It should be closing unproductive stores, expanding and remodeling stores in the best locations, and carefully vetting locations for the few new ones. Under Frank Blake and his successor, Craig Menear, Home Depot has concentrated on refreshing existing stores and catching up on deferred maintenance. Foot Locker has focused on rationalizing the location of its stores, closing some and adding space where it would do the most good.
The extent to which customers can find the products they want at a reasonable price and get help from sales associates as needed is a crucial determinant of whether they buy something or leave a store empty-handed. Many analytics tools are available today that help retailers decide what assortment of products to carry in what quantities, how to price those items, and how many sales associates should work in each store, at what hours.
In it began deploying infrared technology that tracks when customers enter the store and then uses predictive analytics to estimate when they are likely to reach the checkout lanes. This allows Kroger to determine how many lanes need to be operating at any given time in order to meet its exacting wait-time standards.
A large dynamic display informs customers and associates of the current wait time. Since the technology was implemented, average wait time has dropped from four minutes to 26 seconds, and customer satisfaction with checkout has improved significantly. Initiatives such as this one have helped Kroger achieve more than 50 straight quarters of positive increases in comparable store sales. Retailers seeking improved sales at existing stores often develop new products to boost revenues.
To do so effectively, they need highly disciplined methods for identifying and testing potential offerings.
The retailer first identifies market-brand items that are performing poorly and examines customer complaint data to see how the products could be improved. It then develops private-label products—for example, Hampton Bay ceiling fans, Husky tools, and Glacier Bay toilets—and continually refines them to improve quality and lower costs. Instead of using the cost savings to boost gross margin on the products, it often passes the savings on to customers in the form of lower prices. That drives more sales at existing stores and takes share from competitors.
If a new private-label product consistently gets a 3 out of 5 or lower in customer ratings or fails to take significant share from the branded item, Home Depot kills it. The effectiveness of your sales force depends on whom you hire, how you train them, what technology you deploy to make them more effective, and how you staff each department in each store during each hour of the day. It all starts with hiring the right people. Ken Hicks told us that all Foot Locker applicants take an online test that measures their disposition toward selling and their fit with the Foot Locker culture.
The company refined the test over time by giving it to current associates and correlating the results with their actual productivity. Company data shows that people hired after the program was put in place in had higher sales per hour and stayed with the company longer than people who had not been hired through the program. Foot Locker also optimizes productivity by assigning the associates with the highest sales per hour to work the most important shifts.
Training is also a critical piece of the puzzle. Another common way to improve the performance of salespeople is to remove non-value-added work from their responsibilities so that they can devote more time to helping customers. An exemplar here is Foot Locker. In most shoe stores, sales associates make many trips to the back room to check on product availability and retrieve items that customers want to try on. Those trips consume precious time, and many impatient customers leave without making a purchase.
Most brick-and-mortar retailers would be happier if the internet, which made online shopping possible, had never been invented. But smart retailers understand that a strong omnichannel strategy can increase overall sales by giving customers additional ways to gather information, make purchases, and receive products.
For example, allowing customers to buy products online and pick them up in a store not only enhances online sales but also boosts store sales. Retailers also benefit from the opportunity to fulfill online orders with inventory in stores. This can help them avoid markdowns on overstocked items and minimize the need to expand distribution center capacity during seasonal buying surges.
Omnichannel retailers can also increase sales by optimizing their distribution networks to speed up order fulfillment. The gross margin on the additional sales was more than enough to cover the cost of adding a distribution center. One retailer that understands this is Home Depot.
It recently replaced two older direct-fulfillment centers with three new ones. The location of these centers and the stocking strategies and operational processes they use have been optimized for faster delivery to customers. Home Depot has also improved the accuracy of lead-time information provided to customers. Previously, it would tell all customers in all zip codes that delivery for a given item would be in the range of seven to nine days.
Now it provides customized delivery times that can be as short as two days. Things like your return policy, acceptance of credit cards, and store hours need to be continually monitored and revised to enhance sales. The good news about mature retailers is that they generate a lot of cash, which can be used to fund the types of operations-improvement projects described above.
The challenge is making sure that the available capital is allocated to the most promising initiatives. What is the future of retail in a post-pandemic world and beyond? As we emerge from the global pandemic, retail is growing at levels not seen in over 15 years. Retail sales grew an estimated 6. Physical locations remain pivotal, especially now that a significant proportion of ecommerce orders are fulfilled by stores. Successful retailers are reimagining their offerings to meet consumers both online and in-store, creating an integrated experience that blends channels.
Retailers are driving this transformation through innovative thinking and smart investments that improve the customer experience regardless of how they want to shop. Digital marketplaces are helping the industry grow, particularly small and medium sized retailers. A glut of vacancies has left landlords more desperate to fill space and sign deals they wouldn't have ever considered pre-pandemic. Playing catch up has everyone in a hurry up. Ulta Beauty is planning to open about 40 net new stores in Its plans call for 11 locations to be remodeled and 10 to be relocated.
When the Covid pandemic hit, store openings that were slated for were postponed, Ulta's management team told analysts during a conference call in early March.
