what is in store for store? 2014

i

What’s In Store for Stores?

Benchmark Report 2014

Paula Rosenblum and Steve Rowen, Managing Partners

June 2014

Sponsored by:

i

Executive Summary

Key Findings

Even though most of retailers’ current growth is coming from digital channels, shoppers continue

to visit stores – and will for many years to come. Their demand for a more relevant store

shopping experience, however, has retailers asking “How can we rejuvenate the in-store

experience?” in order to return stores to their rightful place in the retail ecosystem. This report

seeks to examine this question in detail.

Some highlights of the report include the following:

• While showrooming and omni-channel pressures dominate media conversations,

fundamental and traditional pressures rise to the top of store-based issues. Find out what

retailers report as their top Business Challenges on page 6.

• Retailers’ sales performance dramatically affects their perception of what will make their

stores more interesting places to shop. Winners have already had more success

prioritizing their employee work schedules. Where else have they made gains? Find out

in the Opportunities section of this report, beginning on page 10.

• All retailers face similar Organizational Inhibitors (page 14), but the technology

infrastructure problem appears to be winding down for the best performers. Instead,

Retail Winners worry that - for one - putting technology in the hands of store personnel

can be a distraction rather than a useful tool.

• Retailers know their stores are in a tough spot: in desperate need of systems overhauls

for both customer and employee facing technologies. Find out which technologies hold

the most value – and budget – to help them “get there” in the Technology Enablers

section of this report, beginning on page 17.

Based on our data, we’ll also offer several in-depth and pragmatic suggestions on how

retailers should proceed. These recommendations can be found in the Bootstrap

Recommendations portion of the report, which begins on page 21.

We certainly hope you enjoy it,

Paula Rosenblum and Steve Rowen

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Table of Contents

Executive Summary ........................................................................................................................... i Research Overview ......................................................................................................................... 1

The Good News: The Table Is [Getting] Set ................................................................................ 2 Better Performers See Things Differently .................................................................................... 2 Methodology................................................................................................................................. 4 Survey Respondent Characteristics ............................................................................................ 4

Business Challenges ....................................................................................................................... 6 Pressures Come From Many Different Directions ....................................................................... 6 Laggards Cutting Back on Store Growth ..................................................................................... 8

Opportunities ................................................................................................................................. 10 Two Completely Varied Visions ................................................................................................. 10 Winning is No Happy Accident................................................................................................... 10

Organizational Inhibitors ................................................................................................................ 14 Mixed Messages and Conflicting Priorities ................................................................................ 14 What’s The Real Value? ............................................................................................................ 15 Overcome Doubts via Proof of Concept, But Don’t Waste Time ............................................... 15 U.K. Retailers Get By With A Little Help From Their Friends .................................................... 16

Technology Enablers ..................................................................................................................... 17 Resistance is Futile .................................................................................................................... 17 Born Under a Bad Sign .............................................................................................................. 18 Moving Forward: Still not Complete ........................................................................................... 18 The POS Story ........................................................................................................................... 20

BOOTstrap Recommendations ..................................................................................................... 21 Labor Productivity Benchmarks ................................................................................................. 21 Shopper Satisfaction Surveys .................................................................................................... 21 Market Basket / Average Transaction Value Analysis ............................................................... 21 Conversion Rates ...................................................................................................................... 21 Participation in Loyalty Programs .............................................................................................. 22

Appendix A: RSR’s BOOT MethodologySM

...................................................................................... a Appendix B: About Our Sponsor ..................................................................................................... b Appendix C: About RSR Research ................................................................................................... c

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Figures

Figure 1: Improving Employee Knowledge Grows in Importance ................................................... 1

Figure 2: Moving Towards Near Real-time Responsiveness .......................................................... 2

Figure 3: Winners Focus on the ‘How,’ Not the ‘What’ .................................................................... 3

Figure 4: Near Real-time Processing More Predominant Among Winners ..................................... 3

Figure 5: Traditional Pressures Dominate ....................................................................................... 6

Figure 6: Different Challenges by Vertical ....................................................................................... 7

Figure 7: Laggards Cutting Back, Winners Plowing Ahead ............................................................ 8

Figure 8: A Matter of Perspective .................................................................................................. 10

Figure 9: Time Well Spent ............................................................................................................. 11

Figure 10: Get ‘Em In and Keep ‘Em Smiling ................................................................................ 12

Figure 11: Lack of Clarity Dominate Internal Challenges .............................................................. 14

Figure 12: Proof of Concepts More Valuable Than Incremental Improvements ........................... 15

Figure 13: Give Us Simpler Tools .................................................................................................. 16

Figure 14: A Fine Mess We’re In ................................................................................................... 17

Figure 15: Buying What We Value? .............................................................................................. 18

Figure 16: Second Verse, Same as the First ................................................................................ 19

Figure 17: The POS Exit Strategy ................................................................................................. 20

1

Research Overview

Even though stores remain the source of more than 85 percent of retail’s aggregate revenue,

they’ve undergone an identity crisis over that past five years. Most retailer growth is coming from

digital channels. The core question has been, and remains, “How can we rejuvenate the in-store

experience?”

