The 2012 Retail Store: In Transition 2012 Benchmark Report

Paula Rosenblum and Steve Rowen, Managing Partners May 2012

Executive Summary
Even as retailers struggle to improve the in-store customer experience and combat the phenomenon known as “showrooming”, it has also become apparent that the land-based channel isn’t going away any time soon. Until computing can offer the tactile and immediate satisfaction of a store visit, a majority of consumers will continue to consummate their purchases there. And until some retailer cracks the code on grocery home delivery, supermarkets will remain consistent destinations. In any case, customers need stores as part of their path to purchase. This leaves us with a fundamental question: How can technology, which has been a mixed blessing for land-based retailers, support the next generation of retail stores? Retailers have been pretty consistent in RSR’s annual store technology benchmark surveys: in-store technologies are critical to maintaining and improving the customer experience by putting actionable information into the hands of managers, educating and empowering employees, and controlling costs. This year, however, we’ve seen some dramatic differences in the point of view of sales over-achievers (who RSR call “Retail Winners”) and their underperforming counterparts (who we call “Laggards”). Overall, Retail Winners are far more interested in improving their in-store workforce than laggards, who look to instore technologies to help them gain new customers, but seem challenged to understand exactly how that will occur. Business Challenges Retail Winners have a very different perception of the business challenges they face than laggards. They are most often concerned about their keeping their own houses in order: improving store execution and employee productivity. Laggards are much more fixated on the competition. They are overwhelmingly troubled over consumer price sensitivity, since they have a hard time finding other ways to differentiate from their competitors. Lack of technology investments in the store, particularly in a modern POS system, also hamstrings Laggards far more than their retail peers. Opportunities When describing RSR’s “BOOT” methodology, we always talk about “Opportunities” as the way an enterprise can turn lemons into lemonade. So it’s logical that Retail Winners who are most concerned about consistency and execution, would look at ways to improve that consistency and execution as their greatest opportunities. And it is so. Retail Winners overwhelmingly cite educating and empowering employees using technology as a top-three opportunity, along with improving customer service by making corporate inventory visible (and saleable) to all stores. Laggards know they want to make the in-store experience more convenient, but haven’t quite settled on ways to do so beyond finding more interesting products to sell. Organizational Inhibitors In RSR’s view, the lack of a wireless infrastructure on the selling floor in more than half our respondents’ stores is the single biggest inhibitor to improving the in-store experience. However, the ability to take data gathered from stores in near real-time and turn it into actionable information is another significant liability for laggards. And because the store is no longer an island, the tangle of back office technologies has become the top self-identified internal inhibitor to moving forward with new capabilities. There’s general agreement among respondents that pilot programs and smaller projects with quicker ROI are good ways to get moving. There is also general agreement that retailers don’t have a lot of choice – the customer is demanding a better experience.

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Technology Enablers Depending on current performance levels, retailers have different views of the potential for technologies to deliver value to the store. Laggards still focus on self-service touch points, while winners are moving on: they look to technologies like cross-channel inventory and customer synchronization, and better employee scheduling tools to support customer-centricity. While current technologies in use are staples like in-store rewards and coupons, the future seems bright for technologies that deliver information to store and customer-owned devices, and of course, more cross-channel synchronization. BOOTstrap Recommendations First and foremost, it’s important to recognize the activities stores perform as a new node in the retail supply chain. Stores really should be compensated for filling orders placed through other channels. Why else would they do it quickly and efficiently? Self-service options are useful, but must be only a part of a total plan that includes educated and empowered employees and managers on the selling floor or doing prioritized scheduled tasks that create a better customer experience. A modern POS is st critical for the 21 century store, as is a wireless infrastructure on the selling floor – most especially for managers and employees, but ideally for customers as well. Customers will be more likely to check with their friends on the “look” of an item than they will to price check with other locations.