And as a result, many of the openings now planned for are expected to happen during the first quarter, it said. Beginning in the second half of this year, Ulta is also rolling out a smaller version of its store in more than Target locations. LVMH-owned Sephora says it plans to open more than 60 freestanding stores this year, the majority of which won't be in malls. Separately, the beauty business is on track to open some pint-sized shops within Kohl's locations this fall, which will ramp up to more than sites by Its store strategy is focused on reducing its exposure to suburban malls and getting closer to customers in other ways.
As it moves into Kohl's, it's ending a years-long relationship with the department store chain J. Make-up sales have been walloped during the pandemic, with more consumers embracing a low-maintenance and casual lifestyle, but Sephora is betting that demand for cosmetics will come back strong. Burlington Stores is plotting 75 net new stores for The off-price retailer's plans include opening about new locations, while closing or relocating During a call with analysts in March, management said it had shifted 18 store openings planned for into this year due to the pandemic.
About a third of this year's openings will be a smaller-format Burlington is piloting. These will be about 25, square feet versus the typical 50, to 80, square feet. Amy rejects a couple of items immediately, toggles to another browser tab to research customer reviews and prices, finds better deals on several items at another retailer, and orders them. She buys one item from Danella online and then drives to the Danella store near her for the in-stock items she wants to try on.
As Amy enters Danella, a sales associate greets her by name and walks her to a dressing room stocked with her online selections—plus some matching shoes and a cocktail dress. The sales associate quickly offers to match the price, and encourages Amy to try on the dress. It is daring and expensive, so Amy sends a video to three stylish friends, asking for their opinion. The responses come quickly: three thumbs down. As she heads for the door, a life-size screen recognizes her and shows a special offer on an irresistible summer-weight top.
Amy checks her budget online, smiles, and uses her phone to scan the customized Quick Response code on the screen. The item will be shipped to her home overnight.
All the technology Amy uses is already available—and within five years, much of it will be ubiquitous. But what seems like a dream come true for the shopper—an abundance of information, near-perfect price transparency, a parade of special deals—is already feeling more like a nightmare for many retailers.
Every 50 years or so, retailing undergoes this kind of disruption. A century and a half ago, the growth of big cities and the rise of railroad networks made possible the modern department store. Mass-produced automobiles came along 50 years later, and soon shopping malls lined with specialty retailers were dotting the newly forming suburbs and challenging the city-based department stores.
Retailers relying on earlier formats either adapt or die out as the new ones pull volume from their stores and make the remaining volume less profitable. Like most disruptions, digital retail technology got off to a shaky start. A bevy of internet-based retailers in the s—Amazon. These fledgling companies ran wild until a combination of ill-conceived strategies, speculative gambles, and a slowing economy burst the dot-com bubble.
Today, however, that economic reality is well established. Moreover, much digital retailing is now highly profitable. What we are seeing today is only the beginning. Soon it will be hard even to define e-commerce, let alone measure it.
Is it an e-commerce sale if the customer goes to a store, finds that the product is out of stock, and uses an in-store terminal to have another location ship it to her home? What if the customer is shopping in one store, uses his smartphone to find a lower price at another, and then orders it electronically for in-store pickup?
How about gifts that are ordered from a website but exchanged at a local store? Unless conventional merchants adopt an entirely new perspective—one that allows them to integrate disparate channels into a single seamless omnichannel experience—they are likely to be swept away.
Why will digital retailing continue to grow so fast? Anyone who has shopped extensively online knows at least part of the answer. The selection is vast yet remarkably easy to search. The prices are good and easily compared. Half of online purchases are delivered free to U. Many returns are free as well. Product reviews and recommendations are extensive. Little wonder that the average American Customer Satisfaction Index score for online retailers such as Amazon 87 points is 11 points higher than the average for physical discount and department stores.
The advantages of digital retailing are increasing as innovations flood the market. For instance, Amazon has already earned valuable patents on keystone innovations such as 1-Click checkout and an online system that allows consumers to exchange unwanted gifts even before receiving them.
Digital retailers drive innovation by spending heavily on recruiting, wages, and bonuses to attract and retain top technical talent. They were also among the first to utilize cloud computing which dramatically lowers entry and operating costs and to enhance marketing efficiency through social networks and online advertising. Customers are out in front of this omnichannel revolution. Meanwhile, traditional retailers are lagging badly.
Nor are traditional retailers pioneering digital innovations in other channels, such as mobile shopping and call centers, or seamlessly integrating these technologies in their most important channel—physical stores.
As a consultant, I often walk through stores with senior retail leaders whose knowledge of physical retailing is impressive: They know precisely where a fixture should be, exactly how lighting is likely to affect sales, and which colors work best in which departments. As a group, however, they are shockingly subpar in computer literacy. Some retail executives still rely on their assistants to print out e-mails. Some admit that they have never bought anything online.
Technophobic culture permeates many great retail organizations. Their IT systems are often old and clunky, and knowledgeable young computer geeks shun them as places to work. Online competition increases predictably as online prices, selection, convenience, and customer trust improve relative to physical stores.
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