TweetMost of us would agree that over the past twenty years the lion’s share of the focus and creativity within the supermarket has occurred on the perimeter of store. This is true for a number of reasons. Retailers have deliberately placed their fresh foods departments
TweetThinking back to the classic business book written by Dr. Spencer Johnson back in 1998, I find both the premise and the title to be very thematic to the challenges bricks and mortar retailers now face with regards to their category placement strategies. First and
TweetWith the rapid development of both online shoppers and options, most bricks and mortar retailers remain mired in the notion that placing product in their stores on a display or shelf is sufficient to compete with the gaggle of new competitors, both on-line and off.
TweetIt is not news to anyone associated with retailing, that Amazon and other on-line retailers continue to carve out increasingly large portions of market share traditionally owned by bricks and mortar stores. This phenomenon is driven both by vastly improved technology and a corresponding increase
Tweet Managing the retail business in 2016 has never been anything but challenging, but with the mountain of business intelligence data available today it has becoming equally challenging to determine which metrics are the most effective tools in that process. When the retail business is
Most of us would agree that over the past twenty years the lion’s share of the focus and creativity within the supermarket has occurred on the perimeter of store. This is true for a number of reasons. Retailers have deliberately placed their fresh foods departments on the perimeter to be close to prep rooms and refrigeration. In addition, the majority of the store’s best deals reside on end cap displays on the back and front aisles of the store.
This all made a lot of sense until it was discovered that over time, fewer and fewer shoppers were entering the “center” area of the store and consequently, the categories and items found in this forgotten area were beginning to suffer from the resulting under exposure.
Understandably, for the past decade or more, retailers and their brand partners have frantically worked to devise new incentives to lure the shopper from their current behavior of remaining on the perimeter to venture down the long and arduous aisles of Center Store.
Some of their efforts have paid dividends, but despite new ‘intrusive” signage, fixtures and fixture configurations, Center Store is still very much under siege. While gains in Dairy, Frozen and Salty Snacks are encouraging, the majority of the remaining Center Store categories have seen sharp decreases in unit sales and in some cases as much as three to five percent over the past five years*
Further, the driving forces behind Center Store decline are largely out of the control of bricks and mortar retailers. For example;
- Smaller household sizes yield fewer stock-up trips, meaning fewer trips down the center aisles of the store.
- New Competition, in the form of smaller specialty stores, sometimes called ‘category killers’ have diluted the sales of supermarket Center Stores over the past decade, with more of this type of competition to come.
- Finally, shoppers have found that buying those Center Store items consumed on a regular basis such as baby products, pet food, water and beverages, paper and detergent can be conveniently purchased on-line and scheduled for home delivery.
This downward trend of Center Store performance begs several questions, chief among them is “Can Center Store survive without radical changes?’
If you believe as many do that the answer is an emphatic “NO”, then the next logical question must focus on what should and what can be done. The true transformation of Center Store should begin with an honest assessment of the controllable factors that are attributing to its diminished shopper relevance.
From the shopper’s view, research and intuition tell us that today’s Center Store presents a number of negative issues;
- Configuration: Long aisles within Center Store are uninviting to shoppers as they look down the aisle from the perimeter and quickly become visually overwhelmed.
- Item Count: Once down the aisle, there are too many items crowded into tight category sets that make it difficult to find items. Variety is good, but too much variety suppresses sales.
- Visual Clutter: Overuse of large signs, shelf tags and other point of sale materials clutter the shopper’s view even more. In an attempt to make things better for the shopper, retailers are providing a busy shopper too much to read and absorb.
- Size: Many Center Stores simply occupy too much floor space and are counter-efficient, consuming too much of shopper’s precious time in order to find what they are looking for. ‘Bigger’ has become an albatross, rather than the panacea retailers once regarded it to be.
From the shopper’s perspective the entire physical concept of ‘Center Store” is becoming ‘unnatural’ when compared to their experiences either on-line or in smaller specialty stores.
Most recent remedial solutions for Center Store deal with making ad hoc changes to category variety, new fixtures, additional signs and of late, new technology such as in-aisle digital engagement through mobile devices. Few if any however, deal with seriously re-thinking the entire concept of Center Store.
Re-categorize According to How Shoppers Buy
Any serious improvement to Center Store must involve the mitigating the four aforementioned negative attributes. A logical first step in that process involves a re-categorization of Center Store, from the contemporary shopper’s perspective.
The adjacent chart depicts four quadrants of Center Store items that reflect current shopper behavior and options.
- Quadrant 1: Those Top Selling items that are consumed by most of the shoppers for everyday consumption comprise a very important list of categories and items. This group typically includes the retailer’s list of top 300-500 selling items. Sometimes referred to as the ‘Big Head’ these are the items that the contemporary shopper must have easy access to, without searching and wandering thorough the Center Store to find. Top Sellers should be accessible in this quadrant, even if only through secondary display.
- Quadrant 2: The second category of items is a subset of the first. This group contains the permanent shelf placement of Top Selling items that lend themselves to scheduled consumption. Paper Towels, Bathroom Tissue, Bottled Water, Pet Food, Diapers and others are all conducive to having their in-store inventory and space they occupy reduced as shoppers are incentivized to schedule their delivery at home or for in-store pickup (BOPIS).
- Quadrant 3: This leaves the slower moving items, which unfortunately comprise the vast majority of Center Store inventory. As opposed to the ‘Big Head’, these items represent the ‘Long Tail’ and their presence in store should be reevaluated. Quadrant 3 contains those Infrequent Selling items that have High Affinity with Top Selling (Immediate Use) items, meaning that these items are often bought with Top Selling (Immediate Use) items. These sku’s should be stocked in-store, but aggressively merchandised via secondary display with those fast-selling items with which they have affinity.
