Category: Retailing

In this video we’re going to look at the various ways that retailers can understand more about the customer to help anticipate needs and desires, discover the points of engagement and friction in the shopping process, and improve the real experience and measure how shoppers respond.

Retail Labs

The first retail research method—and the one many large retailers have the resources to invest in—is retail labs. Retailers typically try to re-create the authentic shopping experience for the shopper, so they will act naturally and provide valuable insights.  In retail labs, retailers can do a variety of things including simulating different retail formats (for example, small vs larger stores), they can test store layouts, various atmospheric decisions and different packaging planograms.

This can be accomplished through the use of eye tracking technologies which result is heat maps or gaze plots and through virtual reality stores. Here’s an image of Walmart’s Intelligent Retail Lab that features technology such as artificial intelligence-enabled cameras, interactive displays, and a massive data center.

Ethnographic Research

Retailers also engage in ethnographic research, or the study of individuals in their natural environment. So if you’re studying shoppers, you would study them as they go about shopping. If Starbucks wanted to engage in research to understand how customer from a specific neighborhood are using a new store location, they could place researchers in the store to observe usage patterns and typical activities.

Here’s some video of some ethnographic shopper research I did with Staples where I interviewed shoppers as they used in-store technologies.

Pop-Up Experiments

One of Amazon’s more puzzling retail experiments in Seattle is the Treasure Truck, a roaming delivery truck retrofitted with carnival-style lights and signs, from which customers can pick up items offered during flash sales through the Amazon mobile app. The truck, which seems like the offspring of a billboard and an ice cream truck, has sold wild mahi-mahi steaks, paddle boards and Nintendo game consoles. It’s through experiments like this that retailers can learn about new ways that shoppers want to engage with retailers and products that might sell better outside the retail environment.

While we’re on the subject of retail experiments. Here’s an example that a retailer did that was both an experiment and a PR stunt, or excuse me, what they call a “social experiment.”

Unfortunately, while their experiment was interesting and provide was valuable insight, it didn’t save them from poor management.

Scanner Data

Scanner data is all of the data that is generated by shoppers at checkout. Retailers can use this data to understand aggregate behaviors like products that are commonly purchased during specific holidays, or to understand individual buying patterns and preferences so product coupons can be tailored. Kroger works with the data research firm Dunnhumby to sell insights to manufacturers to help them improve product and create more effective promotions.

Let’s take a quick detour for a research insight from the book Why We Buy by Paco Underhill. One of his observations that has helped numerous retailers involves what he calls short-, medium- and long-term parking. He is, of course, referring to seating within the retail environment. Seating to extremely important to shoppers, yet most retailers neglect it. Think about how you shop and how you socialize when you shop. If having seating would make your shopping easier, then that means that you’ll shop longer. Retailer’s would be silly not to take advantage of this. Yet many still do.

Computer Vision & Sensor Fusion

Computer Vision and sensor fusion technologies have taken many retail locations by storm. With these technologies, the shopper and everything the shopper does, can be tracked within the store. This can provide valuable insights for retailers much as scanner data does, but we can also learn about what motivates shoppers to put items back on the shelf and the purchases they didn’t make. You can’t do that with scanner data! Amazon is using this technology to great effect in its AmazonGo stores. After you install their app on your phone and register, you just walk into the store, grab what you want and then leave. There is no checkout. The data from the camera systems are fused with shelf sensors to create a holistic picture of the shopper’s visit. The store knows everything the shopper is doing. As soon as you leave the store, you receive a receipt for your purchases on your phone. A lot of people think this is the future of convenience retail.

Surveys & Focus Groups

Finally, we have surveys and focus groups. They are considered the meat-and-potatoes of traditional marketing research methods. They are still used extensively and have a lot of value. Surveys are very inexpensive to do and give insights relatively quickly. Most large retailers have a panel of customers that they can quickly send surveys to to get the customer’s perspective should they have a question. Focus groups are also used quick a bit. Most look very similar to the picture you see here. There’s a moderator, participants, and typically a one-way mirror at the head of the room, where researchers from the retailer would watch as their questions are being answered or as the customers are sharing their thoughts.

Before we wrap-up, there’s one more thing I want to mention. And that’s what can happen if a retailer doesn’t do adequate research. Ron Johnson, the former retail chief of Apple and new CEO of JCPenney learned this lesson the hard way when he changed the fundamental pricing model of JCPenney from high-lo pricing to everyday low prices. This decision did not resonate with customers, and the retailer quickly had to backpedal and revert back to the old pricing model. The CEO lost his job as a consequence.

