Best years of retail are yet to come.
The best years of retail are yet to come, but only if you take the necessary measures in your retail business. As the son of two small business owners in Philadelphia, I want to get personal in this blog post. I started Independence Bridge Consulting to partner with SMBs and provide unbiased, independent retail strategy through business analysis.
My first objective is to identify bottlenecks that prevent businesses from scaling. So what is the number one attribute of a successful business? They implement repeatable, scalable processes. Growth is about customer retention, not customer acquisition. Your CLV (customer lifetime value) increases exponentially by creating a fan club of loyal customers. Your business will be spending much less money on marketing, while getting better returns. Improving customer retention starts with identifying the leaks in your business. There is ALWAYS a root cause for why your customers are not coming back.
Generally, business operators and employees have a keen understanding of these leaks. As a business owner, you must engage them and have honest conversations. Many businesses that have closed permanently during the pandemic were already doomed. They most likely would have failed months or a year or two later if the pandemic never happened. Why is this?
Those businesses failed to reinvest and adopt solutions that make it easy for customers to enjoy their products. No matter how good your product is, if customers do not have a pleasant retail experience, they will find a retailer that can provide that to them. Cost is rarely behind customer satisfaction. It might sound counter-intuitive, but customers are willing to pay more for a first-class customer experience.
What defines a first-class customer experience?
It could be a clerk remembering your customer’s name, making them smile, and paying attention to their needs. Research studies have correlated pleasant customer experience with something as simple as greeting the customer when they walk into the store. It sounds so simple, so why doesn’t it happen? In my opinion, the cause is twofold. The first is that the employee is dealing with low-value work and cannot find the time to focus on the customer. In this scenario, the employee is overwhelmed with menial tasks and quickly loses the ability to treat the customer the way they deserve. The other is that the employee did not receive the necessary training to deliver this world-class experience. Unsustainable business practices point to three root causes:
- Limited or no systems
- Limited or no employee training
- Total lack of an operations playbook
People, process, and technology, a core framework for operations, outlines the most critical principles for success. Yet, if any one of these three areas are neglected, the end result is the businesses not being competitive. The business becomes unsustainable in the long run. Why are franchise models so successful? They address those three principles by building a repeatable, scalable framework. It is not overnight magic. It takes the business operators many years to arrive at the perfect formula. Still, with a/b testing and experiments, they can quickly adjust and identify what works and what doesn’t. It’s no surprise that this is a massive piece of Amazon’s philosophy. By taking failures in stride, they are better able to prepare for the future. In today’s world, we are so fixated on short-term results that the status quo goes unchecked. Long term, this leaves businesses less competitive and unable to adapt during intense periods of upheaval.
Businesses with zero controls or automation capabilities will either fail or be barely getting by, in the best outcome. As a business owner, are you ok with never taking a vacation or never taking days off to see your kid’s ball game? That becomes a certainty unless you analyze and improve your business processes.
Retail transformation needs to be constant. It’s not a static, one-time consideration. I tell clients that monopolies like Walmart are accelerating their product roadmaps by up to 3 years during the pandemic to expand their competitive advantages. They basically shuffled around a massive amount of resources. All with the intent to put small businesses out of business. It’s not fair, but it’s capitalism at its finest. If you aren’t in this business to help your community and make money, sell your business and save yourself from the stress. It’s not worth it.
What are controls?
Controls are internal procedures designed to reduce product shrinkage, whether it be through shoplifters or employees. Margins are tight in the retail industry. Shrinkage leaves little room for error. If left unchecked, it can become a primary factor in your business closing down. Controls go hand-in-hand with automation. That relationship will only become more closely intertwined with IoT and AI being utilized commercially for retail businesses.
Several solutions proactively prevent shrinkage, but there needs to be a mechanism to track inventory from purchase to sale before you can prevent shrinkage. Inventory management systems are core to retail businesses, but are often not implemented. Or they might be implemented, but not utilized effectively. How will you know whether the goods are sold and not stolen if you can’t track what comes in? They can also improve automations with auto-replenishment capabilities, significantly reducing the odds of goods ending up being out of stock.
Another vital aspect of retail growth is having a general manager (GM) and reducing key man risks. An experienced GM can implement roles and responsibilities that enable synergies and reduce confusion. Separation of duties is also vital to ensure abuses do not occur, the most notable being product shrinkage. I also caution against the owner playing the general manager role unless absolutely necessary. The role of an owner is to focus on long-term growth and execution. In contrast, a GM focuses on strategy and management of day-to-day operations.
Key man risks are detrimental because one employee may accumulate a vast amount of institutional knowledge to the point where the business DEPENDS on them. When there is a lack of training systems in place, your business will thread a dangerous line. If you want your business to operate like a well-oiled machine, you need to set up a job description with very defined responsibilities and expectations. Job descriptions will provide transparency for the employee and will give clarity to the management.
Measuring Customer Experience
The customer is always right. Such a cliche, right? As cliche as it sounds, it is true. Customers have the power to make or break any business. Business owners cannot afford to be ignorant or indifferent to this. Good customer service starts with training. Your employees need training. That way the entire staff approaches customer service in a consistent and standard way. Customer service requires a cohesive strategy that powers every single part of your business.
Similarly, in the same vein as what gets measured, gets done, measuring customer satisfaction is critical. Yet, so few businesses have any form of customer surveys. Without any mechanism, how could you possibly know if you have a problematic employee who causes customers to run? Do you know what your customers love or hate about your business? If you do, you can build on top of the positives and improve areas that aren’t working quite as well. If you don’t have this crucial info, you’ll just play guesswork until you start making mistakes that will be fatal to your business.
To sum it all up
When you look around, you see businesses closing down. You might be tempted to believe that the reasons for their downfall lie in the lack of effort, lack of motivation, and the lack of entrepreneurial spirit. But this belief would be wrong.
The market is changing rapidly and customer expectations are increasing by the day. This pace of change requires analysis, self-awareness, planning, as well as execution. Having business systems in place that work for you is now mandatory.
The future of your retail business is at stake. You get to decide if you can use turmoil to your advantage, or be a victim of circumstances. We’ve seen retail businesses thrive during periods of general confusion, and the key to their success lies in transforming their retail experience.
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