Why retail businesses_fail

Copyright © The Business Education Center. 1

The State of

The Retail Industry

Why Retail Businesses Fail

White Paper

“When I want to understand what„s happening today or try to decide

what will happen tomorrow, I look back into the past because that„s

the best predictor of the future is actually the past”.

Oliver Wendell Holmes

Romeo Richards

The Business Education Center

January 2012


Contents:

03 Executive Summary

06 Research Reference

11 Why Did La Senza Go Into Administration?

15 Lack of Level Five Leadership

18 Lack of Understanding of their Target Market

23 Lack of Trained Staff

24 Lack of Sales Training

25 Lack of Product Knowledge

27 Bad Customer Service Provision

28 Low Wages

30 Harrods‟ Success Secret

35 Prescription: How to Turn Retail Failure Into Success

37 Retail Blue Ocean Strategy Framework

40 The Retail Success Hexagram

45 About Romeo Richards


Executive Summary

The UK‟s retail guru, Mary Portas, recently released her High Street revival report,

commissioned by the British Prime Minister David Cameron. In which she discussed

the reasons for the decline of the UK High Street. This follows an earlier report,

produced by Colliers CRE which addressed a similar subject.

The Australian retail industry is also awaiting a report from its Productivity

Commission into the Australian retail industry. No doubt the US government is likely

to get involved in the fight to save its retail industry.

Indeed, urgent action is required if we are to tackle the challenging realities that the

retail industry are facing.

The retail industry accounts for 8% of the UK‟s GDP, 7.9% of US

GDP and 18% of Australian GDP, employing approximately 3 million

people in the UK, 14.4 million in the US and over 1.5 million in

Australia.

It is understandable that these governments will be concerned about the decline of a

very essential industry sector.

Whilst most retailers are facing difficulties, a handful, are achieving phenomenal

success despite trading in similar economic conditions. Why is that? Why are a

handful of retailers achieving extraordinary success whilst the vast majority continue

to struggle?

Why are Tesco and Holland & Barrett, the third and fourth most profitable

businesses in the UK, whilst retailers such as La Senza, Jane Norman, Mothercare,

JJB Sports, Clinton Cards, Thorntons and HMV struggle?

The reports, written by both Mary Portas and Colliers CRE,

highlighted a number of challenges facing the retail industry.

However, both failed to address the core problems. Furthermore,

they both failed to answer this simple question:

Why are some retailers experiencing phenomenal success despite

those challenges?


This is the first time in the history of modern retailing that a single document has

captured the core challenges facing the industry.

It is the first time a document on retail has revealed that most retail executives are

inadequately equipped to run a business and that the majority of retail middle

managers are bordering on incompetent.

You will also learn why Tesco is the second most profitable retailer in the world and

why Harrods is the favourite shopping destination for the rich and famous.

According to The British Council of Shopping Centres, 1/5 of the UK‟s shopping

centres are in financial trouble. I have just returned from Bolton. The traffic was so

heavy that I had to go through Manchester City Centre. The reason for the traffic was

people travelling to The Trafford Centre.

Manchester City Council has increased the hours of operation for on-street parking

in the city centre from 08:00 to 20:00. Previously it was 08:00 to 18:00. Retailers are

complaining that it is going to deter people from shopping in the city centre.

But here is what I find fascinating. The Lowry Outlet Mall, in Salford Quays has six

hours free parking yet people do not flock there and choose instead to shop in the

city centre despite the increased parking charges or go to The Trafford Centre.

So what exactly is it that The Trafford Centre has that draws so many people to it to

the extent that they are willing to queue from Junction four of the M61? It‟s more than

just free parking.

All indications point towards 2012 being a very tough year for the retail industry.

According to Verdict Research, the first three months of 2012 are going to be one of

the most challenging times for the industry as consumers reduce spending after

Christmas.

However, there are retailers who are looking forward to 2012 as being their best ever

year. So what‟s going to make the difference?

This White Paper outlines the core challenges facing the retail industry and gives an

innovative framework for pulling the industry back from the brink.

Winston Churchill once said “The farther backward you can look, the farther forward

you are likely to see.”

The Industrial Revolution started in Great Britain. Great Britain was once the

industrial capital of the world. Today the relics of old mills and manufacturing towns

that lay waste all over the UK are evidence of an entire industry that has taken its

place in history.


Rolls-Royce and Rover were once the pride of Britain, today they are both foreign

owned. While the rest of the British automotive industry struggle Rolls-Royce has

reported the highest sales in its 107 year history despite the economic downturn.

The manufacturing and automotive sectors within the UK became

irrelevant because they did what the retail industry is currently

doing now: blaming circumstances outside of their control for their

challenges.

