Not the end of the rack. Part III

Continuation of the article written by me for the magazine “Indian Management”, June 2009

Next is the issue of service.

Shopping is a habit, especially grocery shopping. This habit is driven primarily by trust built over years and based on softer service elements. Hence, even with similar stores offering similar products, one tends to have strong loyalties with a particular Kirana store.

In the case of corporate Retail, the structuring of the business model itself makes it very difficult to offer these softer service elements. Hence the need for a very sound value proposition, to the customer. The value proposition can be built around the store design, range and service. However, with similar looking stores with hardly any differentiation, how can anyone perceive a unique value proposition?

This has led to customers constantly shifting between stores either because of availability issues or driven by pricing and promotions. This leads to two things –

• Promotion/ pricing driven purchases lead to lower margins. A promotional sales contribution of 15% is a healthy indicator that the promotions are being perceived to be good and seen to deliver value. When this share goes up significantly it is a surefire indicator that customers are only “cherry picking” at that store.


• Customers alternating between various stores leads to a misleading picture with regards to sales analysis and this in turn could severely impact the forecasting and replenishment of a store. The direct consequence is certain products not being available, which is again a trigger for customers to frequent other stores.
  

Recruiting store staff has always been a challenge because of the perception of Retailing and getting trained people has been a bigger challenge. This is further compounded by the cost cutting orientation which has led many chains to reduce the head count in a store. This not only puts pressure on the staff to fulfill their internal work and yet interface with customers. This is truly a Hobson’s choice because customers come to a store to buy and hence the staff needs to ensure that the products are available and displayed. Yet, the customer would build loyalty and rapport only based on interactions and service, which often is compromised. An even simple thing like smiling and wishing or thanking the customer after billing is increasingly hard to experience. Is it any wonder that customers have little or no loyalty to any store?

Retail chains should look beyond the downturn. Today, these chains are scrambling for the reducing share of the shopping basket, further compounded by overcrowding and without any differentiation. By reducing store staff and thereby impacting the service levels, the chains are only further reducing any chance of differentiation and therefore customer loyalty.

Also, in the coming years when the economy picks up again and expansion starts, getting store staff is going to become increasingly difficult in spite of a slew of training academies being opened by everyone, including the Retail chains.

Perhaps it is now time for the Retail chains to work towards the staffing models of stores abroad, wherein elderly people and students form the majority of the work force and work as temporary staff. India has both these segments of people and youngsters today are increasingly adopting the work and study model. Such people can be used to supplement the store staff’s efforts, especially in customer interface and customer service functions.

Last, is the issue about funding, debt, etc., which is seen as a major factor to doom this sector. Retail, the largest employer in India and also abroad is not an industry in India. Suffice to say that being recognized as an industry would help manage this issue as currently these chains are largely dependent on PE funding.In summary, the store would be a tipping point in the Indian Retail story. Which side of the fence it tips over, is a result of some concentrated action which is required immediately.

The good news is that, this seems to be happening and shortly when the sector resumes its growth story, I can claim that I told you so!.