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Table of Contents
Executive Summary .......................................................................................................................... ii Business Challenges ................................................................................................................. ii Opportunities ............................................................................................................................. ii Organizational Inhibitors............................................................................................................ ii Technology Enablers................................................................................................................ iii BOOTstrap Recommendations ................................................................................................ iii Table of Contents ............................................................................................................................ iv Figures .............................................................................................................................................. v Research Overview ......................................................................................................................... 1 Why This Study Was Conducted ................................................................................................. 1 Defining Winners and Why They Win, and Why Laggards Fail ................................................... 2 How Winners and Laggards View In-store Technologies ............................................................ 2 Mobility: Source and Solution ...................................................................................................... 3 RSR’s BOOT Methodology .......................................................................................................... 4 Survey Respondent Characteristics ............................................................................................ 4 Business Challenges ....................................................................................................................... 6 Laggards and Winners with Very Different Points of View .......................................................... 6 Concerns about Out-of Stocks and Competitive Pricing and Differentiation ........................... 7 Investing in Store Associates ....................................................................................................... 7 The Point-of-Sale Story................................................................................................................ 8 Opportunities ................................................................................................................................... 9 The Make or Break Factor ........................................................................................................... 9 Winners Walk the Walk .............................................................................................................. 10 Further Customer Enablement................................................................................................... 11 Organizational Inhibitors ................................................................................................................ 12 Frozen In Time: Whatever Happened to Wireless in the Store? .............................................. 12 …and Speaking of Persistent Broadband Connectivity ............................................................. 12 Can’t Process the Data through Antiquated Systems ............................................................... 13 Pilots, Smaller Projects, and Accepting the Inevitable .............................................................. 14 Technology Enablers ..................................................................................................................... 16 In a Changing World, Retail Winners Look to Different Tools ................................................... 16 Larger Retailers Still Hold Out Hope for Customer Self-service ................................................ 17 So What’s Actually In Use? Who’s Doing What with Technology? .......................................... 17 BOOTstrap Recommendations ..................................................................................................... 19 The Store as a Supply Chain Node: Compensate Accordingly ................................................. 19 Self-service Options are Useful Tools, but Not Your Only One ................................................. 19 Follow the Lead of Retail Winners: Nurture the Employee Asset .............................................. 19 Don’t be Ham-strung by an Antiquated Back Office System ..................................................... 19 The POS Refresh: If You Haven’t Done it Already, Now’s the Time ......................................... 19 Wireless in the Store: It’s Time, Even Past Time to Get it Done .............................................. 19 Appendix A: RSR’s Research Methodology .................................................................................... a Appendix B: About RSR Research .................................................................................................. b

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Figures
Figure 1: Technology the Key to Customer-Centricity..................................................................... 1 Figure 2: Winners Well Ahead in Store Manager Mobility ............................................................... 3 Figure 3: Different Lens, Different Picture ....................................................................................... 6 Figure 4: Winners Investing in their Workforce ............................................................................... 7 Figure 5: Slow but Steady Progress ................................................................................................ 8 Figure 6: It’s All about Employees ................................................................................................... 9 Figure 7: Investment Backs Belief ................................................................................................. 10 Figure 8: Strange Brew .................................................................................................................. 11 Figure 9: A Dearth of Wireless Availability in Stores ..................................................................... 12 Figure 10: Data Processing: Time to Process Varies with Performance ...................................... 13 Figure 11: The Store as a Part of the Whole Technology Infrastructure ....................................... 14 Figure 12: Start Small…then Go Big ............................................................................................. 15 Figure 13: Differing Points of View on Potential Value .................................................................. 16 Figure 14: Larger Retailers More Bullish on Potential of Customer Self-service .......................... 17 Figure 15: Technology Usage, Existing and Planned ................................................................... 18

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Research Overview
Why This Study Was Conducted
Consumers no longer use stores in any kind of predictable fashion. Just a few years ago, operating a retail store, while fraught with its own unique challenges, was about competing with other stores. For as long as products have been bought and sold, buyers needed to visit physical locations to obtain the goods required to fulfill their specific needs. Questions were relatively simple: Were the prices, selection, or service across town better or worse? On the retailer’s side there were also fewer questions to answer. Abnormalities in sales and store performance sent retailers looking at macro-economic and seasonal trends, and then to take a look at what competitors were doing. Finally, they’d look within, and examine their own store operations. If shoppers weren’t buying in your store, you could generally be assured they were buying in someone else’s; perform a bit of competitive research and you’d have some good ideas on how to adjust accordingly. Today, however, all of that has changed. For most retailers, competition comes from places they don’t even know about, and often for reasons they can’t easily understand. Thanks to the internet and mobile technologies’ ability to put the global marketplace in the hands of virtually any consumer at all times, it is very difficult to gauge not only who and where your competitor is, but what makes them a competitor in the first place. What component of the retail experience does a specific customer care most about in at any given moment? In fact, what motivates one customer to take the time and effort to visit a physical store is likely to be very different from that of the next customer coming through the door. Consumer expectations are very different than they once were. Technology is, of course, part of the in-store experience, and we therefore ask retailers to self-identify the top uses of technology in their stores today (Figure 1).

Figure 1: Technology the Key to Customer-Centricity What are the TOP THREE (3) uses of in-store technologies?
2012
Maintain and/or improve the customer experience Put actionable information into the hands of managers Help the company win new customers and retain current customers Increase revenue while holding down operational costs Create competitive advantage and new sources of revenue generation Make our employees “smarter” and better informed React quickly to changes in the business environment We view in-store technologies as “utilities” like light and heat: it’s just part of the cost of doing business Help us keep up with the competition (avoid competitive disadvantage)

2011 52% 32% 29% 43% 41% 41% 39% 30% 26% 29% 24% 26% 14% 8% 10% 20%
Source: RSR Research, May 2012

69%

51%

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While technology’s ability to help maintain/improve the customer experience and increase revenue while holding down operational costs remains of utmost importance, retailers increasingly recognize that technology also provides a chance to arm their managers with actionable information (up from 32% to 43% this year). At first glance, we were disappointed to see the number of retailers citing technology’s ability to make their employees smarter and better-informed drop off so drastically: but when digging into the response pool, we see that this is really a story influenced by retailer performance: • 50% of high-performing retailers agree that new in-store technologies can help improve their workforce, compared to only 6% of underperformers

It is also worth noting that the drastic increase in retailers citing technology’s ability to help them win new customers (41% in 2012, up from just 29% one year ago) is largely driven by under-performers (56% vs. 35% of over-performers).