It is, of course, an exquisite irony that the very tools and techniques retailers use to create a

compelling online experience, all based on liberated self-service, have brought only marginal

success in stores. The reason is simple: People don’t just shop in stores to touch and feel

products – they also expect assistance from human beings. And retailers are recognizing that

those human beings, their employees, are woefully ill-equipped to provide that assistance.

Can technology help? Recently, in the superb blog, “The Business of Fashion

(www.businessoffashion.com),” writer Suzanne Bearne pondered just that in her piece “In-Store

Tech, Sales Driver of Hype?” Her observations were interesting. It seems that even high-end

high-tech self-service solutions are marginal drivers of sales, while tools given to employees are

far more widely used and deliver better results.

Of course, most retailers don’t sell the high-end luxury products highlighted in BOF. Still, our

broader benchmark study leads us to the same conclusion. While last year, retailers were fixated

on the end goal, maintaining or improving the customer experience, this year, they most

frequently cite making employees “smarter” and better informed as a top-three value in-store

technologies bring to the table.

Figure 1: Improving Employee Knowledge Grows in Importance

Source: RSR Research, June 2014

28%

24%

28%

15%

35%

46%

69%

47%

20%

24%

30%

31%

33%

45%

48%

59%

Create competitive advantage and new sources ofrevenue generation

Put actionable information into the hands ofmanagers

Help the company win new customers and retaincurrent customers

React quickly to changes in the businessenvironment

Bring more of the digital experience into stores

Increase revenue while holding down operationalcosts

Maintain and/or improve the customer experience

Make our employees “smarter” and better informed

Opportunities for In Store Technologies

2014 2013

2

As we’ll see later, notwithstanding their hope for in-store technologies in general, retailers seem

to be underwhelmed by many of the tools they’ve deployed thus far. Over the course of this

report, we’ll attempt to tease out whether this is the fault of the tools themselves, incorrect

performance metrics, or over-amped general expectations.

The Good News: The Table Is [Getting] Set

Making employees smarter and better informed is certainly dependent on giving them accurate

and up-to-date information. As we can see in Figure 2, real progress has been made in updating

back-office systems to reflect store activities in near-real-time.

Figure 2: Moving Towards Near Real -t ime Responsiveness


Since enterprise transformation of core merchandising systems is a long and arduous process,

we expect to see more retailers turning to high performance data warehouses to get these near

real-time results before we see a larger turnover in systems of record that currently can only

process in batch.

Better Performers See Things Differently

In our benchmark reports, RSR quite frequently cites differences between retailer over-

performers in year-over-year comparable sales and their competitors. We find that consistent

sales performance is an outcome of a differentiating set of thought processes, strategies and

tactics.. We call sales over-performers “Retail Winners.”

RSR’s definition of these Winners is straightforward. Assuming industry average comparable

store/channel sales growth of three percent, we define those with sales above this hurdle as

“Winners,” those at this sales growth rate as “average,” and those below this sales growth rate as

“laggards” or “also-rans.”

To illustrate these differences, we’ll take a look at the data already presented in aggregate

through the lens of performance

First, we’ll look at retailer perception of technology value (displayed in aggregate in Figure 1).

13%

37%

50%

15%

41%

44%

Near real-time updates to data warehouse and other “flash” systems (batch updates to

systems of record)

Near real-time updates to customer, sales andloss prevention systems of record

Batch updates to all back-office systems

How Does Your Enterprise Process Data Delivered from Store to Headquarters’ Systems?

2014 2013

3

Figure 3: Winners Focus on the ‘How,’ Not the ‘What’


As we often find, laggards remain focused on the end result - “gaining and retaining customers,”

while Winners focus on the “how:” in this case making their employees smarter, reducing reaction

time, yet still managing costs.

We see a slightly different twist when taking a look at the processing data from Figure 2.

Figure 4: Near Real -t ime Processing More Predominant Among Winners


We added together the two different ways retailers can get to near real-time information (near

real-time updates to systems of record and near real-time updates to “flash” systems) and

59%

27%

23%

41%

18%

27%

55%

45%

15%

16%

25%

25%

38%

42%

53%

69%

Help the company win new customers andretain current customers

Create competitive advantage and newsources of revenue generation

Put actionable information into the hands ofmanagers

Bring more of the digital experience intostores

React quickly to changes in the businessenvironment

Increase revenue while holding downoperational costs

Maintain and/or improve the customerexperience

Make our employees “smarter” and better informed

Top Three Opportunities for In-store Technologies

Winners Laggards

63%58%

41%

Retail Winners Average Performers Laggards

Near Real-time Processing of Enterprise Data at Headquarters

4

compared them by retailer performance. As we can see, the better the retailer’s performance, the

more apt they are to process data from stores to back office systems in near real-time.