- Quadrant 4: This group contains items that most food retailers stock either because brand partners pay them to do so or retailers believe they must carry deep variety in a particular category. In today’s shopper centric environment, these are the items that make viable candidates for removing from the in-store shelves, de-listing those that show little or no movement, but keeping others that have seasonal value or index higher among the retailer’s best shoppers. In order to necessarily reduce item count, many of these slow moving ‘keepers’ would no longer be stocked in the store’s showroom, rather be available via on-line or in-store kiosk purchase only.
Where to Put What
As monumental of an endeavor as the re-categorization of the Center Store will be for bricks and mortar retailers, dealing with the size and configuration of Center Store will even be a larger challenge. Of those leading bricks and mortar food retailers are designing and build smaller formats. Within these smaller stores, the process of re-thinking which items are kept and which is discarded is critical.
The adjacent graphic illustrates the beginning of the re-organization of Center Store. Notice that each of the four Center Store Quadrants are contained within this layout as well as multiple opportunities for shoppers to pre-order in-store for immediate consumption or simply pick up to take home.
What is also note worthy is the placement of Top Selling-Immediate Use items positioned where shoppers can more easily access them coupled with the placement of Top Selling-Scheduled Use items being available closer to the kiosks where they can also be ordered for regular delivery.
As opposed to long aisles with multiple categories, this approach compartmentalizes items according to their relevance to the shopper and how they would likely prioritize placing them into their shopping cart. With this approach there is no ‘racetrack’ around the store’s perimeter, but rather a natural flow from one shopping ‘priority’ area to the next.
Perhaps the most critical aspect of this approach is the tangible merging of Center Store with On-line. While reducing inventory and clutter, the retailer offers the shopper an easy and practical means to access additional items via kiosks for either same trip pick up or delivery to the home or office.
Finally, this new configuration of Center Store categories also serves the needs of traditional types of shopping trips, Quick Trip, Fill-In, Stock Up. Contrary to most current supermarket layouts, this approach facilitates a quick trip when one is warranted, but also efficiently accommodates larger trip sizes when shopper’s needs change.
Any approach to keeping Center Store categories viable within the bricks mortar store must be in context to the many options of convenient alternatives now available to shoppers. While very basic, this approach represents leveraging shopper behavior data to re-think and reconfigure a vital part of the supermarket that most would agree is in need of updating and in a way that actually makes sense for the shopper.
* 2015, Nielsen Category Trend Report
Mark Heckman is CEO of Accelerated Merchandising, LLC a shopper research based merchandising agency. His career was highlighted by senior executive marketing and research positions at Marsh Supermarkets, Randalls Tom Thumb, Valassis, and Smith-Kline-Beecham. At Accelerated Merchandising, LLC he is partnered with Dr. Herb Sorensen, a noted expert on Shopper Behavior Dr. Sorensen’s recent book, Inside the Mind of the Shopper, Second Edition contains the principles of shopping behavior that drive the need for a shopper-centric merchandising approach. Heckman authored Chapter Two entitled, Transitioning from Passive to Active Retailing.
Thinking back to the classic business book written by Dr. Spencer Johnson back in 1998, I find both the premise and the title to be very thematic to the challenges bricks and mortar retailers now face with regards to their category placement strategies.
First and foremost, Who Moved My Cheese addressed the difficulties in handling change in a dynamic business world. I think we could all agree that we are indeed in that mode as retailers in 2017. Secondly, and of equal relevance, when retailers literally do move their cheese, (and other categories and items) within the store they most often do so without understanding the implications of their decisions in terms of shopper dissatisfaction and accordingly lost sales.
In my thirty plus years as a supermarket retailer, I had the opportunity to sit in on many fixture and merchandising plan meetings involving new and remodeled stores. Where we placed departments and categories within the store was always about retailer logistics and space availability. There was little or no discussion about shopper convenience or shopping efficiency. Essentially, this remains the approach of most retailers today.
Let me make the case for why this practice must change.
- Changing Shopper Expectations: Shoppers are being ‘spoiled’ by the ease in which they can no find and order items on-line. Many of these items are formerly items that they were required to hunt and find in a large footprint retail store, requiring their time, effort and often angst.
- Waning Loyalty to One Store: Even without the intrusion of ecommerce retailers, shoppers have more bricks and mortar options than ever before to more conveniently and affordably offer items and categories that formerly were purchased at one store, albeit often inconveniently.
- Shoppers are Time Pressed: No matter how hard we try to create a warm, friendly in-store experience, most shoppers have better things do than to spend extra time shopping in any one store, given their hectic and demanding lifestyles. Shopping Trip length is short and getting shorter.
What to Do?
If I have convinced you that I might be on to something, let me suggest a few things retailers can do short of ripping down walls and upending your merchandising practices that will yield quick, incremental gains.
It simply requires retailers to re-think where they place departments and categories in a more holistic, shopper centric manner. I have seen this effectively happening in three steps.
- First, recognizing that some categories are more important to your business than others and they should be readily accessible to the majority of your shoppers, without your shoppers having to work to find them. Contrary to common practice, purposely placing the shoppers most important categories in the far reaches of large stores to manipulate the shopper’s trip is becoming increasingly risky in this new environment of retail channel options.
- Which leads to the second step, which is recognizing that there are areas in every retail store that are more sales productive than others. There are also distinct, existing traffic patterns in every store, which are much easier to leverage than to attempt to change. Most of us have seen heat maps and traffic pattern maps that depict “hot and cold” spots in the store. Just know that some areas of your store are more void of shoppers than you would like. It is also important to realize that shoppers spend faster and more efficiency early in their trip and their trip time is inherently short and not easily stretched by “good merchandising” and using placement of “destination categories” as magnet to attract shoppers into parts of the store they are not otherwise interested in going.
