Specialty retailers deserve better treatment than they typically get from workforce management (WFM) and store execution management (SEM) system providers. The pursuit of helpful WFM/SEM technology by specialty retailers reminds us of trying to fit a square peg into a round hole. It seems software vendors and specialty retailers repeatedly miss one another in attempts to address specialty retail needs using the tools and services on the market. Retailers have received too many demos using a grocery store approach, which attempts to box their requests into existing functionality, but in doing so, vendors have misunderstood their retailing reality. Ultimately, service optimization and labor savings get swept away in this misalignment. It leaves specialty retailers waiting for a vendor who is prepared to listen, adapt and design to their specific issues.
Where is the miss?
Research shows that “retailers invest heavily in technology to ensure that there is the right amount of labor in the store at the right time,” but their workforce planning success has been marginal1. Where are these WFM/SEM technologies missing the mark? Is this a reallocation challenge? Is optimization pushed too far? Maybe it is outside the perceived control of technology vendors. Are businesses just starved of labor? Are specialty retailers dealing with unreasonable budgets? Are cuts required to survive in the specialty retail industry? From our perspective, a deeper analysis of the industry’s service optimization gap illuminates four key points, as seen below.
- The challenges posed by conversion rates.
- Building better labor standards using utilization and customer journey data.
- Task-level work planning and execution with a highly cross-utilized store staff.
- Opportunities to move from top-down to bottom-up (work content-based) labor management.
In this five-part blog series, of which this is the first, we will discuss each point at length and then delineate how to address the described issue.
In addition to these distinct challenges, specialty retailers are battling the overarching effect of an ever-growing online marketplace. Customers are more willing than ever to enter a retail location solely to experience its products, then return home to find the cheapest version of their future buy through online retail. This showrooming phenomenon creates a unique trial for specialty retailers that grocery and big box chains rarely face. Showrooming increases labor without customer purchases, an effect we will dive into next week.
The unique challenges mentioned above are not new for specialty retailers. But new competitive pressures from all channels make for even greater opportunities in rethinking the tools available to enhance the way store planning and execution is done.
What’s the effect?
In 2007, the Verde Group2 and the University of Pennsylvania’s Wharton School of Business conducted a fascinating study on specialty retail customer dissatisfaction. After conducting 1,000 interviews of specialty retail shoppers, the data analysis showcased pivotal findings: 1) 33 percent of shoppers could not find help when they needed it, which translated into 6 percent of shoppers lost; 2) one in three shoppers spread word about their negative experiences, telling an average of four other people; and 3) one in two shoppers chose not to visit a store because of someone else’s bad experience. The shocking reality of that is compounded loss. Specialty retailers not only forfeit one in 20 shoppers due to poor staffing, but those shoppers tell their friends, which directly reduces future business and undercuts marketing dollars spent to convert buyers.
Fast forward to 2015. An article by Penn State University and UNC Chapel Hill business professors Mani, Kesevan and Swaminathan1 found the impact of systemic, controllable understaffing at specialty retailers. First, their analysis illustrated that retailers were understaffed during peak hours over 40 percent of the time by an average of two people below predictions. It is important to note their findings were not due to randomness in supply and demand, as they controlled for these factors. This understaffing was linked to over 8 percent in lost sales and 7 percent in lost profitability. Using an example, if one retail chain brings in $40 million in 2019, the potential profit loss equates to $2.8 million. The authors noted a major correlation between understaffing and conversion rate. During peak hours, more people flooded into retail stores, but those who bought product declined. For operators attempting to plan labor based on sales alone, this provides a major challenge.
Additionally, there are important caveats from the prior study to note for specialty retailers. Mani, Kesevan and Swaminathan1 stated the potential savings to retailers was directly bound to labor forecast accuracy and schedule constraint flexibility. Sales and profitability gains reduced by 35 percent as forecasts were done a week in advance, and reduced by 60 percent when schedule constraints, like minimum shift lengths, increased. Fret not, for there is good news. Vendors within the WFM/SEM marketplace can deliver upward of 90 to 95 percent forecast accuracy, using machine learning, alongside scheduling constraint capability. Outside the top-line improvement associated with this, there are important implications for brand management. Better staffing ushers in more satisfied employees1, thus protecting brand image and longevity.
What are next steps?
Within the first part of this blog series, we described the financial and cultural impact on specialty retailers who have yet to take hold of WFM/SEM technology, often due to the miss between what retailers need and what vendors provide. Additionally, four key points were outlined around the root issues within the service optimization gap in specialty retail. Each of these core elements will be explained further within the next four blog posts. Stay tuned. As we move into this exposé of specialty retail, our heart is to address a population and issue that warrant attention. In doing so, we believe it will benefit the businesses, customers and industry at large.
- Mani, V., Kesavan, S., & Swaminathan, J. M. (2015). Estimating the impact of understaffing on sales and profitability in retail stores.
- The Verde Group & Wharton School of Business. (2007). Shoppers at risk: Retail dissatisfaction survey. Toronto, Canada: The Verde Group.