Methodology

RSR uses its own model, called the “BOOT Methodology©

,” to analyze Retail Industry issues. We

build this model with our survey instruments. See Appendix A for a full explanation.

In our surveys, we continue to find differences in the thought processes, actions, and decisions

made by retailers who outperform their competitors and the industry at large – Retail Winners.

The BOOT helps us better understand the behavioral and technological differences that drive

sustainable sales improvements and successful execution of brand vision.

Survey Respondent Characteristics

RSR conducted an online survey from March-May 2014 and received answers from 161 qualified

retail respondents. Respondent demographics are as follows:

• Job Title:

Executive/Senior Management (C-level or VP) 21%

Middle Management (VP/Director, Manager) 47%

Individual Contributor and Other 32%

• Functional Area of Responsibility:

Executive Management 11%

Customer Experience 14%

eCommerce/Direct Operations 4%

Finance, Legal, Human Resources 7%

Information Technology 12%

Marketing 5%

Merchandising 3%

Product Development 4%

Real Estate/Construction 2%

Store Operations 20%

Supply Chain 5%

Other 14%

• 2013 Revenue (US$ Equivalent)

Less than $50 Million 12%

$50 - $250 Million 16%

$250 - $500 Million 13%

$500 - $999 Million 13%

$1 - $5 Billion 23%

Over $5 Billion 24%

5

• Products sold:

Fashion / Short Lifecycle 19%

Seasonal 12%

Basics/Replenished Items 22%

Durable Goods 16%

Consumer Electronics 13% Perishable Goods 18%

• Headquarters/Retail Presence:

USA 45% 73%

Canada 2% 34%

Latin America 1% 18%

UK 35% 32%

Europe 10% 26%

Middle East 1% 10%

Africa 1% 8%

Asia/Pacific 4% 73%

• Year-Over-Year Sales Growth Rates (assume average growth of 3%):

Better than average (Retail Winners) 36%

Average 47%

Worse than average (Laggards) 17%

6

Business Challenges

Pressures Come From Many Different Directions

While showrooming and omni-channel pressures dominate media conversations, fundamental

and traditional pressures rise to the top of store-based issues (Figure 5),

Figure 5: Tradit ional Pressures Dominate


When asked to choose their top three business challenges, retailers return to the basics:

• Stores must operate within a pretty fixed budget. Somehow customer service must

improve without driving costs through the roof;

• Whether a retailer has five or five thousand stores, those stores must meet customer

expectations consistently. Employees must be productive, and floor sets must have

similar, with a somewhat localized look and feel;

• Consumer price sensitivity continues to rise. It’s easy to call this a “showrooming

problem” but in fact, the shopper has been trained by retailers to look for low prices in

virtually every medium, from mass market advertisements and FSIs to personalized

emails and notes on social networks.

For better or worse, this training has been successful, at least from the retailers’

perspective. So even though regional supermarkets like Publix continue to outperform

Walmart in the face of brutal price-focused TV ads, retailers continue their drumbeats,

and consumers respond. Only history will tell which came first, the price sensitivity

15%

33%

21%

41%

42%

52%

61%

19%

27%

33%

34%

51%

59%

64%

Store managers lack information they need on theselling floor

Customer dissatisfaction caused by lack ofintegration between selling channels

In-store "showrooming" and increasedcompetitive price transparency

Difficulty differentiating ourselves from ourcompetitors

Consumer price sensitivity

Need for more consistent storeexecution/employee productivity

Need to improve customer service while holdingthe line on payroll costs

Top Three (3) Business Challenges Faced In Stores

2014 2013

7

chicken or the price-oriented advertising egg. Data from RSR’s Pricing Benchmark1 tells

the same story. Retailers are engaged in a race to the bottom.

There are some differences worth noting between retail verticals (Figure 6).

Figure 6: Di fferent Chal lenges by Vert ical


• Retailers selling basics and perishables are most concerned about consumer price

sensitivity. In our view, this is a function of the relentless everyday advertising we

mentioned above.

1 The Pricing Paradox: Maximizing Margin in a Promotion-Driven Environment, RSR Research, April 2014

42%

47%

63%

55%

35%

64%

Fashion/Short Lifecycle

Seasonal

Basics/Replenished Items

Durable goods

Consumer electronics

Perishable goods

Consumer Price Sensitivity

73%

47%

50%

55%

70%

72%


Seasonal


Durable goods


Perishable goods

Customer Service vs. Payroll Costs

31%

37%

22%

40%

60%

16%


Seasonal


Durable goods


Perishable goods

"Showrooming" and Price Transparency

8

• To almost no one’s surprise, retailers selling Consumer Electronics are most concerned

about showrooming and increased price transparency. Data from a variety of sources

validates this concern. In fact, consumers have done price comparisons for big ticket

purchases since retailing began. The only difference today is they can do those

comparisons in real-time. We suspect this just leads to a faster purchase decision, not a

different one.