- Finally, many departments, categories and items have strong affinities with other items on the basis of how the shoppers view and use these categories and items. When possible use data to measure basket level affinity. I would encourage retailers to do this both quantitatively (basket analysis) and qualitatively (shopper questionnaires and shop-a-long research) to better understand the strength of these relationships and the importance of position these categories and items near to the other.
Enabling shoppers to quickly and efficiently find what they are looking for in today’s bricks and mortar stores are emerging as a key competitive advantage. As with most things retailer, there will always be an element of “art” in any empirical category placement plan. However, we are no longer operating in a consumer environment where our stores and merchandising plans accommodate our merchants first and expect the shoppers to adapt.
If you move your cheese now without first thinking about the cheese shopper, you will likely be selling less cheese in the future.
With the rapid development of both online shoppers and options, most bricks and mortar retailers remain mired in the notion that placing product in their stores on a display or shelf is sufficient to compete with the gaggle of new competitors, both on-line and off.
Few retailers would admit that their traditional merchandising methods are ‘passive’ in nature. Even fewer would admit that such stalwarts as end caps, gondola shelving and permanent temperature controlled fixtures are limiting their ability to sell product. Despite their indifference, there is an undeniable, steady decline in sales productivity afoot within physical store retailers and the inertia of these retailer’s merchandising conventions plays a significant role in that decline.
The switch from ‘active’ from ‘passive mode simply means that the retailer has cedone two things;
- They understand where the majority of shoppers go in their stores and spend most of their time. (Active Areas)
- They leverage this information by bringing the right products to these Active Areas so that the shopper has more opportunity to buy faster without having to traverse other regions of the store.
This approach will yield two mutually beneficial results;
- For the shopper, they will have more time to buy due to the mitigation of their need to hunt and search for the next purchase.
- For the retailer, they will see dramatically increased transaction sizes, even while the trip length of the shopper’s may actually decrease.
Measuring in-store shopping behavior is not the expensive, complex endeavor it once was. In fact, technology and technique have improve so radically over the past few years, retailers how do not know how long and where their shoppers go on the average trip are depriving themselves of tools and techniques that can re-activate their stores without expensive capital investment or promotional markdown.
The clock is ticking.
It is not news to anyone associated with retailing, that Amazon and other on-line retailers continue to carve out increasingly large portions of market share traditionally owned by bricks and mortar stores. This phenomenon is driven both by vastly improved technology and a corresponding increase shopper adaptation of the on-line process.
Much of this growth can also be attributed to on-line retailers leveraging the plethora of shopper behavior data that e-commerce sites yield. Accordingly and to their great credit, e-retailers have used this information to create an increasingly efficient, customized, shopper centric on-line experience.
Such has not been the case for physical retail facilities. While some progress can be claimed in terms of improved fixtures and in-store technology, most retailers are still mired in the past as they design, merchandise, and operate their physical stores.
You Can Only Manage What you Can Measure
The vast majority of traditional retailers continue to do a very credible job in tracking what I will refer to as ‘P&L’ metrics, that is those critical numbers that reflect sales, profits, expense control, and return on investment. With these vital numbers driving their merchandising, marketing, and operations, retailers continue to manage their business. Unlike their on-line counterparts, among other critical customer data, traditional retailers do not, on a regular basis track the time spent in-store by the shopper or how shoppers engage (or not) their merchandising efforts.
To put a finer point on this topic, ask any retailer how long shopper’s spend shopping their stores and how long it takes to make a purchase. The on-line retailers will be able to tell you immediately, while their cousins on the bricks and mortar side will mostly likely wonder why you asked the question.
A Shopper’s Time is Much More Limited Than The Amount of Money They are Wiling to Spend in Stores.
Millions of data points indicate that shopper’s are gifted with an internal clock that dictates how much time they are willing to spend in-store. Most retailers are either unaware of this or are in some degree of denial that their merchandising and store offerings will entice the shopper to remain in the store past the time they desire to move on.
Retailers are often surprised as to the average trip length times, even in their largest stores. The adjacent chart reflects such measures in a package liquor store with 5,000 sku’s.
The average trip time is just 6.5 minutes, which puts extreme pressure on the retailer to merchandise efficiently to the shopper in such a brief visit.
Supermarkets and mass merchants with stores over 100,000 square feet of selling area are faced with the same problem. Fifty to seven-five thousand sku’s are offer to shoppers often spending less than 15 minutes in their stores.
The point remains that even as stores have grown significantly larger, the average trip times for shoppers are on the decline. In addition, the consensus of many recent shopper-tracking studies reveals that shoppers spend more than four times as much time searching in-store than actually engaged in making a purchase.
Measuring the Physical Store’s Shopper Centricity is Not Only Possible, It’s Imperative to Future Success.
Affordable and practical technics now exist to provide retailers all the information they need to measure in-store shopper efficiency;
Traffic counters with clocks provide the time shoppers spend in the store from the moment they enter the store to the time they leave. The neighboring chart is an example of an observational shopper-tracking audit.
Personal observational technics enable a comprehensive shopper map that includes density of shoppers, their directional flow within the store, the time they spend in each area of the store, as well as their gender, and the direction they are facing. This information, coupled with compatible transaction logs from the retailer’s point of sale system, yield important diagnostics as to efficacy of the store layout and design and the critical merchandising plan within the physical store.
Enter Category Management
While most retailers manage their business at the category level, their shoppers are most oblivious to this approach. They shop at the item level and in their world, the faster they can find the items they are looking for, the more likely they are to have the time to impulse purchase unplanned items.