As a result of blaming outside forces for their woes, the manufacturing and

automotive industries did not make the necessary efforts to adapt to change.

The wind of change is blowing in the retail industry. The internet has changed

consumers‟ shopping habits. Book, music & DVD and electronics retailers are the

most affected by the changes brought about by the internet. However, whilst the rest

of the industry cries “chicken little the sky is falling”, Richer Sounds is achieving

phenomenal profit margins.

The failing of the UK High Street has little to do with the reasons

Mary Portas gave in her report, neither is it the result of difficult

trading conditions. It is a result of an industry that is stuck in the

past.

Like the manufacturing and automotive industries if the retail industry does not

embrace change, change will be forced upon it.

“Here is Edward Bear, coming downstairs now, bump, bump, bump, on the back of

his head, behind Christopher Robin. It is, as far as he knows, the only way of coming

downstairs, but sometimes he feels there really is another way, if only he could stop

bumping for a moment and think of it” (A. A. Milne, Winnie-the-Pooh).

There is another way to pull the retail industry from the brink if only retailers could

stop blaming something or someone else and think of it.

This White Paper outlines the new way forward for the retail industry.


Research Reference

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Why Did La Senza Go Into Administration?

Lingerie specialist La Senza went into administration in the first week of 2012. It is

amongst some 183 UK retailers including: Barratts, Clinton Cards, Habitat, HMV,

Focus DIY, JJB Sports, Jane Norman, Mothercare, Oddbins, TJ Hughes and

Thorntons that got into trouble in 2011. This is in addition to the thousands of

retailers that went bust without making the headlines.

Coincidentally, just a week ago, I visited La Senza in The Trafford Centre,

Manchester; to take photos of poor visual merchandising examples for research for

my forthcoming book on visual merchandising display.

Why do many retailers get into trouble or go bust?

Let‟s read what a La Senza spokesperson had to say about why La Senza went into

administration:

“Due to trading conditions in La Senza's high street locations and the overall macro

environment which are having an adverse effect on the company, the board of

directors of La Senza has filed a notice of intention to appoint administrators.”

The UK‟s retail guru, Mary Portas, recently released her High Street revival report,

commissioned by the British Prime Minister David Cameron; into why the UK High

Street is at risk of becoming extinct. According to her report, the main reason for the

demise of the High Street was that:

“High Streets have reached „crisis point‟ with the rise of super-malls, out-of-town

supermarkets and internet shopping”.

This follows another report by Colliers CRE which highlighted the “downward spiral

and degenerating or failing” of the UK High Street.

The willingness of the British Prime Minister to get directly involved in the retail

industry‟s crisis outlines the severity of the situation. However, the UK government is

not alone in expressing concern for the retail sector. The Australian government has

also commissioned a report into the future of the Australian retail industry.

Thousands of jobs depend on retail. Whenever, a retailer goes out of business,

especially chain stores, they leave a large hole in the labour market. Therefore it is

understandable that governments are concerned.


Did La Senza and the other big retailers that are in trouble, actually suffer because of

the „challenging economic environment‟ or „challenging trading conditions‟, to adopt

the fancy language of retailers themselves?

Is the UK High Street in danger of extinction because of reasons described by Mary

Portas and the Colliers CRE report?

I beg to differ.

The core problem with most retail businesses in the UK and in many developed

countries is: they are run like non-profit organisations.

The fundamental reason for the existence of any business is to

make profit. Any business that does not have profit as its core goal

will either fail or languish in mediocrity.

It is true that businesses need to provide good customer service, take care of their

employees and support the community. However, businesses do not exist for those

reasons. They exist solely to make a profit. It is only after they have achieved their

core purpose for existence that they will be able to fulfil their other responsibilities.

Let me qualify this statement to avoid becoming „lost in translation‟. I did not say

businesses exist solely to make money, I said profit. There is a big distinction

between making money and making profit.

The retail industry is the only industry where increased sales is the key performance

indicator. I am writing this White Paper on Boxing Day; which is the day when most

retailers start their biggest sales of the year. The irony is that even though they will

make their biggest sales today, it does not necessarily mean that they will be making

their biggest profit margin today.

When the dust has settled, and customers have returned home, as retailers tally the

figures; they will fall into the following categories:

• Profitable retailer

• Break even retailer

• Losses retailer


How can retailers expect to make a profit by discounting their

merchandise at 50% or 70%? Retail profit is an average of 3%. Even

the most profitable retailers make between 3-5% profit.

However, the large majority of retail profit margin is between 1.5 - 3%. Therefore, if a

retailer is making a 3% profit margin and they discount their merchandise by 50%,

how much profit will they be making?