• Somewhat surprisingly, the retail verticals most concerned about improving service while

holding the line on costs are Fashion retailers, Consumer Electronics (CE), and those

selling Perishables. We can understand the pressure on CE. Margins are tight to start

with. But Fashion and Perishables generally have healthy initial gross margins. We would

expect that pressure to be less than it has turned out to be.

Laggards Cutting Back On Store Growth

We thought the largest retailers would start cutting back on store growth. At the end of the day,

there is no such thing as an infinite market, and one would expect to see some retailers

acknowledging they are fully built out. In fact, this was not a particularly strong indicator for

additional growth. Instead, performance was the driving force behind new store decisions (Figure

7 – note: retailers were asked to select all that apply so numbers do not equal 100%).

Figure 7: Laggards Cutt ing Back, Winners Plowing Ahead


The most striking data point in Figure 7 is not so much that half of both laggards and winners are

continuing to open stores in existing geographies, and it isn’t that almost half of laggards are

planning to close underperforming stores and pull back on new ones. It’s that a third of

laggards are planning to open smaller stores while a third of Winners are planning to open

larger ones.

41%

36%

32%

9%

36%

55%

4%

13%

18%

36%

42%

56%

We plan to close stores in the near future

We do not plan to open new stores in the nearfuture

We plan to open smaller stores in the future

We plan to open larger stores in the future

We plan to open new stores in new geographies

We plan to continue to open new stores in ourexisting geographies

Future Plans Regarding Store Growth

Winners Laggards

9

We are reminded of Walmart’s stated objective to open more neighborhood markets. If we look at

Walmart through the lens of performance, the company has been a definitive laggard for a long

time. Comparable sales have lagged inflation as of this writing for eleven straight quarters.

With community objections in almost every new urban market the company tries to enter, it

dabbles with the neighborhood market as a way to gain a toe-hold in these areas where real

estate is expensive and big box retail stores really won’t physically fit.

More successful retailers are more likely to open new flagship stores in existing and new markets.

Nordstrom, for one, is opening both full-price and off-price “Rack” stores at a good clip and is

planning a new flagship on 57th Street in Manhattan. This flagship will anchor one of the tallest

buildings in the world. H&M is also moving forward with a Manhattan flagship.

Clearly this indicates that for Retail Winners, at least, stores still represent interesting growth

potential and opportunities.

Next we’ll take a look at the “how.” What are the opportunities retailers see to improve the in-store

experience? How will they justify store survival and growth?

10

Opportunities

Two Completely Varied Visions

Retailers’ performance dramatically affects their perception of the opportunities that will make

their stores more interesting places to shop (Figure 8).

Figure 8: A Matter of Perspect ive


Once more, in classic, albeit unfortunate fashion, lagging retailers tend to focus on the end result

(a more convenient customer experience), while Winners focus more on more productive,

educated and empowered employees, as the way to achieve that. And while both performance

groups are responding to the first part of the top business challenge (“Need to improve customer

service…”), Winners are focused more on improved productivity through education and

empowerment as the way to respond to the second part of the top challenge (“… while holding

the line on payroll costs.”). In light of the fact that consumers today are more demanding than

ever, retailers know they must respond with better service than may have been offered in the

past. But Winners want to do that without blowing up the budget.

Winning Is No Happy Accident

In continuation of this theme, Winners have already had more success prioritizing their employee

work schedules, reporting that the time they spend with customers is far more in line with

corporate objectives than that of those whose sales are already hurting (Figure 9). This is not

23%

27%

23%

41%

64%

32%

45%

36%

20%

24%

36%

36%

40%

40%

42%

51%

Provide ability to locate and sell merchandisefrom anywhere in the company

It’s all about our product mix. If we build it, they will come.

Add self-service customer-facing technologies

Bring more of a digital/online experience tostores

Focus on a more convenient customerexperience

Educate and empower our in-storeemployees using technology

More personalized attention from ouremployees

Find ways to make our employees moreproductive

Top Three (3) Opportunities for Improving the In-store Experience

Winners Laggards

11

happenstance: there is a direct correlation between a purpose-focused store associate and

market success.

Figure 9: T ime Wel l Spent


This does beg the question, however, if lagging retailers’ employees are not spending enough

time on the things they - and their customers - think they should to be doing, where then, are

they spending their time?

• Laggards are much more likely to report that employees spend too much time on

administrative tasks such as corporate paperwork and processes than Winning retailers

(50% to 36%, respectively). This is one of the primary means by which Winners continue to

push their culture – and their year-over-year sales – forward. They ensure that the revenue

generating services are given the time needed for success.