Accordingly, it is incumbent upon category-organized retailers to better understand how and where those categories are merchandised in their stores. The shopper centricity of a category can be defined on two distinct levels.
- Shopper Exposure: (which percentage of shoppers are actually travel by the category in the store)
- Purchase Conversion: Once a shopper ventures by a category, at what rate do these customers slow down to browse and actually shop and most importantly, at what rate do shoppers actually put an item in the basket and make a purchase?
Scoring each of a retailer’s critical categories with exposure and conversion rates is vital to truly unleash the potential of category.
Techniques to measure category level shopper centricity have been in existence for a number of years. What is changed is the cost and the ease of measuring exposure and conversion and the vital importance of actually doing so to remain competitive in the new, challenging world of digital commerce. There is much more on these topics to come in subsequent writings.
In addition, look on Amazon.com for Dr. Herb Sorensen’s new edition of “Inside the Mind of the Shopper” later this summer for expanded thinking on the new mandate to understand the shopper inside the physical store. The contributions of Mark Heckman are found in Chapter 2, Transitioning Retailers from Passive to Active Mode.
Click on Book Cover to Review and Purchase…..
Managing the retail business in 2016 has never been anything but challenging, but with the mountain of business intelligence data available today it has becoming equally challenging to determine which metrics are the most effective tools in that process.
When the retail business is growing, the important, ‘bankable’ metrics such as sales, profits, cash flow, labor and transportation efficiencies are reassuring numeric markers of success. Despite retailers continued reliance on these numbers, none of these stalwart metrics are sufficiently deep reaching to accurately provide a true diagnostic of the health of the business in today’s complex environment.
As a veteran of many “Monday Morning Retail Meetings”, I know personally that when sales are tracking the wrong way, it is usually theories and conjecture that serve as explanations, not empirical measurement. Also, many times a downward trend comes as a surprise, when in fact if the right diagnostic measurements were being monitored, pre-emptive steps could have been already in motion.
Encouragingly enough there are an entire new genre of metrics that have emerged over the past decade that can serve as ‘intelligent indicators’ of the health and vitality of the business. Use of these metrics begins with the retailer “asking the right questions” about their business these questions are of particular relevance to the bricks and mortar retailers, who have made significant investments in stores, inventory, and logistical support.
- Are My Departments and Categories Getting Sufficient Exposure to Shoppers?
Whenever retailers look at shopper tracking studies in their stores, the number of key departments and categories that see only a scant few of the in-store shoppers typically astounds them. This is particularly true in larger stores (over 50,000 square feet). Simply put, you cannot sell something that no one sees. In fact, many of the highest margin categories in the store are typically visited by fewer than 10% of the shopper base. There are a variety of remedies for increasing shopper exposure, but it begins with understanding the lost opportunities of low traffic areas in the store.
If category sales are lower than is acceptable, before you make adjustments to pricing, promotions, and presentation in the store, measure the categories shopper exposure rate. If fewer than 20% of shoppers are exposed to the category, the fastest way to sales increases is to either move the category or more likely create secondary placements of the category in higher traffic areas.
- To Optimize Exposure, Are My Categories and Products Positioned Optimally in My Stores?
Ask any retailer why they position various departments and categories where they do and you will hear anything from “that’s where they have always been placed’ to ‘perishable departments are more efficiently operated if they are on the perimeter of the store near back room work areas’, to that’s where they need to be for theft and security monitoring. While all of these reasons are viable, none speak to optimize the sales and profit of the department. None speak to the sequential order that makes the most sense to the shopper, which will enable the shopper to more quickly find the items they want and move on to the next purchase.
As a group, shoppers develop a cadence and flow in your stores that can be leveraged with the creation of selling events along the ‘dominant path’ that carries the majority of traffic in most all stores. If there are 10 product categories that are driving a disproportionate amount of business, insure they are position to be intercepted by shoppers on or near the ‘dominant path’ of the store.
- Are We Selling the Right Mix of Items in Our Stores?
There are essential questions that should be asked continually in order to understand the efficacy of a retailer’s product offerings.
- Of the top selling 20% of items in my stores, which items are growing in sales, flat, or shrinking?
- Of the bottom selling 20% of Items in my stores, which items are relevant and valuable to the overall mix and which should be discontinued?
The rationale for carrying items in larger, inventory intensive stores often falls to moneys or deals that are offered by manufacturers as incentives for shelf placement. As shoppers become more accustom to on-line purchasing, where filters and past purchases help shoppers make choices, slow moving items that clutter the shelves and make the shopper’s purchase decision more difficult are a luxury of the past.
Understand the ‘contribution of sales’ of each sku that is slotted on the shelf and determine a survival threshold for each product, one that dictates a certain level of relevance to your shoppers if it is to remain in the mix.
- Are Shoppers Able to Efficiently Navigate Our Stores?
Most retailers have no clue as to how long the average shopping trip in their stores last or how fast the shopper buys during that trip. Both are important metrics and both will likely surprise the retailer upon their discovery. Length of trip is vitally important in that shoppers have a finite amount of time to spend in stores. Efforts by retailers to entice shoppers to linger or move into areas of the store that are not relevant to their current mission, typically do more to frustrate the shopper, than to place additional items in their basket.
Within the short, finite amount of time, the faster the shopper is finding their needs and making purchases, the bigger their basket size will ultimately be. The notion of helping shoppers ‘expedite’ their shopping trip is not only counterintuitive to most retailers, but flies in the face of the long accepted belief that the longer shoppers linger in the store, the more they will buy.