Defining Winners and Why They Win, and Why Laggards Fail
At this point, it seems appropriate to introduce RSR’s concept of Retail Winners. Our definition of Retail Winners is straightforward. We classify retailers based on their year-over-year comparable store/channel sales improvements. Assuming industry average comparable store/ channel sales growth of three percent in 2011, 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.” Why do these comparisons matter? It turns out that over-performance is more than an accident of selling more stuff. RSR’s research findings consistently show that Winners don’t merely do the same things better, they tend to do different things. They think differently. They plan differently. They respond differently. Laggards also tend to think differently. They may have spectacular vision, but often fail on execution. They may forget the power and breadth of choices today’s customer has. They fail to re-invent themselves when it becomes obvious their existing business model is no longer working. They don’t change their business processes in an effective manner, and so they either eschew technology enablers, or don’t gain expected Return on Investment on those they DO buy. In good times, they skate by: in tough times these weaknesses come back to haunt them.

How Winners and Laggards View In-store Technologies
The behind-the-scenes data from Figure 1 appears to be a classic case of laggards’ blind optimism: they do not know what technologies would best serve customers in their stores, but assume any technology must be better than what they have now. They grasp at straws, and without understanding the new consumer’s mindset, can easily find themselves implementing technologies which bring little value-add to the shopping experience. You have to understand the problem before you design a solution to it. And then architect a step-wise approach to reach that solution. We will examine the specific technologies retailers believe will help them facilitate a better instore experience in the Technology Enablers section of this report, but as you will see in the coming pages, Winners have very different technology priorities.

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Winners prize technologies that provide insight into the modern consumer: who she is, what she’s trying to accomplish, and how the retailer can be of service to her while she’s in the store. Laggards are more likely to look sideways first – at their competitors.

Mobility: Source and Solution
For many retailers, the lopsided nature of the customer-store technology balance has resulted in countless missed opportunities to be of real value: too many customers have become conditioned to the phone in their purses being more helpful than anyone with a nametag in the store. Mobile technologies in the hands of consumers are exactly what have put stores in the pickle they’re currently in; arming those working in stores with the same technologies equals the odds and gives them a fighting chance to be able to converse with the new consumer at her level. As always, those whose sales are outperforming their competitors’ are doing so for a reason. Retail Winners understand that mobile technologies play a vital role in returning the store to relevance at a much higher rate than do their underperforming competitors. As we’ve already seen, Winners value improved “people power” more highly, and the 36% of Winners who have had mobile touch-points in store managers’ hands for longer than a year (vs. the 0% of laggards, Figure 2), clearly understand that the store manager’s proper role is to be a brand advocate – out on the floor, overseeing employees, helping with customer service – not tethered to a PC in the back room mapping out employees’ work schedules. The staggering 46% of laggards who report no plans to give store managers mobile access are missing a vital opportunity to improve overall store performance.

Figure 2: Winners Well Ahead in Store Manager Mobility How long has your company been actively involved in adding MOBILE technology-enabled touch-points for STORE MANAGERS within your store?
Winners Average Laggards 36%

Longer than 1 Year Budgeted project Less than 1 Year No plans Project planned, not yet budgeted

0% 9%

22% 21% 23% 21% 14% 7% 8% 26% 23% 26%

46%

17%
Source: RSR Research, May 2012

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RSR’s BOOT Methodology
RSR uses its own model, called the “BOOT,” to analyze Retail Industry issues. We build this model with our survey instruments. Appendix A contains a full explanation of the methodology. 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 model 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 February – April 2012 and received answers from 72 qualified retail respondents. Respondent demographics are as follows: • Job Title: Senior Management (e.g., CEO, CFO, COO, CIO) Vice President Director/Manager Internal Consultant Staff/Other 20% 11% 48% 14% 7%

2010 Revenue ($ Equivalent): Less than $50 million $51 million - $999 million $1 billion - $5 billion More than $5 billion 29% 27% 34% 10%

Year-Over-Year Comparable Overall Sales Growth Rates (assume average growth of 6%): Worse than average (laggards) Average Better than average (Winners) 28% 42% 31%

Headquarters: USA Canada Latin America UK Europe Middle East Africa Asia/Pacific 66% 7% 0% 3% 12% 2% 5% 5%

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Functional Responsibility: Channel Management Merchandise Management Store Operations IT Finance Logistics/Supply Chain HR 5% 9% 26% 30% 5% 2% 5%

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Business Challenges
Laggards and Winners with Very Different Points of View
The differences between Winners and laggards are sharply evident in Figure 3: When it comes to their stores, the two groups are not even facing the same set of business challenges.