• If we extend this trend one point further, a store environment where the store manager is

also freed of administrative tasks, we find a formula whereby not only are employees acting

as true brand ambassadors to the shopper, but the store manager is fulfilling a much more

effective role as well. He can oversee consumer/associate engagement, fully informed of

what’s taking place on the sales floor. We will examine which technologies facilitate this

“unshackling” of both store associate and store manager in the Technology Enablers section

of this report.

As it relates to the technologies consumers use, however, which provide the best chance to get

shoppers through the front door and make the time they spend in-store more valuable? Figure 10

shows how differently Winners and Laggards view these questions.

5%

64%

29%

2%0%

32%

68%

0%

Too much time Right amount of time Not enough time Not applicable

Selling and Customer Service: Time Spent

Winners Laggards

12

Figure 10: Get ‘Em In and Keep ‘Em Smil ing


Winners place far greater focus on the power of the consumer’s smartphone. It is no secret that

the average shopper is in love with her personal device – she carries it everywhere she goes and

uses it for nearly every daily task at this point. And for Winners, that relationship is entirely

leverageable.

Have we yet to see great examples of phone-based communication (whether through SMS,

email, app or direct call) to get consumers into a store? Apart from excessive price and

promotions efforts that are mainly delivered via email, the answer is “not yet”. But based on the

fact that the most successful retailers see such tremendous opportunity to leverage these

customer-owned tools in the future, we expect to see not only interesting ways to entice shoppers

off the street, but even more creative ways to liven up the in-store shopping experience. She’s

already got her phone out: what can you do to get her talking to you on it?

14%

36%

27%

45%

64%

51%

53%

53%

58%

64%

Presence on social networks

Consumer Smartphones

Retailer Mobile App or web

Email communications

eCommerce site

A Lot of Value Driving Traffic to Store

Winners Laggards

5%

18%

32%

27%

27%

27%

31%

38%

42%

51%

Presence on social networks

Email communications

eCommerce site

Consumer Smartphones

Retailer Mobile App or web

A Lot of Value Once Customer Is In the Store

Winners Laggards

13

Winners also have very high hopes for social networks’ abilities to engage consumers. Again,

these are still relatively early days. Apart from the “get a friend’s advice” demos that are part and

parcel to any socially-enabled solution demo, currently, few have cracked the nut beyond price

and promotions as to how Facebook, Pinterest, or LinkedIn could be leveraged to create great

value either in-or-out of the store’s four walls. But the important thing is this: the better a retailer’s

performance, the more likely they are to see the potential.

Now let’s see what stands in retailers’ way to realizing more of these opportunities.

14

Organizational Inhibitors

Mixed Messages And Conflicting Priorities

At the beginning of this report, we suggested that while retailers believe that technology in

general will help reinvigorate the in-store experience, once we get to the details, a different

picture emerges. That different picture is apparent in the organizational inhibitors retailers report

they face (Figure 11).

Figure 11: Lack of Clarity Dominate Internal Chal lenges


To call out differences in perspectives, we looked at overall responses, Winners and laggards.

First, the technology infrastructure problem appears to be winding down for Retail Winners. In last

year’s study, 47 percent of all respondents cited this as a top-three inhibitor, while this year only

31 percent of Winners identified it as such. We believe they’ve found ways to work around

otherwise intractable aged systems to get new functions install.

27%

27%

32%

27%

41%

32%

55%

32%

19%

22%

26%

28%

31%

43%

48%

48%

26%

24%

24%

35%

39%

41%

53%

36%

Store operations poses a cultural barrier to change

The TCO of in-store technologies makes it hard tojustify many of the newer technologies

Overall Capital Requirements – we never even get to the subject of ROI

Stores already have too much going on - they don'thave the capacity to add more projects

The existing technology infrastructure is preventingus from moving forward with new solutions

We are trying to simplify our in-store technology,not make it more complex

Hard to quantify technology return on investment

We’re conflicted as to whether new technologies will be tools or distractions

Top Three (3) Organizational Inhibitors

Overall Winners Laggards

15

What’s The Real Value?

We would expect that the perceived source of improvement would have easily quantifiable ROI,

yet we can see that for more than half of all respondents, including almost half of Retail Winners,

that ROI is actually quite elusive. We’ll see later in the Technology Enablers section of this report

that the more specific questions get, the more ambivalent retailers become.

Retail Winners, in particular worry that putting technology in the hands of store personnel can be

a distraction rather than a useful tool. They worry distraction could come from tools that actually

add complexity into the store, after spending years trying to make life simpler for a transient

workforce.

Surprisingly, only one quarter of respondents are worried about Total Cost of Ownership and far

fewer than last year are concerned about overall capital requirements (38 percent cited this as a

top-three inhibitor in last year’s study). It appears as though budget is being freed up for in-store

technologies, even as it has been pulled back from eCommerce initiatives2.