Don‟t take my word for it, the diagram below is the business growth framework for

Accenture, one of the world‟s largest business consultancy firms. If a business sat on

Accenture‟s sofa and said it was hearing voices, this is the diagnostic framework

Accenture would roll out to investigate the company‟s malady and issue an invoice

for one million pounds thank you very much:

Source: Accenture 2005

As you observe in the framework, profit is highlighted in as one of the engines of

growth in a business.

How many retail businesses have the Accenture business growth

template as a part of their business strategy?


The peripheral reasons most retailers go bust are follows:

• Lack of “Level five” leadership

• Lack of understanding of their target market

• Lack of trained staff

• Lack of skilled sales staff

• Lack of product knowledge

• Low wages

• Bad customer service provision

• Failing loss prevention strategy

La Senza went into administration because like most retailers it did not apply

fundamental business principles. It did not focus on profit, instead it was focused

only on increasing sales. A company that increases sales without increasing profit

will not survive.


Lack of Level Five Leadership

Jim Collins, in his book “Good to Great”, introduced the concept of “level five

leadership”. According to Mr. Collins;

“The key to an organization becoming great is having a “Level Five Leader” -

Someone who blends genuine personal humility with intense professional will -

leaders at the other four levels in the hierarchy can produce high levels of success

but not enough to elevate organizations from mediocrity to sustained excellence”.

This may sound conceptual or theoretical, but it is not. Many of the best retail

executives are level four leaders. They produce a burst of results for a short period

then fade away.

Most retail executives are good sales people but bad business

people. They can sell ice to an Eskimo yet they do not know how to

run a retail business.

There is a fundamental difference between being a retail professional and a

business person.

Being a „retail‟ professional requires an understanding of all the nuances of retail.

However, the ability to run a successful retail business requires the application of

certain universal business principles. Such principles are absent from the majority of

the failed or struggling retail organisations, because the leaderships in those

organisations lack an understanding of those principles.

Tesco is the third most profitable business in the UK and the second most profitable

retailer in the world. Why is Tesco, a retailer, the third most profitable business in the

UK? Tesco once had a “Level Five Leader”, Terry Leahy, who transformed an

ordinary UK retail organisation into a global retail giant.

The idea that retail executives are good sales people but bad business people might

sound counter-intuitive, therefore, let me expand on this concept with the following

analogy.

Many accountants are really good at what they do as accountants. They can take

one look at a statement of accounts and tell whether it is accurate. However, many

accounting businesses fail. Why do accounting businesses fail when accountants


are good money managers? It‟s because accountancy is a profession and like most

professions; it is completely different from a business.

A similar case can be made about retail executives. Many retail CEO‟s and

executives are expert retailers who know the ins and outs of retail. They sleep and

breathe retail. They took the time to learn retail but did not take the time to learn the

retail business; which is a major reason why many retail businesses fail.

You can pluck a good business person from any business and make him a retail

executive and he will be able to perform better than most retail executives. The

fundamentals of business are universal they never change.

Let me expand on this point with the following examples:

Microsoft is not just a successful company because they make the best software in

the world. It is successful because Bill Gates, a shrewd businessman, formed

alliances with major corporations and government institutions.

There were many search engines in existence before the arrival of Google. Why is

Google more successful than all of them? Google‟s business model was and is

better than the rest.

Facebook was not the first social media site yet Facebook dominates social media.

Why? Facebook has a better business model than the rest.

McDonald‟s sells hamburgers. Does anyone believe that McDonald‟s is successful

because it makes the best hamburger in the world? No way! McDonald‟s is the

world‟s leading fast food company because it has the best business systems in the

world.

My point is this, whether it is Microsoft, Google, Facebook or McDonald‟s it‟s not

their products or services that makes these companies the leaders in their industry

nor are they just successful because of the industries in which they operate; they are

successful because of their business models and strong leadership.

The CEO of Apple could go to any retail chain and make it as successful as Apple.

Success in business is not dependent on the industry. However, it is dependent on

the following four key components:

1. Good leadership.

2. Good talent.

3. Good systems.

4. Effective Marketing.


The reason why Tesco and Holland & Barrett are the third and

fourth most profitable businesses in the UK is because they have

these four components in place.

I did not say they are the third and fourth most profitable retailers in the UK, I said

they are the third and fourth most profitable businesses in the UK.

Business success transcends industry it is dependent on:

• Effective leadership

• Great people

• Robust systems

• Dynamic marketing system

In most cases, only “Level Five Leaders” have the ability to develop these four

components.


Lack of Understanding of Their Target Market

I visited Harrods for research for my books on store design and visual merchandise

display. Harrods, for anyone reading this White Paper who might not know this, is

the Mecca of retailing. Royalty, A-list celebrities and the „who‟s who‟ from around the

world fly into London just to shop at Harrods.