Figure 3: Different Lens, Different Picture Please select the TOP THREE (3) business challenges you face in your retail stores:
Winners
Need for more consistent store execution/employee productivity Need to improve customer service while holding the line on payroll costs Store managers lack information they need on the selling floor – too much time spent in the back room Lost sales due to store out of stocks Customer dissatisfaction caused by lack of integration between the store and other selling channels Price is re-emerging as an important customer concern Difficulty differentiating ourselves from our competitors Need to reduce shrink Consumers know competitor prices for the same products Need to control and streamline the returns and exchange process Consumer complaints about their in-store experience

Laggards 68% 47%

33% 39% 37% 32% 26% 22% 21% 21% 6% 16% 16% 0% 5% 5% 11% 28% 50%

17% 11%

78%

Source: RSR Research, May 2012

Winners recognize their employees need help. But they also recognize the challenge isn’t just in giving their associates access to more product information; it’s in getting more out of them all the way around. People come to stores for a reason, and improving store execution and making it more consistent – coupled with the ability to make better use of associates’ time during off-peak hours – is Winners’ top challenge (68%, Figure 3). As expected, Winners are also more sensitive to out-of-stocks and the unnecessary time their store managers spend in the back room. For laggards, however, these issues take a back seat to competitive concerns. To them, customer price-sensitivity has become all-encompassing. We saw this in our recent pricing study, where laggards have pre-determined that price has re-emerged as an important concern to customers, without any substantial evidence to support their theory. From our 2012 Retail Pricing Benchmark report:

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“Almost twice as many Winners cite consistency in price across channels as a top three business challenge than laggards, while 1/3 more laggards are focused on consumer 1 price sensitivity and increased promotional intensity of competitors”.

Concerns about Out-of Stocks and Competitive Pricing and Differentiation
For the entire response pool, out-of-stocks are more of a challenge this year than last (25% in 2012 vs. 15% in 2011). Retailers’ recent tendency to under-inventory stores - coupled with their reliance on supply chains whose points of origin are thousands of miles away - is not without peril. The largest retailers seem to have the weakest handle on out-of-stocks: 40% of those whose annual sales exceed $5 Billion identify out of stocks as a primary business challenge: for midmarket retailers ($51 - $999 million dollars), that number is only 14%. The smallest retailers are the least sensitive to consumers knowing competitor’s prices (only 18% of retailers under $50 million annually report it as a challenge). For those without the size and leverage to boast low cost pricing, this seems counterintuitive at first. However, assuming these “mom and pops” compete on a service-based business model, this data speaks to a faith in people’s willingness to reward knowledgeable, helpful staff with a slightly higher-cost sale. Nearly twice as many retailers are challenged to differentiate themselves from their competitors in 2012 (29%, vs. 15% in 2011). As products become more readily available, the need for a revitalized store experience only becomes that much more important.

Investing in Store Associates
While payroll-to-sales ratios have normalized recently (after having gone haywire when retailers slashed payroll in the years directly following the Great Recession of 2008-2009), Winners have shown the greatest willingness to put that money back into manning their stores (Figure 4).

Figure 4: Winners Investing in their Workforce Changes to Payroll-to-Sales Ratio Over the Past Three (3) Years
Winners Average Laggards 54% 44% 37% 21% 22% 37% 25% 33% 26%

Increased

Decreased

Remained the same
Source: RSR Research, May 2012

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Retail Pricing in a Post-channel World: Benchmark Report 2012, April 2012 7

Even though sales have stabilized, laggards are still forced to cut or stay steady. It’s particularly interesting that, when viewed by revenue, these payroll-to-sales numbers are heavily influenced by the behaviors of the mid-market retailer ($51-$999 million annually). Thirty-six percent of these retailers have increased their payroll as a percentage of sales, as have 29% of small retailers. They are adding staff faster than they are adding sales in recognition that they must meet the new consumer’s evolving needs.

The Point-of-Sale Story
One prerequisite component to a satisfactory customer store shopping experience is a modern Point-of-Sale (POS) system. And while Figure 5 shows the somewhat glacial adoption from year to year, the real story is in which retailers are leading the charge.