Overcome Doubts Via Proof Of Concept, But Don’t Waste Time

Until this year, retailers have consistently cited incremental technology investment as a way to

overcome capital requirement (CapEx) hurdles. But having seen a significant drop in CapEX

concerns, we’ve seen an even more dramatic drop in the desire for incremental improvements

(Figure 12).

Figure 12: Proof of Concepts More Valuable Than Incremental Improvements


2 The Great Leveler: eCommerce’s Next Move, RSR Research, November 2013

73%

29%

21%

27%

52%

78%

36%

37%

38%

42%

58%

67%

Start with smaller projects, buying basic systemfunctions, and using ROI to drive additional

functions and features

Asking vendors to provide success stories andreferences

Gain sharing programs with vendors

Merchandising vendor funding for in-storeprojects

Managed services to speed technologyimplementation

Pilot programs in specific stores or regions

Overcoming Inhibitors: Top Three Ways

2014 2013

16

Fewer than half of respondents this year cite “smaller projects with incremental ROI along the

way” as a tool to get projects going than they did last year. While 41% of laggards still like this

approach, the sentiment is consistent: “There’s no more time to waste, let’s get moving.”

Within that context, it’s not surprising that pilot programs continue to stand as the most frequently

cited way to overcome doubts, and Managed Services are used to make the transitions as

smooth and distraction-free as possible.

U.K. Retailers Get By With A Little Help From Their Friends

It’s worthy to note that our large base of U.K.-based retailers skewed some of our results this

year. These retailers are far more apt to look to their merchandise and technology vendors to

help share the cost of technology implementations (Figure 13).

Figure 13: Give Us Simpler Tools


Merchandise vendor funding in the United States is typically reserved for cooperative advertising,

or to support technologies like digital signage that directly advertise the vendors’ products in

store,

Gain-sharing is considered a niche solution mostly used for operational audits, not technology

implementations. There are some good and not-so good reasons for this. Given the KPI’s used to

measure the value of new technologies (typically sales increases) it can be very difficult to isolate

any one cause of improved top-line results. This once again begs the question “How do we

measure success?” Can we measure it based on reduced losses to other channels? Increased

conversion rates? It is our view that until these KPI’s can be determined and baked into contracts,

gain-sharing will not become ubiquitous. But more importantly, until the retail industry

improves the KPIs associated with in-store technology, ambivalence and doubt will

continue to reign.

39%

29%

46%

48%

Merchandising vendor funding for in-store projects

Gain sharing programs with vendors

UK Retailers Look To Share Costs... Anywhere

UK All Other

17

Technology Enablers

Resistance Is Futile

Let there be no doubt, retailers know their stores are in a tough spot: in desperate need of

systems overhauls for both customer and employee facing technologies (Figure 14).

Figure 14: A Fine Mess We’re In


Where this knowledge starts to crumble is in the way these problems get resolved. Are in-store

technologies really so differentiating that the very mention of outsourcing them is forbidden?

Recall that many of retailers’ antiquated systems involved some measure of roll-your-own

methodology – often times the result of a dangerous cocktail: the immediate need to meet

customer demand combined with retailers’ insistence that their business model (and needs) are

entirely too personal to be trusted in the hands of others.

After all, it wasn’t long ago that retailers were in a similar spot with their eCommerce sites due to

burgeoning online sales. And many are still paying the price for the self-concocted solutions they

brought to bear fifteen years ago to meet online demand. Rushing to self-design in-store solutions

that may/may not meet impending customer demand is hardly an ideal solution in 2014,

particularly when off-the-shelf solutions have improved so drastically in recent years. The key, as

ever, is to make sure the business need of whatever problem you’re trying to solve is addressed

in the early stages, then test and measure the program’s effectiveness relentlessly.

However, retailers’ technology problems don’t stop there.

37%

38%

39%

47%

We need to outsource support of our legacystore systems so that we can focus on

innovation and new capabilities

We need to centralize our store systems tomake them easier to support and update

In-store technologies are critical and we won'tever consider outsourcing them

We need to modernize our store systems tomake them more flexible

What is your company's perspective on technology service levels for store technologies?

18

Born Under A Bad Sign Throughout this report, we’ve noted how retailers understand the store needs help, but are just

not sure how to “get there.” Figure 15 shows just how big this disconnect really is: retailers

continue to purchase store technologies without even ascribing high value to those very solutions.

The most valued technologies that available to them today are in-store fulfillment tools – and just

barely more than half of our retail respondents see value in those. Few charts have been more

telling of the current breakdown between knowledge and action in our industry today.

Figure 15: Buying What We Value?


Moving Forward: Still Not Complete

Their lack of confidence in specific solution value is not keeping retailers from moving forward.