To recap, research methods are the means by which we accomplish retail research and this research is critical to understanding consumer needs and desires, discover points of engagement and friction, and improve the customer’s experience. The vast variety of retail research methods that retailers can tap into include retail labs using various measurement technologies, ethnographic research to understand consumer’s in their natural environment, pop-up experiments to get real-time feedback from consumers and quickly try out ideas, scanner data to see the purchase patterns of groups and individuals, computer vision & sensor fusion to gather insights in-store and power new checkout technologies, and finally, surveys and focus groups to connect directly with consumers and get their perspectives. We also saw that ignoring retail research when making changes to your strategy can have huge negative effects.

Store managers are responsible for two very important assets: real estate, or the physical store, and employees. It’s no coincidence that these two are also the largest expenses any store manager must worry about. 

Also at the top of the list of most store manager’s worries is retail loss. 

According to a 2019 survey from the National Retail Federation, the following three risks are the top in-store priorities of retail managers:Organized retail crime, internal theft, Return fraud. All of these have elements related to two important issues we’re going to look at in this video: retail loss and prevention related to inventory shrinkage and employee theft.

What is Shrinkage?

Technically speaking, shrinkage is the difference between the recorded value of inventory and the value of the actual inventory. In other words, it’s the difference between what’s on the books and what’s actually physically in the store. If your store is suffering from shrinkage, there are a number of potential reasons for this. The biggest culprit might surprise you though: 

It’s actually employee theft, not shoplifting. Shrinkage related to employee theft  is 47%, which is substantial. We’ll talk more about employee theft here in a bit.

So how do we actual calculate inventory shrinkage? As mentioned before, it’s what’s on the books vs what’s on hand, so we take the recorded value of inventory and subtract the actual value of inventory on hand. All of these figures are expressed in retail prices by the way, not our cost. Then we divide this by our actual sales for the time period we’re looking at, or in this case a month.

Let’s look at an example. If a retailer has $825,000 of inventory on the books, but only counts $702,000 of inventory on hand, then it would have a difference of $123,000. If we divide this be the total sales for the time period we’re looking at, which is a month, then this would result in a shrinkage rate of 2.3%. Now, is that a lot? Let’s see what the Nation Retail Federation survey has to say. Of all of the retailers surveyed, you can see that the average shrink rate for retail in 2018 was 1.38%. So 2.3% would be on the high side. In fact, shrinkage is a $100 billion problem for retail worldwide every year. Now, let’s look at the second largest contributor to inventory shrinkage first: shoplifting.

Shoplifting

One of the biggest myths about shoplifting is that shoplifters are those in need who just can’t afford the basics to get by. Like they’re some modern-day Jean Valjean just grabbing a loaf of bread to feed his family.

Top Items Shoplifted

The reality is top items shoplifted at retail have far more to do with making a profit in black markets than feeding the hungry. Ink cartridges, High-end headphones, Razors, Makeup, Teeth whiteners are all very sought after. If you ever see an online auction for any of these items and the price is a little too good to be true. It’s probably stolen.

Oh and chances are, if you see a product in a store wrapped in one of these so-called spider wraps, then this is a product that’s been flying off the shelves…and not in the good way.

Spotting Shoplifters

But spotting shoplifters can be difficult. There’s no one “type” of shoplifter. One out of every 11 patrons shoplifts something, men and women engage in it at roughly the same rates; and children and teens only make up 25% of shoplifters. 

Let’s look at some ways we can spot shoplifters. First, don’t stereotype and don’t assume shoplifters will be poorly dressed. Oftentimes, they’re dressed well. Spot loiterers, or people just “hanging out” in the store and not making purchases. They could be casing the store to find vulnerabilities or patterns. Look for groups of people, Especially if they seemingly enter the store together and then immediately split up. Watch their eyes, hands, and body. Are they engaging in suspicious behaviors like spending more time looking at the cashier or sales associate than actually shopping or their eyes are not following their own hands? These could be tell-tale signs. Look for people with loose clothing – The images on the right show a woman who managed to fit a 12-pack of soda, a large container of cooking oil, two wine bottles, and two cans of meat under her dress by faking pregnancy. Shoplifters can be very creative.