Figure 5: Slow but Steady Progress How Long Have You Had a Modern POS System in Your Stores?
Longer than 1 Year Planned, Not Yet Budgeted Less than 1 Year No Plans Budgeted Project

2012

48%

17%

14%

7%

14%

2011

40%

20%

17%

14%

9%

Source: RSR Research, May 2012

Sixty-two percent of Retail Winners have been using a modern POS for longer than one year: for laggards, that number is only 25%. Winners recognize that if a customer has taken the time and effort to choose your brand, visit your store, browse your inventory and select items to purchase, the absolute last thing you want to do is frustrate her at checkout. Further, new POS systems offer data capture, crosspromotional and “save the sale” opportunities that are vital to navigating the brave new world of channel-less retail. Laggards do seem to be catching on though: 33% have budgeted POS projects for the next 12 months, and mid-market retailers have even greater plans: 38% of retailers in the $51 - $999 million revenue band will be buying POS systems in the coming year.

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Opportunities
The Make or Break Factor
When it comes to the opportunities that arise from the challenges retailers face, Winners again demonstrate their understanding that employees hold the key to an improved store experience.

Figure 6: It’s All about Employees What are the TOP THREE (3) opportunities for improving the in-store experience?
Winners Average Laggards 36% 35% 32% 47% 41% 47% 48% 29% 41% 40% 41% 40% 41% 29% 36% 29% 18% 12% 12% 6% 6% 18% 20% 29% 28% 59% 65%

Educate and empower our in-store employees using technology Provide ability to locate and sell merchandise from anywhere in the company Focus on a more convenient customer experience Find ways to make our employees more productive More personalized attention from our employees Add self-service customer-facing technologies Improve performance reporting to store management It’s all about our product mix. If we build it, they will come. Provide more specific/localized direction to store managers

Source: RSR Research, May 2012

While only 35% of laggards identify the ability to educate and empower in-store employees via new technologies as a means to make the store more alluring to increasingly educated consumers, 65% of Winners cite it as their top opportunity. Data doesn’t speak much more clearly than this: while few retailers’ sales-per-square foot can justify an Apple Store employee model (a supremely knowledgeable associate every which way you turn), the best performers know they must – with whatever means that they have – learn from and emulate it as best they can. Customers expect more from store associates than most currently provide, and those who are already leading in sales are investing in increased employee pre-screening, product training, and for those customer questions which can’t be anticipated – the tools and technologies to access the answers required to save the sale. Digging deeper into the data we yielded the following findings:

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One hundred percent of mega retailers (over $5 billion in annual sales) cite the ability to educate and empower their in-store employees via technology as a top-three opportunity. To them, it has become fundamental to staying relevant. The largest retailers also have an increased appetite for technologies which allow them to locate and sell inventory from anywhere in their company; as retailer size increases, so does the need to treat inventory as a shared resource: using stores as distribution centers, and online inventory for in-store fulfillment. Eighty percent of mega retailers and 47% of those with $1-$5 billion in annual sales cite this as a top-three opportunity, compared to only 24% of small and 31% of mid-sized retailers. Mid-sized retailers are most intrigued with the ability to provide more specific and localized direction to their store managers (46% - second only to their interest in providing a more convenient customer experience). This may be a byproduct of the midmarket’s “growing pains;” they can only scale for growth once they are confident their store managers are properly positioned to do so.

Winners Walk the Walk
It comes as no surprise that Winners aren’t just talking the talk: they have been actively providing their employees with technology-enabled touch points in stores longer than have any of their competitors.

Figure 7: Investment Backs Belief How long has your company been actively involved in adding technology-enabled touch-points for EMPLOYEES in your store?
Winners Average Laggards 64% Longer than 1 Year 31% Less than 1 Year 15% Project planned, not yet budgeted 7% 5% 15% Budgeted project 0% No plans 24% 23%
Source: RSR Research, May 2012

43% 21% 24%

7% 5% 15%

These touch points include computer-based product training, self-service HR, and computerassisted selling tools within the store walls. Winners previously told us that one of their biggest challenges is increasing store consistency and employee productivity: tech-enabled self-serve 10

systems are an effective way to help meet such challenges, made all the more valuable by their opportunity to improve the workforce during “down” times; it is far better to have an associate learning about product features at 3 pm in the absence of shoppers than standing around looking for some menial task to re-perform. The largest retailers have an even higher propensity to use these tools: 100% have utilized selfservice employee touch points for more than a year (compared to only 33% of small retailers).

Further Customer Enablement
While providing employees with knowledge remains the bailiwick of Retail Winners, all retailers have solidified their use of customer-facing technology touch-points this year.