Figure 16 shows retailer plans in the coming months and years.

27%

33%

40%

39%

41%

43%

45%

50%

48%

43%

50%

50%

60%

57%

27%

33%

38%

39%

41%

44%

45%

46%

48%

48%

50%

53%

53%

57%

Store-provided mobile hardware for customers

Self checkout

KPI’s and alerts to store managers on mobile devices and tablets

Store-provided mobile hardware for employees

Digital displays and interactive kiosks to enhance theshopping experience

Software to assign actions for specific stores/departments inresponse to store performance

Clienteling/CRM solutions for store employees

In-store personalized rewards and/or coupons

Modern POS hardware & software

Mobile solutions enabled by customer smartphones

Endless Aisle selling capabilities

Software that schedules the right mix of labor so employees can complete all activities – selling, restocking, receiving, …

In-store Wifi for store functions

In-store fulfillment

Technologies In Stores Right Now

A Lot of Value Implemented

19

Figure 16: Second Verse, Same as the Fi rst


Not only have retailers purchased a series of technologies that they don’t find particularly

valuable, but they plan to keep on doing so. This begs the question: If retailers are unsure of

solution value, yet continue to purchase those solutions, how will they know if they

actually add value?

The fault lies not in the selection or the solution. It lies in lack of meaningful Key Performance

Indicators to determine success. RSR’s previous studies have shown that every technology’s

effectiveness is gauged based on its impact on sales and margin. Longtime retailers know these

numbers are volatile, and can be affected by everything from the weather, to payroll tax

increases. Pilot programs will help, but long-term metrics for success are necessary to evaluate

success.

23%

31%

29%

32%

31%

31%

31%

34%

29%

29%

23%

30%

37%

39%

41%

44%

45%

46%

48%

48%

50%

53%

53%

57%

In-store public Wifi

Store-provided mobile hardware for employees

Digital displays and interactive kiosks to enhance the shoppingexperience

Software to assign actions for specific stores/departments inresponse to store performance

Clienteling/CRM solutions for store employees

In-store personalized rewards and/or coupons

Modern POS hardware & software

Mobile solutions enabled by customer smartphones

Endless Aisle selling capabilities

Software that schedules the right mix of labor so employees can complete all activities – selling, restocking, receiving, and

corporate-driven tasks

In-store Wifi for store functions

In-store fulfillment

Technologies Coming to Stores Soon?

A Lot of Value Planned/Budgeted

20

The POS Story

Lastly, no report on the state of technology in stores would be complete without an examination of

the elephant in the room: the single largest technology investment in most retail stores and sadly,

the one most often in need of dire update – the Point of Sale. In an apparent turning of the tide,

retailers have come to terms with the fact that the current generation of POS technologies won’t

survive – no matter how much ancillary mobile technology is put into employees’ hands.

Figure 17: The POS Exit Strategy


Certainly mass merchants and supermarket retailers have fewer challenges with their POS: after

all, people just want to get done and out of the store by the time they reach the checkout stand.

But all other retailers have a real problem. For fashion retailers, the cash wrap will remain a

critical component of any legacy, modern, single channel, cross-channel or hybrid in-store POS

system. The question becomes not how – but when – will a single platform that can extend from

the store (meeting all of its specific requirements) out to every digital channel (and all of its

specific requirements) ultimately emerge? And if that day is still a ways off, what can you be

doing to ensure that all of those varied requirements are being met, even if disparate (and likely

non-harmonious) systems are required in the meantime?

It’s not a rhetorical question: the customer is already demanding that you do.

33%

37%

29%

58%

24%

39%

43%

50%

Our goal is to replace our POS with asingle customer interaction platform thatserves both store and digital channels

We're looking to supplement ourexisting POS with separate mobile

solutions

Our goal is to isolate and eventuallyreplace our existing POS

Our existing point of sale is not designedto support a rich digital or cross-channel

shopping experience

What is your company's perspective on your current point of sale solution?

2014 2013

21

BOOTstrap Recommendations

We are in the midst of what RSR calls Retail’s “Reset Moment.” And that moment dictates some

significant changes in the way retailers engage with consumers in stores. While it’s facile to say

“you need more technology in your stores,” that begs the question: “Which technologies are most

needed and why are they needed?” Until now, the industry in general has been challenged to

answer that question.

Comparable sales improvements over time remain the litmus test for success in the world of

retail, but that is an outcome…not a specific result. Within that context and thinking of the

challenges and opportunities retailers have identified, we suggest the following new Key

Performance Indicators (KPIs).

Labor Productivity Benchmarks

Since retailers clearly want to improve customer service while holding the line on payroll costs,

it’s important to determine the “as is” situation by documenting the types and number of tasks that

can be completed by in-store employees. Any new technology should be benchmarked against

that baseline to see if productivity has actually improved.

