In the Digital Age, Do Store Employees Still Matter?

Despite the opinions all the analysts and pundits in the world (including RSR) who have been urging retailers to increase their service profile to consumers, some in the industry argue that enabling consumers via their smart mobile devices in the store is the ultimate expression of the self-service model- which inevitably leads to the question, do retailers need customer-facing employees in the store at all?  With margins being as thin as they are, retailers consider labor to be their most “controllable expense” in the store, and so when the pressure is on to put more to the bottom line, they will often tighten up on hours, wages, benefits, and other employee-related spending. Why not go all the way?

In reality employees are a significant asset for stores. While it’s easy to see why retailers lose track of that key fact, the world has changed; the employee is (or should be) at the very center of retailers’ strategies to reinvigorate the stores.

So how did we get here? Squeezing store labor is part of the retailers’ playbooks, and has been for a long time. In the 1930’s, M.B. Skaggs, founder of the Safeway grocery retail chain, invented the self-service store concept, which optimized the store expense structure by lowering customer-facing labor costs (and perhaps not coincidentally, boosted top line sales by encouraging impulse buying). Fast forward to today, and to a greater or lesser degree most retailers have adopted some aspect of the self-service model.

Certainly, consumers that visit one of the Amazon Go! stores might think that employee-less self service  is the goal. But it’s important to remember what that store really is – a testing ground for new technologies. One look up into the black-painted ceiling reveals an extraordinary array of technology, and what’s behind the wall is probably even more complicated. For most retailers, such an infusion of technology into their stores just isn’t affordable – it would take a serious re-jiggering of the store P&L to manage the technology costs and still bring something down to the operating income line.

There’s another aspect to this as well. Who says that customers are happy to shop in a fully automated self-service environment?  As my RSR partner Paula Rosenblum points out, if retailers take out the one variable that differentiates them from 21st Century demand aggregators like Amazon and Alibaba, service employees, why would consumers go to the trouble of going to a store at all?

There was a fascinating piece posted on the Bloomberg site recently (Why Banks Are Giving Tellers Raises, Instead of Firing Them All, By Emma Kinery, Bloomberg, August 20, 2018), that spoke to this issue in the context of retail banking. The article highlighted a study conducted by Goldman Sachs:

When Goldman Sachs Group Inc. launched its digital consumer bank, it conducted a survey on customer attitudes. It turns out people want to find answers without assistance — until they can’t and immediately want help from a qualified banker. There’s high tolerance for self-service until it fails, and then there’s no tolerance. As banks across the country reassess branches, those findings keep getting validated.”

The same holds true for retailers– and they know it. That’s why in RSR’s most recent study on the Store (The Retail Store 2018: From Apocalypse To Renaissance, Benchmark Report, August 2018), retailers -and particularly over-performing “Retail Winners” – told us that they expect more employee interaction with consumers, not less.

So the question isn’t “do store employees still matter?” but “how can retailers afford a higher customer-service profile?”

First of all, retailers can and should hyper-optimize the non-selling functions of the store. That’s what task management solutions are all about, but such technology-enabled solutions like employee collaboration and communication tools are also important (for example, for merchandising teams to be able to communicate “best practices” to each other for floor resets, etc.). Enabling mobile alerts for store managers about operational conditions in the store while they are happening is also important – but more complicated than it seems (since operations and business analytics systems must function in realtime to trigger important alerts to management).  Why is this important?  RSR benchmark studies on store technology over the past 10 years have consistently shown that managers spend too much time in the back office and not enough time on the sales floor, often sitting at a desk and sifting through mountains of email and paper communications from Corporate. That essentially takes the store’s most valuable human asset off the floor!

Secondly, retailers should proactively systemize new customer facing functions related to omnichannel order fulfillment.  More and more retailers are choosing “buy-online-pickup-instore” as the most desirable way to fulfill online customer orders.  But that’s a net-new function, requiring more labor.  And the flip side – returns handling – can be even more labor intensive.  Retailers don’t need to wait for the costs associated with handling omnichannel orders to become a problem; there are technology solutions available now to optimize those activities.

Finally, retailers need to think about how to measure and optimize the selling functions themselves. There is a school of thought in retail that customer-employee interaction is a “whatever it takes” process.  That line of thinking was further hardened by Home Depot’s abortive attempts in the early 2000’s to deploy General Electric’s “six sigma” process design to selling activities (six sigma lends itself better to highly repeatable processes). But there is another way to handle the challenge of optimizing the performance of the customer-facing functions in the store.  For starts, retailers should measure all employee activities, and compare observed behaviors with outcomes (hopefully, better sales and more satisfied customers) to identify those activities that work best.  From there, a continuous improvement cycle can be established at each store, where an action plan is generated to support achievement of the goals, the best available resources are applied, and results are carefully observed.  Then, as the saying goes, “wash, rinse, repeat”!

Stores don’t have to settle for a diminishing return on their efforts to win `consumers’ share-of-pocket.  Re-thinking what goes on inside the four walls of the store in the context of consumer expectations for relevance and service, and using information and tools available now to drive performance to new levels, is possible. Employees do matter to consumers, but only if they are helping those consumers solve their lifestyle challenges.

That’s how stores won’t only survive, but actually thrive in this age of the digitally enabled consumer.

Brian Kilcourse
Managing Partner
RSR Research LLC

By |2018-10-25T16:06:30+00:00August 29, 2018|