Figure 8: Strange Brew How long has your company been actively involved in adding technology-enabled touch-points for CUSTOMERS in your store?
2012 2011 55% 32% 19% 32% 11% 19% 9% 16% 6% 0%
Source: RSR Research, May 2012

Longer than 1 Year Less than 1 Year Project planned, not yet budgeted No plans Budgeted project

This is an interesting tactic to employ: the customer already has an unparalleled amount of information at her fingertips. She has already tipped the scales in the technology equation, but retailers, in the absence of ubiquitous Wi-Fi in stores (more on that in a moment), see real value in tapping into her tech-savvy nature with touch-point offerings of their own. In some ways, this speaks to retailers’ lack of confidence in their existing workforce: perhaps if the store is full of new tech toys to play with, consumers will be more likely satisfied. However, many of these installations, which include kiosks, price-check scanners, and product recipe displays, are easily replicable on a customer’s own device. With digital signage (which greatly improves a stores’ overall look and feel) serving as the exception, wouldn’t it be cleaner and more cost-effective for retailers to provide these services in a strong, positive engagement with the customer on the device she already knows and loves? Clearly fear of what she might also do on that device stands in their way of moving forward with such opportunities, and it’s now time to discuss what is driving that (already-obsolete) fear.

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Organizational Inhibitors
Frozen In Time: Whatever Happened to Wireless in the Store?
It’s hard to talk about internal challenges that keep retailers from improving the in-store experience without mentioning the elephant in the room – lack of a wireless infrastructure. We fully expected the roll-out of wireless in the store to follow soon after broadband connectivity to the home office was complete. Yet almost a decade after persistent broadband connectivity became ubiquitous, more than half of our respondents still do not have wireless available on the selling floor, either for employees or customers (Figure 10).

Figure 9: A Dearth of Wireless Availability in Stores

Which of the following statements best describes the technology your company uses to support wireless networking in the store?
26% 26% 29% 19%

No wireless network Wireless available only Wireless available Wireless available for customers available in store for receiving and other throughout the store inventory control for performance related tasks management, POS and product related tasks
Source: RSR Research, May 2012

Retail Winners show a slight edge in implementation overall, with 29% reporting wireless available to customers and 36% reporting wireless available to sales associates and managers throughout the store. Yet Winners are also most likely to have no wireless in the store at all (29%). Based on the traffic we saw around mobility vendors’ booths at this year’s NRF show, we can only assume that absent economic calamity, this number will change significantly within the next year. We certainly hope so. Hamstrung sales associates and store managers face over-educated consumers, and absent a wireless signal, customers and guests may choose other locations – not just for “showrooming,” but to ask their friends’ opinions on the items they might like to buy.

…and Speaking of Persistent Broadband Connectivity
We live in a real-time enabled world. TV commercials for mobile carriers say things like “Oh, that was so 29 seconds ago” to illustrate how fast their networks are compared to their competitors. And as we mentioned, research indicates at least 95% of retailers have persistent connectivity to their home offices. Heck, even food truck retailers can process a credit card transaction through applications like “Square” in real-time. 12

But that leads us to the next logical question: What happens to that data once it has been pushed back to the home office? Here, the responses are not so encouraging. While almost all Retail Winners are processing this data in near real-time (whether through “flash” systems or directly into Systems of Record), this capability declines with performance (Figure 11).

Figure 10: Data Processing: Time to Process Varies with Performance

How Does Your Enterprise Process the Data Delivered from Store to Headquarters’ Systems?
Retail Winners Average Performers Laggards 42% 18% 15% 42% 35% 8% 25% Batch updates to all back-office systems 47% 77%
Source: RSR Research, May 2012

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

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

We are most concerned about delivering near real-time actionable information into the hands of those who need it. Winners have made significant progress over the past few years. Clearly it is contributing to their continued high performance.

Can’t Process the Data through Antiquated Systems
There’s no doubt that retailers often turn to data warehouses and appliances to overcome the limitations of their existing transaction processing systems. In fact the data from Figure 11 above clearly illustrate that truism. But it’s also true that in-store technologies can’t be an island anymore. The store is now implicitly part of the supply chain, deeply involved in processes like “buy on-line, pick-up in store” and distributed order management or inventory as a shared resource. And so this year, for the first time in our store report’s four year history, we find the existing technology infrastructure taking its place as the most frequently cited inhibitor to moving forward to new store technology initiatives. This problem narrowly trumps challenges to prove ROI and last year’s biggest issue: just getting the working capital to do the project (Figure 12).

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Figure 11: The Store as a Part of the Whole Technology Infrastructure

Top Three (3) Organizational Inhibitors
2012 The existing technology/infrastructure is preventing us from moving forward with new solutions Hard to quantify technology return on investment Overall Capital Requirements – we never even get to the subject of ROI We are trying to simplify our in-store technology, not make it more complex We’re conflicted as to whether new technologies will be tools or distractions We generally don’t want to be an early adopter of new technologies The TCO of in-store technologies makes it hard to justify many of the newer technologies Management believes stores should be able to just “do what we tell them”
12% 24% 20% 20% 22% Source: RSR Research, May 2012 15% 39% 40% 35% 32% 29%

2011

2010
49% 50% 59%

55% 54%

66% 61%

39% 43%

32% 28%

We also added a new response option this year and found it resonated with almost 30% of respondents. Specifically, we wanted retail opinion on this: As we add technologies into the store, will they actually help improve customer service, or are they just bright shiny objects that will serve as distractions? It’s a fair concern, really. In an era of rapid technology change, and very short customer and employee attention spans, what technologies will really stick? What will actually add to our portfolios? Ironically, Retail Winners are the most concerned about this issue, with 43% reporting it a top-three concern, vs. only 14% of laggards. They (Winners) have the money to spend, but may not have to time to waste on costly distractions that might get in the way of existing success.