Of course, one way to improve labor productivity is to find ways to outsource or reduce non-

revenue generating functions. The largest retailers often hire Merchandise Services

Organizations (MSOs) to re-stock various departments in the store. Similarly, many retailers

outsource Point of Sale maintenance and repair to avoid asking in-store personnel to attempt

fixes to in-store technology touch points. As the number of digital touch points in stores continue

to rise, this becomes a continually more viable solution.

Shopper Satisfaction Surveys

Again, a pre-implementation baseline is important, but once that’s done, it’s important to get a

sense of what shoppers like or don’t like about the in-store experience. The best way to

accomplish this is with some kind of exit interviews from selected stores. We believe an in-person

is likely more effective than an emailed survey…as time tends to smooth the edges of a poor

experience.

Market Basket / Average Transaction Value Analysis

Does a new technology result in a larger market basket, or a higher average transaction value?

These answers can be determined after the fact, and today’s high performance computing

platforms can spit out responses far more quickly than those of days gone by. Today’s analytics

can give you a sense of where sales lift has been achieved.

Conversion Rates

This metric is hard to determine unless some kind of traffic counter is in place. It’s not an easy

journey, but it is well worth the price. Plus, people counting software can assist in other ways –

determining if lines at the register are too long, or if anticipated strong promotions are actually

drawing a crowd. Dwell time analysis will help determine if an in-store display is truly interesting

or just worth a passing glance.

22

Participation in Loyalty Programs

Most retailers have some form of loyalty program, but far fewer actually use their programs to

determine the effectiveness of changes they’ve made. These are the customers retailers should

know most about. Does implementation of a new technology increase their purchase frequency?

Does it increase sheer numbers of participants in the program?

Your most loyal customers are also your best source of directional information on their in-store

experience. In this case, email surveys can serve the retailer well. On-line marketplaces are

notable for their post-purchase follow-up. There is every reason in the world to extend this into

store visits as well. A surprisingly small percentage of retailers actually do it today.

We all know that the store is going to exist for a long time to come. The challenge for retailers in

this Reset Moment is to determine how they’re going to create, maintain, and enhance the next

generation in-store experience.

a

Appendix A: RSR’s BOOT MethodologySM

The BOOT MethodologySM

is designed to reveal and prioritize the following:

• Business Challenges – Retailers of all shapes and sizes face significant external challenges. These issues provide a business context for the subject being discussed and drive decision-making across the enterprise.

• Opportunities – Every challenge brings with it a set of opportunities, or ways to change and overcome that challenge. The ways retailers turn business challenges into opportunities often define the difference between Winners and “also-rans.” Within the BOOT, we can also identify opportunities missed – and describe leading edge models we believe drive success.

• Organizational Inhibitors – Even as enterprises find opportunities to overcome their external challenges, they may find internal organizational inhibitors that keep them from executing on their vision. Opportunities can be found to overcome these inhibitors as well. Winning Retailers understand their organizational inhibitors and find creative, effective ways to overcome them.

• Technology Enablers – If a company can overcome its organizational inhibitors it

can use technology as an enabler to take advantage of the opportunities it identifies.

Retail Winners are most adept at judiciously and effectively using these enablers,

often far earlier than their peers.

A graphical depiction of the BOOT MethodologySM

follows:

b

Appendix B: About Our Sponsor

With more retailers focused on providing a seamless customer experience across channels,

managing the resulting influx of new technology becomes challenging. At Xerox, we’re dedicated

to helping retailers achieve success in this new world order, leveraging our assets along with our

years of experience working with the world’s most recognized retailers.

We’re a global leader in enterprise infrastructure management, store support, process

management and contact center solutions, touching more than 48,000 global store fronts and a

level of internal technology expertise that’s difficult to match. Our mission is to help retailers

improve performance, grow revenues and gain a competitive advantage through technology

without taking their focus away from their customers.

Visit us at http://services.xerox.com/ to learn more.

c

Appendix C: About RSR Research

Retail Systems Research (“RSR”) is the only research company run by retailers for the retail

industry. RSR provides insight into business and technology challenges facing the extended retail

industry, providing thought leadership and advice on navigating these challenges for specific

companies and the industry at large. We do this by:

• Identifying information that helps retailers and their trading partners to build more

efficient and profitable businesses;

• Identifying industry issues that solutions providers must address to be relevant in the

extended retail industry;

• Providing insight and analysis about a broad spectrum of issues and trends in the

Extended Retail Industry.

Copyright© 2014 by Retail Systems Research LLC • All rights reserved.

No part of the contents of this document may be reproduced or transmitted in any form or by any means without the permission of the publisher. Contact [email protected] for more information.

what is in store for store? 2014

Retail

provided mobile hardware

shopping experience software

employee facing technologies

traditional pressures rise

extended retail industry

store personalized rewards

sales growth rate

boot methodology sm