Preventing Shoplifters

Here’s the thing. Catching shoplifters is fine, but it’s almost not worth the hassle. You’ve got to wait for the cops to show up, take a report, it’s a big time loss for a busy manager. It’s much better to just prevent the shoplifting in the first place. Retailers are only really going to be able to catch maybe 3% of the shoplifters that work their stores. If they engage in effective loss prevention strategies, they can lower shoplifting rates by 80-90%.

How can we prevent shoplifters in the first place?

You can adopt loss prevention technology in your stores. Magnetic tags, radio signal hard tags, and other systems discourage light fingers from stuffing items in bags and leaving the store.

The store layout itself is another important factor. If the store is laid out in such a way that provides cover for shoppers to steal, then your layout isn’t helping you. More expensive items should  toward the back of the store or in lockable cabinets. These are design considerations you also need to think about.

Also, making sure that you have closed-circuit cameras throughout the store will also discourage shoppers because they’ll never know when they’re being watched and the store will have evidence to use against them if the cameras record them in the act. 

And finally, the one thing that all shoplifters hate: Attention. In the early 1980s, Walmart noticed that having someone stationed at the entrance had a significant impact of shrinkage. A thus was born the Walmart greeter role. If you suspect someone of shoplifting, rather than passively spying on them and trying to catch them in the act, better to walk up to them, shower them with attention, and let them know that the store really values them as a customer and will keeps tabs on them to make sure they have everything they need. A shoplifter will hate it. But a real customer will love it. It’s a win-win.

Organized Retail Crime

As mentioned earlier, organized retail crime is the top area that retail managers are worried about. According, to the NRF, 92% of companies surveyed had been a victim of organized retail crime in the past year. In fact, shoplifting gangs cost US retailers upwards of $30 billion per year. Organized retail crime can be as simple as a pair working in tandem, one distracting employees while the other makes off with product. Or perhaps the most egregious example of organized retail crime, the “flash rob”. It’s kinda like a flash mob, but instead of some staged musical number or silly prank, it’s a hoard of people descending on a store at once and robbing it blind and there’s virtually nothing any employee can do about it.

Here’s a video of a flash rob event in a convenience store in Cedar Rapids, Iowa after a fireworks display.

And another nearby at the Pleasant Prairie Outlet Mall.

Employee Theft

We’ve seen that shrinkage is a problem because of shoplifting, but it’s an even bigger problem due to employee theft. 

On average, retailers lose $1,264 in inventory shrinkage per dishonest employee. That’s potentially a whole lot of money if you’re a large retail chain.

Employee theft can happen at any type of retailer, but fast food is where it is most prevalent. But sometimes the employee theft impacts the bottom line a little more directly, as when employees steal money directly from the retailer. One of the most common ways that employee theft can happen is at the cash register. 

If you notice an employee an employee working a register and see a series of stacked coins around the register, chances are that employee is engaging in cashier stacking. These employees are shorting the customer and are keeping track of the exact amount that they need to take from the register at the end of the shift so their cash drawer balances out. A penny equals a dollar, a nickel equals a five, and so on. It doesn’t even have to be coins. They might use paperclips, rubber bands, or even M&Ms.

If you are a retailer has a product that is commonly purchased and many customers end up receiving virtually identical receipts, then you might want to be on the lookout for employees working with an open register. In this scenario, an employee rings up the first customer, gives them the receipt, and then proceeds to print out multiple duplicate receipts of that transaction. When the next customer shows up with the exact same purchase, the employee will hand them a duplicate receipt and the customer’s money goes right into the employee’s pocket instead of the register. This can happen a restaurants with lunch specials, coffee shops, and so on.

One of the most prevalent scams that employees are using to steal funds from employers these days is through the use of gift cards. A customer might come in the store to return a product and the refund might be placed on a gift card. What is actually happening is the customer is a co-conspirator of the employee and the returned product may not even be real. The gift card can then be sold on websites like eBay. Many retailers now have loss prevention specialists who constantly troll auctions sites like eBay looking for their gift cards and tracking them back to their own employees. Employees working with friends to defraud the retailer is a very common practice. It even has a name: 

Service Sweethearting

Retailers lose billions annually to this practice. It’s a huge challenge.

Why does it happen?

First and most obvious, employees looking for financial gain. It could be providing free drinks to ensure higher tips or to share the profits on items rung up at a lower price. They could also be doing it for reciprocity reasons. They have friends at other stores that give them unearned discounts, so they return the favor.