Pilots, Smaller Projects, and Accepting the Inevitable
Winners and laggards are relatively consistent in both their overall notion of their internal challenges and the ways they believe those challenges can be overcome. The notion of in-store pilots is a standard for most of our retail respondents. Laggards are more prone to start with smaller projects to prove the ROI, and half of Retail Winners agree. More than half of all respondents generally agree that where the customers go, they must follow. When the customer demands something, they have no choice. Winners are slightly more likely to ask for client success stories from vendors, or to use Managed Services to help reduce distractions in the store and cut costs. But as we can see from Figure 13, there’s a lot of concurrence among retailers of all types to start small and then go big.

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Figure 12: Start Small…then Go Big

Top Three (3) Ways to Overcome the Inhibitors You Identified
Retail Winners Pilot programs in specific stores or regions Start with smaller projects, buying basic system functions, and using ROI to drive additional… The customer is demanding it – we have no choice Asking vendors to provide success stories and references Merchandising vendor funding for in-store projects Managed services Gain sharing programs with vendors 7% 14% 14% 14%
Source: RSR Research, May 2012

Laggards 71% 57% 57% 21% 21% 21%

79%

71% 64%

14%

But what are the specifics? What are the technologies retailers believe have value to the in-store customer experience, and which ones have they brought to the forefront of their budget processes?

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Technology Enablers
In a Changing World, Retail Winners Look to Different Tools
The early 2000’s brought an array of self-service technologies into the store. In many ways, it was a financial analyst’s dream: remove payroll and its associated financial and human resource issues, and replace it with self-service tools instead. After all, consumers were using pure selfservice when shopping on the web and it appeared as though airline travelers were embracing self-service tools as quickly as the airlines could roll them out. To be fair, some of these technologies have proven very useful. Automated price check machines located in mass merchant and department store aisles eliminate a lot of wait time, looking for employees who might be standing at cash registers. And for the most part, if you’re in a hurry at a home improvement or grocery store, zipping through a self-checkout aisle might be a better choice than waiting for a poorly trained clerk to ring up sales on the express line. But as an industry, we overstated the value of self-service technologies. As the web became ever-more convenient, the in-store experience became ever more frustrating, The reality that the airlines were not creating anything like a customer-friendly experience sank in, and, as we pointed out earlier in this report, retailers started putting payroll back into the stores We now see payroll to sales ratios stabilizing, and we see the technologies retailers perceive as high value changing as well. Winners have dramatically changed their points of view (Figure 14).

Figure 13: Differing Points of View on Potential Value

Top Five (5) Technologies with the Potential to Deliver Value in the Store
Retail Winners
Cross-channel customer and inventory synchronization Customer facing self-service touch points in the store Deliver information to store-owned devices Modern POS Hardware and Software Distributed Order Management Deliver information to customer-owned devices In-store rewards and/or coupons Employee selling tools on the sales floor Software that schedules the right mix of labor Software to assign actions in response to underperforming KPIs Personal scanners, self-service scales, product information… KPIs and alerts to store managers on mobile devices and tablets Dual displays at POS

Laggards 53% 56% 31% 29% 38% 31% 29% 6% 24% 18% 12% 13% 12% 6% 19%
Source: RSR Research, May 2012

69% 77%

53% 50% 47% 71% 44% 50%

25% 35% 31%

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Laggards still generally seem to hold out hope for technologies from that era. By a wide plurality they are more likely to cite new customer-facing self-service touch points as having potential to deliver value. Seventy-one percent believe in store rewards and coupons still hold great potential (vs. only 6% of retail winners), and they still eagerly hope that personal scanners and self-service scales will help drive more customer value. Winners see things differently. They are extremely bullish on cross-channel synchronization, employee selling tools and software that improve their labor scheduling capabilities as critical to their success. They want to bring KPI’s and alerts to their newly mobile store managers. They recognize, more than their peers that the world has changed again.

Larger Retailers Still Hold Out Hope for Customer Self-service
Interestingly, the larger the retailer, the more he is likely to believe customer self-service touch points have potential value in the store (Figure 15).

Figure 14: Larger Retailers More Bullish on Potential of Customer Self-service

Customer Self-service Touch Points. Do they Enhance the Customer Experience in the Store?
Potentially Actually 80% 68% 47% 31% 42% 22% 29% 20%

Less than $50 million

$51 million - $999 million

$1Billion to $5 Billion

Over $5 Billion
Source: RSR Research, May 2012

In many ways, this makes sense, particularly for large retailers with a large store footprint. We used price check machines as one example of a self-service technology “with legs”. We can envision others that may not yet be ready for prime time (smart fitting rooms, augmented reality product images, etc.) but as we can see above, very few of those technologies have actually driven any actual value into the store.