Measure, benchmark and strive to improve shopper ‘buying rates’ in stores. Shopping trip length, while it will vary upon the physical size of the store, is a clear indicator of how efficient your stores are for you shoppers. Do not be alarmed if shopper centric merchandising practices reduce the shopper’s time in the store. As long as they are buying faster and building basket size in less time, shorter trip lengths are a positive indication that you are connecting with your shoppers on their terms, which is how it should be. The faster the shopper buys, the more they will buy on any given trip. If shoppers are spending at slower rate, lower basket sizes will result. Set benchmarks on shopper time and spending rates and work to steadily improve through smarter, shopper-centric merchandising.
- Are We Relying Too Much on Discounts and Promotions?
As a new store manager, a wise man once said to me, “Mark, anyone can give it away, but only a good merchant knows how to sell at a good profit”. Certainly deals and promotions can be very powerful tools, especially for retailers that are positioned as a ‘high-low’ merchant. However, too much of the business being sold on promotion can be a harbinger for bigger problems to come. First and foremost, too many or too frequent promotions serve to dilute the impact of any single event. Further and more critical to the life of the business, it could be an indication that the everyday pricing is out of sync with the shopper’s expectations and the competitive environment.
It is difficult for anyone to make grandiose generalizations about pricing and promotion to specific retailers, as their effectiveness is driven in large part to localized variables such as demographics, shopper income levels, and competitive environments. However, on the whole, retailers discount too much and rely too heavily on promotions to drive their business.
To my knowledge, know one in the retail industry has developed a sure fire method of measuring the amount of wasted ‘markdown’ a retailer investment in a merchandising program. Most retailers would tell you that they intuitively know that what the retailer can measure is how much of their business is sold on promotion/discount versus full margin. If I were a CEO or CMO I would asked this question every week with the knowledge that good merchandising, good operations and good service can work in tandem to reduce the reliance on deals to drive more profitable sales.
Most would agree that we have entered in a period of radical change in shopping behavior. Almost nothing is the same as it was a mere five years ago. New on-line competitors, technology aided shopping apps provide shoppers new options and retailers new ways to compete for shoppers. Through all of this progress, there is one thing that hasn’t changed. There are still only twenty-four hours in any given day.
To that very point, while shoppers are interested in new tools to help them save money, early returns indicate that shopping apps and new in-store technologies that save the shopper time are the ones rising to the top of the pile.
Traditionally, retailers almost totally ignore the “time investment” shoppers make to buy from them. Ask any retailer what their shopper’s average trip length is or how fast shoppers buy once they are in one of their stores, and you will likely get blank stares.
Shoppers are Looking to Buy Efficiently
Aside from some attention to expedite the checkout process, retailers continue to assume that their shoppers relish looking for new ways to invest more of their time exploring aisles, alcoves, reading labels and scrolling directories. In 2015, this is nothing more than a retailer’s fantasy. To demonstrate this misguided mentality, store footprints have continuously grown over the years and along with it the corresponding decline in shopping efficiency.
To put a finer point on it, food retailing study after study tells us that as much as 85% of the shopper’s time is wasted in-store navigating massive stores with extraordinary amounts of products, searching, seeking, but NOT BUYING. Aside from the most ardent “price shopper”, “time” is the shopper’s most prized possession.
Retailers, whether they be bricks or e-commerce, that invest in new ways to give some of the precious commodity of time back to the shoppers will rule over their respective marketplaces.
The Payoff and Rationale of Shopper Time Management
What we steadfastly know is that the faster shoppers buy, the more the buy. Conversely, the long it takes for a shopper to make a buying decision, the less likely they will make one at all.
In fact, shopper time management is the first logical step in a shopper centric merchandising. Dr. Herb Sorensen, noted expert on retail shopping behavior and author of the top selling book, “Inside the Mind of the Shopper”, lays out a new road map for retailers.
He refers to this map as the Five Vital Tenets of Shopping Behavior.
Following this guideline represents both a new and necessary methodology of in-store merchandising. Every step of this process is focused as to how the shopper shops, not how retailers would like them to shop. The Five Vital Tenets of Shopping Behavior is predicating on understanding the importance of element of time in the success of connecting products with shoppers in an efficient manner.
As retailers begin to measure and react to shoppers’ “habitual” tendencies when they engage bricks and mortar retailing, connecting shopping efficiency with basket size and shopper visitation increases will provide the empirical justification for changing the mindset of how physical stores are designed and merchandised.
The data is compelling. The relationship between a shopper’s ability to buy faster and every retailer’s goal of increasing sales is irrefutable.
Seldom does any thing in retailing happen quickly. Adaption speed of Shopper Time Management will be no exception. Retailers are deliberate beasts and venture in a step-wise fashion into new business paradigms, as they are heavily invested in the current retailer-brand monetary ecosystem.
The good news is this. In high volume retailing, even step-wise, incremental gains in shopper efficiency can produce significant impact to the bottom line. It’s time to incorporate the element of the shopper’s time in the mix of merchandising metrics. Those retailers that do so will find their time-starved shoppers thanking them with more of their dollars and enduring loyalty.
“Small” is the latest “big thing” in contemporary retailing in 2015….less is more. Ironically, the impetus for the reduction in size of store footprints is in significant part due to a recent trend of building huge stores over the past two decades. During that period, Walmart, SuperTarget, Costco and even the likes of Kroger found nirvana in retail formats well over 150,000 square feet. Others followed. “Size Matters” was the battle cry.shutterstock_206702317
The size of traditional supermarkets doubled in many instances. Categories and variety were expanded and even the most traditional retail supermarkets made ample space to “sell everything but the kitchen sink”. It should be noted that Midwestern DIY retailer, Mennards actually does sell groceries and the kitchen sink.
