Retailing - Offline > Online?

With so much happening in the retail industry in India; Online Vs Offline is a topic touching emotions anytime in a room. There has been huge hue & cry about how online retailing is changing the way consumer shop or how it is killing the offline retailing or how offline retailing is under pressure from Mall rentals or how offline retailing's touch n feel cant be replaced by online and offline retailing understands economics while e-commerce players don't. I am penning my thoughts around something called retailing as i learned it from my childhood days in a family owned retail business to organized retailing work experience in offline/online world.

Selling a product/service to an end-consumer is primarily retailing. Does its principles change when the mode of transaction with end consumer is immediate (offline) or distant (online)? Are these so different that people who run these businesses apply different skills to run them? Does the consumer of the two modes of retailing different? Answer is No. Lets start from basics.

What are the key focus areas of a retail business? I call them as BIG 5 Pillars of Retail -

1. Product/Service - These are the "goodies" you are selling to the consumer. These are goodies as they are supposed to be 'good', making a consumer happy after purchase. If you sell them well, it becomes a part of life of consumers adding value to them. If you dont sell them, they remain part of your inventory adding to your costs. Its important to keep the product at its best levels & measure the indicators through various activities.

• Customer Feedback/Satisfaction - Work on the goodies basis consumer feedback. Consumer knows on what she like about you and also wants to tell you on what can make it better.
• Competition Bench-marking - Work on keep improving the goodies Vs competition.
• Product Performance - What are the various indicator's of its performance -
• a) Inventory Sell Through - If the goodies are good, then how fast are you selling them? What are the activities which can speed things up?
• b) What is selling better? - Out of an assortment of goods kept in store, what is selling better, so that you can change the mix accordingly? What categories give you better profits (margins)? (Category Performance)

2. People - These are the "human beings" that advocate your goodies to end consumer and sell to them. If these are good/well-trained/motivated sales force, they ensure fast selling of goodies and ensure consumer keeps coming back basis the last interaction (Customer Service). If they are'nt happy/not trained; it shows on customer experience and consumers wouldnt connect with your goodies & lead to poor sales/repeat sales.

• People Competence - Is my staff trained & competent on giving your desired customer service? What are the drivers? Invest in right talent & training. Are they clear on what they are selling? Are they sold on the product themselves to sell it to consumers?
• People Satisfaction - Is my staff happy/motivated so that they can wow the consumer? What are the drivers? Keep them engaged, make work a fun place, recognize their performance, reward them with commensurate rewards/benefits,
• People Performance - Is their performance evaluated at periodic times so that they can make changes to improve? Are there simple monitoring systems & improvement methods known to them?

3. Consumer Experience - This is the ultimate driver of a retail business which leads to sales & growth of a company. A good consumer experience entails everything - From the kind of ambeince in which goodies were delivered, from the kind of interaction with the salesperson that added value to the consumer's life, the kind of after sales journey consumer goes through; all add to the chances of her coming back to the company for more!

• Consumer Satisfaction Scores & Feedback - Keep working on understanding levels of satisfaction and what they are saying about your products. This helps in improving again and again.
• Consumer experience is an amalgamation of everything and you need to understand exactly whats going wrong. It could be any cog in the wheel, that might derail you - Store ambience (was it lit enough? Was it clean?), Product/Assortment (Product quality wasnt good? I couldn't find the product? (Supply Chain/Layout), It wasnt appealing? (Quality/Visual Merchandising), Customer Service was not good? (Training/Motivation), Price wasn't right and so on..

4. Topline (Sales Revenue) - This is objective No 2, out of investments in first 3 drivers to generate value for the business. One needs to understand various drivers and relationship leading to revenue. In retail, it is as simple as -

Sales = Footfalls X Conversion X Basket Size (BS) X Average Sales Price (ASP)

And then one just needs to work on the cause effect ladder for all the drivers to arrive at levers of these drivers & list down activities & indicators to create a plan. For eg -

• Footfalls = (Old customers coming back again & again) + New customers
• Retained Sales drivers = Activities for greater engagement leading to them coming to buy and coming back multiple times, usage of loyalty program benefits to bring them back, usage of sweeteners (points, points back, discounts), exclusive events.
• Acquisition Sales drivers = Activities to add new footfalls like trial generation activities, alliances with non-compete brands, attracting footfalls within catchment through an event or a mega broadcast through advertising.

Footfalls = (Retained customers X frequency) + (Acquisition of new customers)

• Conversion - This is the success factor in a retail store; how many footfalls get converted into buyers or invoices. In order to boost conversion; you work on training on selling skills or product knowledge (people cant sell properly), or discovery of desired products in store is an issue (layout change) or desired merchandise is missing (category mix issue or poor estimation of demand leading to stock outs) and so on. Activities can include a in store promotion/in-store communication/etc.

Conversion = # of Invoices/# of Footfalls

• Basket Size - BS or UPT(Units per Transaction) is no of items in a customer's basket. To boost BS, one needs to work on product knowledge of sales persons. One starts training people on cross-selling to educate customers to buy a matching trouser with a shirt. Or buy a shampoo, conditioner & serum of same variant. Apart from cross-selling, retailer work on basket building promotions like - Buy 3 get 2 Free, inducing the consumer to buy more items or bundled packs with a price off (Buy 3 soaps at price of 2).

Basket Size = Total items sold / # of invoices.

Average Sales Price (ASP) - Average Sales Price is nothing but the average selling price of a unit sold. To boost the ASP, one needs to work on the merchandise mix in a store. As retail space is expensive, one needs to stock & sell merchandise with higher ASP. In garments category, its about having a mix of merchandise at Entry, Mid & Premium price points. The retailer will always work to move the average to Mid & Premium price points. You also need to educate salesperson to "Up-sell", which means selling a Rs 2000 shirt instead of Rs 1500 by talking about the benefits of Rs 2000 one (a wrinkle free shirt Vs a normal cotton shirt). You need to highlight premium options in a store like a special section with inviting visual merchandising so that consumers get attracted, and so on.

Average Sales Price = Total Sales / # of items sold

• Average Transaction Value (ATV) - ATV is another factor important in retail; which is nothing but average sales value of a transaction. In order to boost ATV, one can boost Basket Size or one can boost Average Sales Price or both. A retailer running an offer of - Shop worth Rs 10,000 & get a duffle bag free; is trying to push the ATV to 10,000.

Average Transaction Value(ATV) = Total Sales / # of invoices

Also, ATV = BS X ASP

5. Bottomline (Profits) - This is No 1 objective for a business; and one uses the earlier 4 pillars in such a manner that you generate profits. When i look at bottomline as a key focus area; i look at various costs which impact the revenue generated leading to bottomline.

One needs to list all costs & work towards minimizing them (without impact on the earlier 4 pillar) and create positive bottomline. Again, you list all factors of costs & activities to boost bottomline. Eg -

Cost of Goods, Cost of Discount, Cost of Inventory, Rentals , People , Utilities

With all these 5 pillars well monitored & executed for perfection, one can expect a good return out of a retail business. There are surely many other factors or jargon you might find; but you can bucket them in these 5 pillars, thus bringing clarity of thought and focus. Just, keep these 5 pillars under your control like 5 fingers of your hand & you shall do well. In the next piece, I shall write about how the same 5 pillars matter in Online retail as well & the basics never change.