So What’s Actually In Use? Who’s Doing What with Technology?
Now that we’ve looked at what retailers perceive as valuable and the technologies they have actually gained value from, where do we go from here? What are retailers actually using, and what are they planning to at least try? Ironically, the technology that is most frequently in use is one whose value has already been extracted: in-store rewards and coupons, while the ones most frequently on retailers’ to-do lists are the newest – potential seems clear, results, unknown (Figure 16).

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Figure 15: Technology Usage, Existing and Planned

How Long has Your Company Used the Following Technologies in the Store?
Installed Budgeted or Planned 51% 45% 39% 38% 38% 27% 26% 24% 21% 35% 53% 53% 40% No Plans 30% 36% 39% 40% 50% 19% 19% 21% 21% 12% 21%

In-store rewards and/or coupons Software that schedules the right mix of labor Deliver information to customer-owned cell phones, tablets and PDAs Distributed Order Management Cross-channel customer and inventory synchronization Deliver information to store-owned cell phones, tablets and PDAs Self-check-out Software to assign actions in response to underperforming KPIs

Source: RSR Research, May 2012

We expect that in-store rewards and coupons will indeed live on, but delivered to store and customer-owned cell phones, tablets and PDA’s. We can also see huge potential in distributed order management – an application that has already delivered “telephone number sized” results to retailers in the form of saving what would have been a lost sale, and allowing retailers to reduce their overall pool of inventory significantly. Labor scheduling and task management have already added value to the enterprise, and as retailers continue to refine and tweak the amount of labor they put into their stores, we can expect these applications to become more valuable in maximizing the customer-facing utilization of that labor force while meeting the promise of having the right product on the shelf at the right time. Self-checkout has proven to be of some value (as mentioned earlier). We don’t expect it to “go away,” but given the changing times, we also don’t expect it to be adopted in as many segments as we originally expected. It may very well be usurped (even before its arrival) by mobile POS in department stores and other apparel retailers.

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BOOTstrap Recommendations
The Store as a Supply Chain Node: Compensate Accordingly
RSR has a core belief: people do what they are paid to do. As the store becomes a fulfillment center for other retail channels, it serves retailers to compensate personnel accordingly. We were rather surprised to find almost two-thirds of respondents do not give stores credit for sales initiated in other channels. This number has barely moved since last year’s benchmark and doesn’t bode well for retailers who are relying on stores to help alleviate potential out-of-stocks and improve customer service in a timely fashion. Double bookkeeping can be complicated, but there is ample precedence for doing so: pre-internet catalog/store retailers followed this practice. It really is appropriate for today’s world too.

Self-service Options are Useful Tools, but Not Your Only One
It’s time to recognize that self-service is not the be-all and end-all we once hoped/thought it was. While self-checkout and automated price checks are useful options for consumers, they can never replace the interaction with an educated and empowered employee or store manager. We certainly are not among those who say “throw it out”…self-service can be a real time saver for customers, But a differentiated in-store experience really does start with an empowered employee.

Follow the Lead of Retail Winners: Nurture the Employee Asset
We’ve seen through this benchmark that over-performers really do think of their employees differently than their competitors. The employee is the in-store brand ambassador. It serves retailers well to invest in technologies that both educate these employees, help schedule their time in the most productive fashion, and insure the tasks they are given actually get done.

Don’t be Ham-strung by an Antiquated Back Office System
Many of us have batch-oriented systems of record, and most of us have persistent broadband connectivity to our stores too. Instead of letting store-gathered data languish overnight, consider implementing a data warehouse to provide rapid response to issues in the stores. Implementation times are not onerous, and the opportunity should drive ROI in really short order.

The POS Refresh: If You Haven’t Done it Already, Now’s the Time
First of all, we cannot promise that the current generation of POS hardware and software will last as long as the last generation. Times just change too quickly. However, there is no longer time to waste – a modern POS system is the lynchpin to cross-channel connectivity, and concurrent customer satisfaction. So….if you haven’t already done so, it’s time to get that modern system selected and installed.

Wireless in the Store: It’s Time, Even Past Time to Get it Done
Just as a modern POS is the lynchpin for cross-channel connectivity, a wireless infrastructure is the lynchpin to real-time effectiveness. Wireless will get store managers back on the floor, simplify employee-customer interactions, and Wi-fi for customers is becoming important as a tool for customer engagement within the body of the store. Rather than fearing showrooming, it would serve us to welcome customer interactions with friends within and outside the four walls of the store.

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Appendix A: RSR’s Research Methodology
The “BOOT” methodology 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 follows:

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Appendix B: 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© 2012 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 research@rsrresearch.com for more information.

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