Fast forward to present day. That quest for size is largely responsible for saturated and sub-optimally productive retail markets. As a consequence, many retailers who opted for big boxes find their revenue per square foot in constant decline. Additionally, Amazon and other e-retailers have taken a sizable chunk of sales and productivity advantage away from these larger box operators by not having to operate thousands of labor-filled stores and burgeoning on-hand inventory. Now, even the retailers that invented “big” are nervous.
Walmart believes part of the answer is building smaller Neighborhood Markets and even smaller “Express” stores. Other retailers across the Food, Drug, and Mass channels are experimenting with limited variety “express” formats. Target, Whole Foods, Stop and Shop, and regional independent, Martin’s are chains that have made recent headlines with their experimentation into the world of smaller “express or urban” formats.
Simply said, lots of smart people from very successful retail chains are diving in head first into smaller footprints. But reducing store size has its inherent risks and consequences. The following are areas of four shopper dynamics retailers should consider in when designing a more concise footprint;
- Shopper’s Variety Comfort Zone: Smaller footprints necessitate dramatic reductions in both breadth and depth of categories. Without extensive research into the reasons shoppers frequent a retailer’s physical stores, eliminating variety can create the risk of sending the wrong message to shoppers who find comfort in knowing a retailer has what they want, when the want it. Balancing the benefits of less space with the loss of variety is a delicate, but very important process.
- Before Shrinking Store Size: Have a Viable Companion On-line Shopping Alternative: Before a retailer leaps into smaller footprints, it would do well to first develop a consumer centric approach for shoppers to have access to less frequently purchased items. This could be accomplished via an in-store kiosk where items can be ordered and dropped at the store for pick-up or delivered to the home, as just one example.
- Operational and Merchandising Limitations: With reduced space comes with it the opportunity for faster moving items to be more readily out of stock. With all the current issues even the best retailers are having with out of stocks, reducing inventory capacity in smaller footprints may only exacerbate this problem. Also for those retailers who still rely heavily upon brand dollars for slotting allowances, end caps reservations and other in-store placements, there will be much less room for such things in an “express” store. Technology, planning and customer data can mitigate these issues if included in the design plan.
- Inefficient Layouts: Multiple studies have concluded that a significant portion of the inefficiency with larger formats is not simply connected to the actual amount of square footage retailers must merchandise, or shoppers must navigate, rather much of the problem lies with inefficient store layout. During the design phase of a smaller footprint, it is an excellent time to lever research to better understand the dynamics of the current formats. Shopper traffic flow, hot and cold spots, dwell time, optimal departmental placements and are critical in enhancing the Customer Experience (CX). Once armed with the knowledge of how shoppers are engaging existing formats, large format stores can be improved and new smaller prototypes, can be made more efficient out of the gate.
Market conditions are conducive for smaller formats to continue to populate urban areas and saturated markets. Reducing store size brings with it the opportunity for more efficiency, productive sales areas and a more efficient customer experience. Conversely, with less space to sell into, merchandising the stores and engaging the shopper will require thoughtful planning based upon measurable in-store shopper behaviors. Let the discovery begin!
The deliberate, time rich shopper of the past, to whom we market our stores, no longer exists. Quite the contrary, In general shoppers are time starved, distracted, and in some cases just flat out annoyed when they enter our stores. This new shopper increasingly finds ways to short-circuit the store plan, finding their items and moving on as quickly as possible, despite the retailer’s best efforts to induce the shopper into a long and deliberate visit.
Shoppers are trying to tell us something!
To amplify my point, there exists quantitative research in abundance supporting the notion that bricks and mortar stores are rapidly alienating themselves from the evolving shopper. Among several notable KPI’s (Key Performance Indicators), such as Dollars per Square Foot, Same Store Sales and Customer Counts are trending in the wrong direction for all except the very few that have strategically embraced the new shopping paradigm.
Dr. Herb Sorensen, who I consider the very best source of empirical knowledge on consumer shopping behavior, stated in one of his recent publications that the relatively short time the shopper spends in a retail store is mostly devoted to moving from point “A” to point “B” and not engaged with actual shopping at all. This is particularly true in larger foot print stores of 50,000 square feet and more. In fact, only twenty percent of the entire shopping trip involves the shopper facing the shelf and engaging in the purchasing process.
The implications of this information are profound. Retailers and their marketing partners spend annually $275 billion in the U.S. on advertising, marketing, and promotion initiatives. These monies generally are regarded as less than efficiently spent, due to a variety of reasons, but chief among them is that those funds are not reaching the shopper effectively at the shelf, when and where the majority of purchased decisions are made.
Retailers and brands alike now have access to new research techniques and resulting data that can help them re-think how they lay out their stores and categories. Ultimately, each retailer should have a Visual Strategy for its bricks and mortar stores. Much the same way a web designer uses Google Analytics to build and fine tune an efficient website, physical stores must be approached in the same way.
Sophisticated marketing plans often neglect to recognize the need for focus and customer recognition. I begin my conversation with many of my clients by asking “What are the five things your customers consistently give your credit for?” In some cases I can get one or two delivery elements, but most struggle with answering that question with confidence and clarity.
The point is that successful businesses establish a “clear identity” with their patrons. If that vision does not exist, there is more than likely a very weak customer connection in place.
So pick five things. It could be a signature item or service or perhaps a customer experience element. Make sure each of these elements is important to your customers, and then circle the wagons around these five things. Sure, it could be four or even three things you want to truly train your guns on, but five elements provides enough variety to cover marketing, operational, merchandising and service dimensions of the business.
Whether its five, four or just three elements, drill them into the corporate culture and insure that” no matter what” they are supported and associates are held accountable for that support. Identify those elements that can differentiate your business, support them, defend them and do not relent…no matter what!!