Job-related factors might include work group norms, in other words everyone else is doing it, so what can’t I!. Low job satisfaction or the employee’s perception that the employer doesn’t care about them can also contribute.

There could be personal trait factors at play. Trying to look cool in the eyes of their friends. Employees that enjoy the thrill of taking risks. There are even personal traits that can predict employees who won’t engage in service sweethearting, namely those will clear moral beliefs.

So how can we reduce all of this employee theft activity? 

First, create a trusting, supportive work atmosphere. Since a lot of employee theft is the result of low job satisfaction and low organizational commitment, providing a positive work atmosphere could go a long way to minimizing the feelings leading to theft.

You also want to make sure you’re hiring and retaining the right people. 

Put security policies and control systems in place, so theft becomes more difficult or you could publicly shame thieves like Amazon does in its warehouses.

Finally, beneath it all, employee theft is a Human Resources problem. Meaning that the same procedures we use to keep our employees happy, healthy, and productive will also have an important role to play in minimizing employee theft.

Conclusion

To recap, inventory shrinkage is a $100 billion problem worldwide annually and employee theft is the largest contributor to the problem.

Shoplifting is motivated by greed not need. Most are seeking to profit from their activities. There is no one type of shoplifter, they come in all types and ages. The best approach is to prevent the activity in the first place and not try and catch them in the act.

Organized retail crime is a big deal and 92% of retailers have experienced it. “Flash robs” have become a new trend especially with younger shoplifters.

Finally, employee theft is not limited to inventory shrinkage or stealing products. Many employees steal cash directly. They also engage in service sweethearting for a variety of reasons.

When retailers design their brick-and-mortar locations, they have to keep a number objectives in mind. We’ll cover each of these.

First, is implementing the retailer’s strategy. The primary objective of any retail store design is to implement the retailer’s strategy. More often than not, the strategic requirements for a store design are that if must meet the needs of the target market. Will the customer you’re trying to sell to want to visit and spend time in your store? The design also needs to help build a sustainable competitive advantage. Are you using your store design to create shopper experiences that can’t be had anywhere else? And the design should effectively display the store’s image. Does the store design reinforce what you want your target customers to know about your brand?

For example, McDonalds is in the process of redesign many of its retail stores to appeal to a younger demographic. And Target has recently starting redesigning its stores to better communicate its new branding and reflect its new in-store strategy.

Store design that appeals to your target customers will also create loyal customers. If you have designed your store around utilitarian benefits, enabling customers to locate and purchase with minimal hassle, then the utilitarian customer will stay loyal. If you’ve designed your stare to appeal to the hedonic shopper who wants an entertaining and enjoyable shopping experience, then they will likely be loyal too. Not every store design is going to work for every customer. The smart retailer embraces this and ensures that their key customers are the ones who get the most out of their store design.

Store design can also have a big impact on increasing sales on visits. Store design and everything that entails, including the store layout, color scheme, merchandising fixture and other elements, will impact which products customers buy, how long they stay in the store, and how much they spend during a visit.

Store design also has an important role to play in controlling costs for the retailer. Every decision a retailer makes on the store design can have a direct impact of the shopper’s experience. A footwear retailer like this might be more cost effective to use less expensive fixtures to display shoes, but the higher end materials help communicate luxury, which in turn may increase the ability to raise margins and be more profitable. A good store design can also decrease labor costs. For example, if cleaning the store is made difficult due to certain design decisions, then employees will have to spend more time doing that when they could be doing something else. Finally, store design can also impact inventory shrinkage. If your store is designed in such a way to provide cover to shoplifters you’ll likely see shrinkage grow. 

Finally, there are laws that must be considered when designing a store. The Americans with Disabilities Act was passed and signed into law by George H.W. Bush  and it protects people with disabilities from discrimination under many scenarios including retail. Since 1993 retailers are required to provide fully accessible stores, which means aisles are 32 inches wide minimum, cash wraps and fixtures must be reachable by people in wheelchairs, and all bathroom and fitting rooms must be fully accessible as well.

Ultimately, retail store design is about making trade-offs. Do you want to make products easier to find with signage and an easy to navigate store, or do you want to encourage exploration of the store and impulse purchases? Do you want the productivity of using every square inch of the store to sell merchandise or do you want to give shopper plenty of space to be comfortable and roam?