"You Want the Truth? You Can't Handle the Truth!" (Jack Nicholson - 'A Few Good Men')
December 1, 2016
Editor's Note: Part 3 of my undercover work at a big box retailer. Read on and enjoy. As always, you can find all my blog posts from 2013 to the present on my website at http://stevemarshallassociates.com/steves-blog/
The Report Card
Now that you are all experts in retailing, especially in the Big Box marketplace arena, here is a synopsis of the report I provided to management. If you grow weary of reading at this point, I can provide you with a "spoiler alert" preview of the bottom line - the final report was not well received by management!
Now, if you are still with me, let's take the success factors I outlined last week and let you take a look at them by the grade I gave each of them.
1. Store Factors - "C+" Let's face it; most big box stores are very dull in their interior accouterments. The two stores I studied, although 26 years apart in their construction, were no exception and, if anything, they were both very plain. The net result was that, if they are assuming that (a) people know what they want and (b) don't want to spend any more time than is necessary in this store, then they succeeded.
2. Service Factors - "D-" Here's where lack of employee engagement plays a significant role; I was told that annual employee surveys were done at each and every store in the chain and employee engagement always measured in the 85% range! This statistic was a big surprise to me as it ran contrary to what I experienced working there and to what Gallup Polls have found since 2000. Gallup's results show that 70% of American workers are disengaged from their work, while only 30% are fired up about what they do to make a living, and none of them work in a big box store. (The VP also quoted me a similarly high rating from the annual customer satisfaction surveys.)
I inquired about the methodology used to ascertain these remarkably positive results and was told that it was administered by the parent company through their website, and, while it was anonymous it had an incentive attached to it for employees filling it out and returning it (online). This was the same methodology used for accumulating customer satisfaction scores; in that case, it was part of every paper receipt that customers received that instructed them to go to the company website to complete a customer satisfaction survey and enter to win a cash prize.
I pointed out the two flaws in these approaches to gathering data. The first was, that, since the survey was sent to each employee by the parent company, then the issue of trust and confidentiality would be in question, and second, the cash incentive would also skew the results.
"Set the Wayback Machine, Sherman."
In the 1980's and into the 90's Reader's Digest and Publisher's Clearing House were enormously successful in selling lots of magazine subscriptions to people by offering them a chance to win anywhere from $10,000 to $1,000,000. And, by the way, if you wanted to order some magazines, too, then, by all means, do so, and, if you were the lucky winner, then Ed McMahon (of Tonight Show fame) could show up at your door with an oversized check for that amount for you!
Even though it was clearly stated in the rules that no purchase was necessary to win, every annual winner had bought some magazines and not a single person that ever won didn't buy any magazines. Several studies after the fact proved that people were strongly motivated to buy subscriptions and linked their probability of winning to those purchases. When asked why by pollsters, the most common response was that people assumed that, if they didn't buy anything, their entry was thrown into a "different pile" before the drawing.
Much the same as the above Reader's Digest example, employees would skew the results of the annual employee engagement survey by making positive statements about the company and their jobs to avoid being thrown into the "different pile" and potentially be under scrutiny for saying negative things about their workplace. For consumers, the same phenomenon would apply; if you said derogatory things about the company, then your entry would be tossed (away) into the "different pile."
(NOTE: Linking the above information to what I observed was very telling and at odds with the company's annual survey of employees and customers, to the point, insofar, that I had to wonder if the surveys were really about the company that I was studying!)
Checking a random sampling of review sites for customer satisfaction (ResellerRatings.com and ConsumerAffairs.com), I found that most customers gave this chain a 1 out of 5 stars for a rating, while Glassdoor (employee review of employers site), 2844 respondents gave them a 3 out of 5. When I pointed these disparities out to the VP, he questioned the validity of these results since they seemed so much in conflict with their surveys. To reinforce my position, I recounted the Reader's Digest and Publisher's Clearing House case histories above as well as the numerous lawsuits and restitution payments both corporations endured as a result of people, especially the elderly, that spent as much as $1000 (each!) on magazine subscriptions to bolster their chances of winning the grand prize.
At this point, he sighed and asked, "What else do you have for me?" My measured response came from my first-hand experience and put directly; I said slowly, "Nobody smiles." He looked puzzled for a moment as if to he was going to ask me what that had to do with anything, but I continued with a question; "Have you ever been a secret shopper at "XYZ" Big Box store (their largest competitor) or gone undercover in your stores?" He answered, "we have our own people that do that all of the time." I countered with, "it's not the same, you need to see and feel it yourself. Many of your competitors have staff that doesn't smile or provide excellent customer service, either, but, at your biggest one, they do."
3. Merchandise - "B" - Given this chain's demographic customer target, they are doing OK, but they are certainly not pushing any boundaries, opening avenues for attracting new customers, or trying to expand their niche in the "Big Middle" of retailing. I call it playing it safe, but, unfortunately for them, the world is changing, rapidly, and every day with their competitors taking risks and pushing retail boundaries. I inquired of the VP if they were planning for the newest and largest generation of shoppers (Millennials) ever to attract them to their stores. His response; "We're looking at it."
4. Price - "A" - For what they sell and the margins they sell them for, the price point is great! However, I suggested that their current overall strategy in how they were approaching the marketplace was not sustainable as a result of changing external factors. The risks they are facing are two-fold and interrelated:
- Their current profit margins were paper thin, and any changes outside of their control due to regulatory or market forces could sink them quickly.
- Labor costs have been held artificially low (with the use of federal and state subsidies), and with the advent of a new administration looking to cut entitlement programs at the federal level, a majority of their employees could find themselves unable to afford to work there. (I also reminded him that a new minimum wage hike had been recently voted into law in Colorado that could severely cut further into their margins.)
5. Technology - "C" - Many of their challenges could be mitigated with the appropriate use of current technology, such as #4 above. They could virtually eliminate checkout lines (and cashiers) with new checkout systems currently being used by many retailers. An app, supplied by the retailer to the shopper for an Android or Apple phone would allow a customer to checkout before they even reached the exit door. Popularly called, "Scan & Go," many of their competitors are already using them with great success. In this instance I was told, they were piloting this checkout approach in a sampling of their stores around the country (including one of "my" store's), but it would be years before it could be rolled out to all of their locations.
6. Supply Chain - "A-" - This was one area where they were almost excelling in the balancing act of controlling costs while providing an adequate inventory that customers both wanted and just in time. They have fully invested in RFID (Radio Frequency Identification) technology for the receiving end (pallets) of their business, and all personnel charged with stocking shelves were utilizing Android-based MC-40 mobile computers for accurate inventory management and replenishment. (Yet to be fully implemented, "smart labels" were missing, and UPC bar codes still dominate the landscape.) Even with this horsepower in information available to managers, I still wondered about the guiding strategy for human beings using these devices in making purchasing and stocking decisions.
Next Week: Now What Do We Do?