The problem I am detailing here is a serious problem for any business, but is especially serious for bricks-and-mortar retailers and will have a devastating impact in their competition with online retailing. This issue of the Views documents clearly the structure of the problem. Another pending issue (soon) will outline in some detail how exactly the problem can be solved, by any major retailer who expects to survive/thrive over the coming decades. That isn’t to say that there are “decades” to formulate reasonable responses.
In a $15 trillion global industry, there will be significant options for survival – of which I will outline three basics. Meanwhile, bear in mind that I am absolutely bullish on “bricks” retailing, (just as I am bullish on online retailing!) A favorite mantra is, “As long as people live in bricks-and-mortar houses, they will be shopping in “bricks-and-mortar” stores!” Take heart, but keep your wits about you. Many around may not.
First, a brief definition of “parked” capital: It is simply capital that is not being productively employed, or more realistically, is producing only a tiny fraction of what it could be producing. In this sense, any business that might be delivering double digit returns on capital invested in the business, but holds capital in conservative investments like bonds, with single digit returns, has essentially parked the capital in bonds, for example. This is of course a reasonable strategy when accumulating/holding capital pending major investments, or as insurance, guaranteeing liquidity for the firm in contingencies. But sunk capital, invested in non-financial assets, that simply sits there doing nothing much of anything, in terms of delivering profits, is fairly considered parked capital.
As Sancho Panza said, “Whether the stone hits the pitcher, or the pitcher hits the stone, it’s going to be bad for the pitcher!” Think of a parked capital business competing directly with a non-parked capital business. In such a situation, the parked capital business is the “pitcher,” and the non-parked is the “stone.” It is going to go bad for the pitcher-bricks retailer, with massive parked capital.
What has been wrongly seen as a clash between online and “bricks and mortar” retailing, is in reality not a clash, but the early adjustment of a long overdue evolution in bricks retailing. The convergence of online and bricks now underway, will reconfigure retailing built on the “unpaid stock-picker shopper.” This form of retailing came into being with the massive shift to self-service retail 100 years ago. At that time, retailers gladly sloughed off the “stock-picking” they and their staff had formerly done for shoppers (paid staff did the “stock-picking” for the shoppers, before the early 1900s.) With self-service, the shoppers would do it for themselves – at no charge to the retailer.
The new self-service retailing industry pushed retailers into becoming merchant-warehousemen, using unpaid shoppers to pick the shoppers’ own merchandise from the store shelves, while the merchant warehouseman charged suppliers, whether directly or indirectly, for access to the sales engine (the store,) and sold them (the suppliers,) ancillary marketing services – for example, ad space in neighborhood weekly flyers, produced and distributed by the retailers. In this way retailers became merchant warehousemen, with their principle source of profits being their suppliers; not their customers!!! This is the origin of low margin retailing – designed to drive sales volume, revenue, from the shoppers, with profits deriving primarily and directly from services “sold” to the retailer’s suppliers.
The shift of labor from paid staff, to “free” shoppers, helped reduce expenses, and prices, in these new self-service stores. This also led to a restructuring of what was going on in the store, as self-service stores grew from a few thousand feet in size 100 years ago, to tens or hundreds of thousands of feet today, the retail mindset ingrained in the industry from 100 years ago became, and remains: “Pile it high, and let it fly!” This mantra made a lot of sense in the beginning, and the growing demand of a growing society, with increasing prosperity, made “pile it high,” a very profitable retail strategy.
“Pile it high” Created Vulnerability for Bricks-and-Mortar Retailers
The reason for the vulnerability is that…
… it led them to massive “PARKED” capital.
The larger the store, the less of it shoppers will visit…..
There are two major forms of this parked capital. The first of these is the “Parked Real Estate” Capital. Here is some data about the “buildings” portion of the parked capital, as illustrated in, “If you build it, they will NOT come!” These are the hard facts about the building of larger and larger stores. The larger the store, the less of it shoppers will visit:
The data shows that even the smaller stores only get shoppers to visit perhaps a third of their displays, and for very large stores this plunges to closer to 10% of the store visited. Long ago, when we began showing retailers shopper density maps of their stores, illustrating where shoppers spent most of their time, one of the questions most commonly heard was, “How can we get more shoppers into these poorly visited aisles?”
The question speaks volumes to the poor understanding retailers have about shoppers in their stores. The right question should be, how do we get the products the shoppers want to where they are spending time? But that addresses other issues we are not discussing in detail, here. See: How to Sell the Few, Among the Many? The point is that this “shopper density” map is an accurate map of the time shoppers spend in the store. All those blue, and especially the dark blue areas, represent parked real estate capital, regardless of how you propose to manage it.
The bottom line is that retailers have massive parked real estate capital, while online retailers have no need for that unused walking space that serves shoppers poorly – actually impeding their purchases in bricks stores – and represents dead weight sunk capital to the retailer.
“Parked Inventory” Capital
The data and map above are relevant to both inefficient use of floor space capital, but also are directly related to the massive unmoving inventory on most stores’ shelves. The building of larger and larger stores has been driven more by the desire to offer more inventory – requiring more space – on behalf of the brand suppliers, who are paying for the space and other marketing services. It is NOT needed to accommodate the demands of the crowds of shoppers. In fact, there is actually a competition for space within stores between shoppers and products. See: “The Aisleness of Stores.”
It should be obvious: all the space occupied by inventory, cannot be occupied by shoppers! And shoppers do like, and are controlled by, open space – see: Who enjoys shopping in IKEA? (18 Jan 2011) – watch 90 seconds. That video provides solid evidence that shoppers move around stores, not in search of products, but looking for open space, probably subconsciously expecting that the open space will lead to at least something they want to buy. This is a crucial point.
