendations portion of the report.

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  • i Whats In Store for Stores? Benchmark Report 2014 Paula Rosenblum and Steve Rowen, Managing Partners June 2014 Sponsored by:
  • i Executive Summary Key Findings Even though most of retailers current growth is coming from digital channels, shoppers continue to visit stores and will for many years to come. Their demand for a more relevant store shopping experience, however, has retailers asking How can we rejuvenate the in-store experience? in order to return stores to their rightful place in the retail ecosystem. This report seeks to examine this question in detail. Some highlights of the report include the following: While showrooming and omni-channel pressures dominate media conversations, fundamental and traditional pressures rise to the top of store-based issues. Find out what retailers report as their top Business Challenges on page 6. Retailers sales performance dramatically affects their perception of what will make their stores more interesting places to shop. Winners have already had more success prioritizing their employee work schedules. Where else have they made gains? Find out in the Opportunities section of this report, beginning on page 10. All retailers face similar Organizational Inhibitors (page 14), but the technology infrastructure problem appears to be winding down for the best performers. Instead, Retail Winners worry that - for one - putting technology in the hands of store personnel can be a distraction rather than a useful tool. Retailers know their stores are in a tough spot: in desperate need of systems overhauls for both customer and employee facing technologies. Find out which technologies hold the most value and budget to help them get there in the Technology Enablers section of this report, beginning on page 17. Based on our data, well also offer several in-depth and pragmatic suggestions on how retailers should proceed. These recommendations can be found in the Bootstrap Recommendations portion of the report, which begins on page 21. We certainly hope you enjoy it, Paula Rosenblum and Steve Rowen
  • ii Table of Contents Executive Summary...........................................................................................................................i Research Overview ......................................................................................................................... 1 The Good News: The Table Is [Getting] Set................................................................................ 2 Better Performers See Things Differently.................................................................................... 2 Methodology................................................................................................................................. 4 Survey Respondent Characteristics ............................................................................................ 4 Business Challenges ....................................................................................................................... 6 Pressures Come From Many Different Directions ....................................................................... 6 Laggards Cutting Back on Store Growth ..................................................................................... 8 Opportunities ................................................................................................................................. 10 Two Completely Varied Visions ................................................................................................. 10 Winning is No Happy Accident................................................................................................... 10 Organizational Inhibitors................................................................................................................ 14 Mixed Messages and Conflicting Priorities ................................................................................ 14 Whats The Real Value? ............................................................................................................ 15 Overcome Doubts via Proof of Concept, But Dont Waste Time............................................... 15 U.K. Retailers Get By With A Little Help From Their Friends .................................................... 16 Technology Enablers..................................................................................................................... 17 Resistance is Futile.................................................................................................................... 17 Born Under a Bad Sign.............................................................................................................. 18 Moving Forward: Still not Complete........................................................................................... 18 The POS Story........................................................................................................................... 20 BOOTstrap Recommendations ..................................................................................................... 21 Labor Productivity Benchmarks ................................................................................................. 21 Shopper Satisfaction Surveys.................................................................................................... 21 Market Basket / Average Transaction Value Analysis............................................................... 21 Conversion Rates ...................................................................................................................... 21 Participation in Loyalty Programs .............................................................................................. 22 Appendix A: RSRs BOOT Methodology SM ...................................................................................... a Appendix B: About Our Sponsor ..................................................................................................... b Appendix C: About RSR Research...................................................................................................c
