Smart retailers learned an important lesson during the economic downturn, one that also will serve them well as they plan long term: Excellence in operations can be an important competitive advantage.
“Store operations issues are always important, but in the unprecedented economic conditions experienced over the last 18 months, these issues became critical to survival,” said Dean Hillier, a partner at the global management consulting firm A.T. Kearney.
A recent report by Kearney, Achieving Excellence in Retail Operations (AERO) Study, examines what retailers are already doing well and identifies significant opportunities for achieving peak performance and lasting results. Among the most interesting insights:
• There are five factors for setting in-stock goals—product gross margin, sales velocity, sales variability, product cost and product value to customers. Retailers that consider all five can reduce out-of-stock rates by 27%.
• Retailers that regularly communicate with store employees about store objectives, goals and store performance and those that recognize high-performing employees have lower turnover rates compared with other retailers.
• The presence of regional managers on site can have a major impact on a store’s stability and responsiveness. The study recommends that regional managers’ time be planned to maximize hands-on interactions.
“Regional managers who get to know and make connections with store employees can increase the overall performance of their stores,” said Hillier, who served as the study leader.
• Retailers are using a variety of techniques to improve planning and control overruns in the areas of construction: Seventy-five percent review actual versus forecasted costs; 63% consider historical construction data; and 56% employ a high-level, top-down approach to construction planning.
• A strategic store planning process can reduce construction cost overruns by more than 25% and improve store development.
• Retailers can streamline operating management procedures and costs with less common tactics. For example, for store supplies, attention to ordering policies and establishing rules, coupled with policies to optimize cleaning schedules and procedures, can reduce expenses.
• A well-tested design smooths the customer experience and reduces both construction and maintenance costs. It is valuable to evaluate how construction build-out costs, including refurbishments and expansion costs, trend over a five-year time period.
• Leading retailers do two things in particular: They deploy a rigorous bottom-up approach to store planning, and they tie store-planning metrics to the team’s performance evaluation.
• Piloting new initiatives in representative stores before rollout increases the ability to make longer-term changes “stick” throughout the entire store network. Retailers that consistently pilot the majority of new store initiatives and then selectively roll out just one or two per quarter enjoy the highest compliance rate across their store networks.
The study makes clear that when it comes to operational excellence, there is no substitute for good planning, finely honed tools and careful measurement. Retail is still about the details.