But, just as we looked at the usage of the floor space of the store, let’s look at their usage of the inventory in the store, another massive sponge, in this case for working capital. Here is what is actually happening with the total store inventory – and this is VERY similar for any store in the world.
The chart on the left shows the share of total store sales contributed by every single item in the store. For this store, the #1 selling item reaches a whopping 0.7% of sales!!! (If everything in the store sold at this rate, it would be a $5 billion store. 😉 But, as you can see, sales for individual items fall precipitously as items in the store multiply. You can read about the management of sales for those items on the left side of the chart, the so-called, “big head,” here: “Deciding What to SELL!” and in the earlier cited, “How to Sell the Few, Among the Many?”
Now let’s look at what is going on with the shoppers, that drives this curve. Understanding this is important to understanding why the curve has this shape, the proper management of the merchandise in the store, and a good deal more:
This is the same chart as the other one above, only blown up and annotated to make clearer the distinctions we need to make. Proper distinctions are the key to super performance. First of all, you’ll notice that of the 36,000+ items in this store, something like 1000 are delivering about 60% of the store’s sales. That is, 2.5% of the items in the store are delivering 60% of the store’s sales. But the reason for this great disparity in sales between these few (the “big head,”) and all the rest (the “long tail,”) is driven by some fundamental facts about human beings in general, and the shoppers in this store specifically: We’re all very much alike! Hence, we all buy much the same things.
This similarity amongst the population relentlessly drives the Big Head, the Pareto Principle, the 80/20 rule (20% of the input drives 80% of the output.) Of course it isn’t always an exact 80/20 ratio, but winning products, like winning efforts, are far more productive than “the madding crowd” of products on the shelves. Failing to distinguish amongst these things, failure to distinguish the “winning products” from the “less than winning products – a.k.a. losers” is a virtual guarantee of mediocrity – which is rampant in the self-service retail world. This is true even for the market leaders, because their major competition has been stuck in the same capital inefficient paradigm, for a very long time. So although long tail items are winners for small numbers of shoppers, or occasionally, we must label them “loser” products that are, in fact, a drag on store performance.
Two classes of merchandise: the BIG head; and the L – O – N – G tail
“Winning products” the Big Head, are those that efficiently serve the massive needs shared, in common, by the largest share of the shoppers. However, as important as “We are very much alike” is, there is also significant value to the great differences among us. Those great differences are the sources of innovation, creativity, etc., that may result in future winners. But, more importantly, in the here and now, they make someone(s) very happy. Every one of us has interests in some very Long Tail products, that appeal to only a tiny slice of the market, and possibly, only on rare occasions. We are all very different, and attracted to different products.
I can illustrate this by my own need, recently, to purchase a “cat-house,” for an adopted abandoned cat. First, we visited Walmart, Petco and Coastal – a farm supply store. We looked at a couple other places, too, and didn’t find what we were looking for. So, off to Amazon:
And… in a flash, Amazon coughed up more than 7000 entries, related somehow to “cat house!” I scanned the top couple dozen – listed in sales rank order – and pretty quickly decided that the first item in the list would do just fine for us. A couple days later it was delivered to our door, my wife impatiently ripped it open and set it up, and the cat endorsed the purchase by immediately moving in! (And it’s even heated for the few bitter cold days we have in the winter.)
Now, I have never purchased a cat-house before, and probably never will again. And I seriously doubt that Amazon carries a huge inventory of this particular item, scattered from hell-to-breakfast across the country. But they efficiently delivered just what I needed, of what must be a rare item in terms of total sales, especially in the bricks-and-mortar stores I visited, and NOT one of those stores carried this particular item! Pretty shocking, eh?
But pretty routine for Amazon, “The Everything Store!”
Do you see the problem for the bricks-and-mortar stores. Even with trillions of dollars of inventory capital deployed across the country, they can never compete with a merchant with a thousand times longer tail, very sanely managed, (from the shoppers point of view.) And the irony here is that shoppers do not go to stores because they have the Big Head products buried somewhere in the store. Even though they go to the store to buy the Big Head items, they go there because they subconsciously expect that anyone who has those 40,000+ items, almost certainly will have everything they want!
For the supermarket, the bottom half of the inventory behaves very differently than the top half, delivering only, collectively, about 5% of the total store sales. Simply, this means that all that merchandise is spending a lot of time sitting around doing a whole lot of nothing, in terms of going home with shoppers. Don’t overlook that those 18,000+ items at the bottom of the sales curve, deliver from 0.0007% of sales, more or less steadily down to 0.0000% of sales – less than 0.0003% of total store sales, on average! As noted above, these do play a role in attracting shoppers to the store, but as far as economics are concerned, it is “parked capital.” [Note: An indeterminate number of items do not even show up in the transaction data at all, even over the two year period represented by this data. That is, there are hundreds, if not thousands of items, to the right of that 36,000, with zero sales for the period. That’s truly parked inventory! 😉
These facts have led to my suggestion that maybe all those products should be removed from the shelves, and replaced with attractive photos of them, maybe on window shades to cover all the resulting empty shelves! 😉 This is of course hyperbolic, but suggestive of the baleful effect all this “parked inventory capital” has on the financial performance of the store.
With the next Views, dealing with the solution to the problem, I will outline how some bricks retailers are making weak, but worthwhile efforts, to address the sales part of the problem, but still ignoring their massive parked inventory problems. And how other bricks retailers have long solved the parked inventory problems, and yet are vulnerable to the everything long tail. Other than reading this current issue of the Views, it would be helpful to review Selling Like Amazon… in Bricks & Mortar Stores!
Here’s to GREAT “Shopping” for YOU!!!
Your friend, Herb Sorensen