  • iii Figures Figure 1: Improving Employee Knowledge Grows in Importance ................................................... 1 Figure 2: Moving Towards Near Real-time Responsiveness .......................................................... 2 Figure 3: Winners Focus on the How, Not the What.................................................................... 3 Figure 4: Near Real-time Processing More Predominant Among Winners..................................... 3 Figure 5: Traditional Pressures Dominate....................................................................................... 6 Figure 6: Different Challenges by Vertical....................................................................................... 7 Figure 7: Laggards Cutting Back, Winners Plowing Ahead ............................................................ 8 Figure 8: A Matter of Perspective.................................................................................................. 10 Figure 9: Time Well Spent ............................................................................................................. 11 Figure 10: Get Em In and Keep Em Smiling................................................................................ 12 Figure 11: Lack of Clarity Dominate Internal Challenges.............................................................. 14 Figure 12: Proof of Concepts More Valuable Than Incremental Improvements........................... 15 Figure 13: Give Us Simpler Tools.................................................................................................. 16 Figure 14: A Fine Mess Were In................................................................................................... 17 Figure 15: Buying What We Value? .............................................................................................. 18 Figure 16: Second Verse, Same as the First ................................................................................ 19 Figure 17: The POS Exit Strategy ................................................................................................. 20
  • 1 Research Overview Even though stores remain the source of more than 85 percent of retails aggregate revenue, theyve undergone an identity crisis over that past five years. Most retailer growth is coming from digital channels. The core question has been, and remains, How can we rejuvenate the in-store experience? It is, of course, an exquisite irony that the very tools and techniques retailers use to create a compelling online experience, all based on liberated self-service, have brought only marginal success in stores. The reason is simple: People dont just shop in stores to touch and feel products they also expect assistance from human beings. And retailers are recognizing that those human beings, their employees, are woefully ill-equipped to provide that assistance. Can technology help? Recently, in the superb blog, The Business of Fashion (www.businessoffashion.com), writer Suzanne Bearne pondered just that in her piece In-Store Tech, Sales Driver of Hype? Her observations were interesting. It seems that even high-end high-tech self-service solutions are marginal drivers of sales, while tools given to employees are far more widely used and deliver better results. Of course, most retailers dont sell the high-end luxury products highlighted in BOF. Still, our broader benchmark study leads us to the same conclusion. While last year, retailers were fixated on the end goal, maintaining or improving the customer experience, this year, they most frequently cite making employees smarter and better informed as a top-three value in-store technologies bring to the table. Figure 1: Improving Employee Knowledge Grows in Importance Source: RSR Research, June 2014 28% 24% 28% 15% 35% 46% 69% 47% 20% 24% 30% 31% 33% 45% 48% 59% Create competitive advantage and new sources of revenue generation Put actionable information into the hands of managers Help the company win new customers and retain current customers React quickly to changes in the business environment Bring more of the digital experience into stores Increase revenue while holding down operational costs Maintain and/or improve the customer experience Make our employees smarter and better informed Opportunities for In StoreTechnologies 2014 2013
  • 2 As well see later, notwithstanding their hope for in-store technologies in general, retailers seem to be underwhelmed by many of the tools theyve deployed thus far. Over the course of this report, well attempt to tease out whether this is the fault of the tools themselves, incorrect performance metrics, or over-amped general expectations. The Good News: The Table Is [Getting] Set Making employees smarter and better informed is certainly dependent on giving them accurate and up-to-date information. As we can see in Figure 2, real progress has been made in updating back-office systems to reflect store activities in near-real-time. Figure 2: Moving Towards Near Real-time Responsiveness Source: RSR Research, June 2014 Since enterprise transformation of core merchandising systems is a long and arduous process, we expect to see more retailers turning to high performance data warehouses to get these near real-time results before we see a larger turnover in systems of record that currently can only process in batch. Better Performers See Things Differently In our benchmark reports, RSR quite frequently cites differences between retailer over- performers in year-over-year comparable sales and their competitors. We find that consistent sales performance is an outcome of a differentiating set of thought processes, strategies and tactics.. We call sales over-performers Retail Winners. RSRs definition of these Winners is straightforward. Assuming industry average comparable store/channel sales growth of three percent, we define those with sales above this hurdle as Winners, those at this sales growth rate as average, and those below this sales growth rate as laggards or also-rans. To illustrate these differences, well take a look at the data already presented in aggregate through the lens of performance First, well look at retailer perception of technology value (displayed in aggregate in Figure 1). 13% 37% 50% 15% 41% 44% Near real-time updates to data warehouse and other flash systems (batch updates to systems of record) Near real-time updates to customer, sales and loss prevention systems of record Batch updates to all back-office systems How DoesYour Enterprise Process Data Delivered from Store to Headquarters Systems? 2014 2013
  • 3 Figure 3: Winners Focus on the How, Not the What Source: RSR Research, June 2014 As we often find, laggards remain focused on the end result - gaining and retaining customers, while Winners focus on the how: in this case making their employees smarter, reducing reaction time, yet still managing costs. We see a slightly different twist when taking a look at the processing data from Figure 2. Figure 4: Near Real-time Processing More Predominant Among Winners Source: RSR Research, June 2014 We added together the two different ways retailers can get to near real-time information (near real-time updates to systems of record and near real-time updates to flash systems) and 59% 27% 23% 41% 18% 27% 55% 45% 15% 16% 25% 25% 38% 42% 53% 69% Help the company win new customers and retain current customers Create competitive advantage and new sources of revenue generation Put actionable information into the hands of managers Bring more of the digital experience into stores React quickly to changes in the business environment Increase revenue while holding down operational costs Maintain and/or improve the customer experience Make our employees smarter and better informed TopThree Opportunities for In-storeTechnologies Winners Laggards 63% 58% 41% Retail Winners Average Performers Laggards Near Real-time Processing of Enterprise Data at Headquarters
  • 4 compared them by retailer performance. As we can see, the better the retailers performance, the more apt they are to process data from stores to back office systems in near real-time. Methodology RSR uses its own model, called the BOOT Methodology , to analyze Retail Industry issues. We build this model with our survey instruments. See Appendix A for a full explanation. In our survey...