When the smoke clears, it’s all about product and experience
The modern retailer has every right to be anxious and confused. The noise emanating from every direction is loud, demanding, energy sapping and distracting. From vendors to staff, shareholders to analysts, media to community activists, customers to suppliers, everybody has an agenda and nobody is afraid to push it. Which leaves leadership teams in retail businesses struggling for air – let alone direction. As a result, there’s a lot of smoke and very few can see where the fire really is.
The situation leaves most retail businesses trying to do far too much with finite resources and struggling for survival, let alone achieving strong, sustainable performance gains.
Further complicated by remuneration and dividends tied to short-term profit performance, many of today’s retail enterprises end up on a downward spiral exacerbated by cost cutting. Yet the reality of retail is clear and born out by 3,500 years of history. There may be a whole host of things a retail business would like to do but there are two areas that really drive profit growth and franchise strength.
Product and customer experience.
It has always been and always will be that customers pay money for the product and customer service that best meets and/or exceeds their expectations. The more personally rewarding the customer experience the more customers want to shop with you. The more differentiated and desirable the product the more customers want to spend with you. These are the two keys.
And yet in much of the current crop of retailers, these are the two areas that are most subject to cost cutting. Fit-outs are now so extremely ‘value-engineered’ that there is barely any value left. Store environments – both physical and virtual – are barely functional let alone inspirational. Staff cuts are so over the top that most stores are now technically self-serve but without the visual merchandising and merchandising support to make them productive.
Product is continually being de-specified to hit target buy pricing. Global sourcing has dragged us into ‘me-too’ with no product proprietary or recognisable advantages beyond labelling. And many management teams reassure themselves with measures that effectively pull the business down not push it up in the customer’s consideration set. Fine if all the competition does the same thing, but disastrous when someone that knows what they are doing enters the playing field with fanfare.
There is no doubt that retail is a game of financial discipline – where you don’t spend money where you shouldn’t. But Australian retail businesses need to rediscover the importance of prioritising product development and customer experience as the two critical areas of expenditure and the two key drivers of sales and profit growth above all else. These are the areas of expense that must be defended at all costs.
There are no shortcuts and the management consulting view that you can cut everything down to ‘international benchmarks’ is – if not naive – just formulaic nonsense. Time to start reinvesting in great, inspiring product and customer experience fast. Before you’re your ‘smell of an oily rag’ strategy leaves you with little more than that.
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