You can now imagine my anticipation when I visited Harrods. In my mind everything

in Harrods was made of gold. I was disappointed, when I noticed a toy bus I had

purchased for my son from Asda, was also being sold in Harrods. It was exactly the

same toy bus, in exactly the same packaging as the toy in Asda.

A question popped into my mind, why is it that exactly the same

bus, probably manufactured in exactly the same factory in China, is

sold in Harrods for twice the price that it is sold for in Asda?

The answer is decisively simple – Asda sells a „toy bus‟, however, Harrods sells a

„classy toy bus‟. There is a difference. This is marketing 101: people buy emotionally

but justify their decision logically.

Customers who shop at Harrods do not shop there to buy Harrods‟ products; they

shop at Harrods to buy „elegance and class‟. Harrods sells them class even if it is

„Made in China‟.

How does Harrods pull this off? They achieve it with the combination of an elegant

store design and attractive visual merchandising displays. When you move from one

department to the next in Harrods it is like moving from one store to another. Their

ability to use their store design to create the illusion of differentiation is one of the

keys to Harrods‟ success. Harrods understand their customers; they know what their

customers desire so they design their store and display their products to satisfy the

desires of their customers.

Marcus Buckingham, in his book “The First Thing You Need to Know”, wrote that

when he interviewed Sir Terry Leahy, who transformed Tesco into a global brand,

and asked him what was the key to Tesco‟s successful transformation. Sir Terry

Leahy replied that it was asking and answering the simple question: Whom do we

serve?


When Tesco figured out whom they were going to serve, they changed their store

layout and products to serve their target market. As a result of those changes; Tesco

increased its number of checkout counters which reduced the amount of time

customers spent queuing at the checkouts; ultimately resulting in a dramatic

increase in Tesco‟s footfall.

Wal-Mart serves the person who lives: pay check to pay check.

The Body Shop serves the ethical consumer.

Waitrose and Holland & Barrett serve the consumer who wants to live longer.

Ann Summers took merchandise once hidden in secret „adult‟ shops; made them

trendy and brought them to the High Street. They made a taboo subject acceptable

to the mainstream.

If I was to take my partner shopping at John Lewis she would probably phone my

mother to inform her that I was having a nervous breakdown. She would not want to

be caught dead in a John Lewis‟ outfit. She describes John Lewis‟ clothing

department as a Bridget Jones museum where they store a collection of Bridget

Jones costumes.

However, John Lewis continues to increase profits year on year because John Lewis

understands their target market.

Someone like my significant other might not want to be caught dead

in John Lewis‟ outfit, but there are people in the UK, who love

Bridget Jones‟ memorabilia, these people are John Lewis‟ target

market, so John Lewis cater for them.

The most successful retailers understand their target market and show their

understanding of their target market through their store design and visual

merchandising displays.

The retailers that go bust fail to understand this basic marketing concept.

Most book retailers are struggling because they are still using the 1960‟s business

model in the Amazon era.

Borders failed because it did not effectively develop its internet business and it

invested heavily in compact discs when music was going digital.

WH Smith only makes money from its airport and train station sales. The rest of its

stores are struggling.


Waterstone‟s is also on a downward trend. Sales are down and customer footfall is

in steep decline.

Why are bookshops under threat? Amazon! They will all shout. Of course Amazon is

the cause because Amazon understands their market better than them. Since it

seems Amazon is not going away anytime soon, are all book stores going to close

down?

Will WH Smith and Waterstone‟s close down? Or will they rise to the

challenge and modernise their stores? Instead of complaining about

Amazon, they need to redefine their target market, redesign their

service delivery, redesign their customer service experience and

redesign their stores to attract their target customers.

On Christmas Eve, I had not done my grocery shopping and was dreading the

prospect of entering a supermarket, knowing how packed they were going to be. But

as I drove past my local Lidl store, I noticed it was empty. I rushed in and completed

my shopping. As I drove back home a question came to mind; why is it, that even on

this day when most supermarkets are typically jam packed to capacity, was Lidl

empty?

The answer is that Lidl does not have a target market. One of their biggest sins was

making the decision to force customers to pay for carrier bags. Marks & Spencer can

afford to do that because they appeal to a different class of customer.

In Tesco and Asda, customers who are environmentally conscious have the option of

paying for carrier bags. However, those who do not want to pay for carrier bags also

have the option of getting free ones.

This is because Tesco and Asda understand their customers. Lidl‟s senior

management, on the other hand, believed that having implemented a similar strategy

in Europe, they can introduce the same in the UK. If the Brits do not like it, tough!

Well, the Brits are showing their displeasure with their feet.

I have tried to demonstrate with the above examples, that success or failure in retail

is the result of the strategies every retailer adopts. Those retailers who understand

their target market and cater to them will continue to move from success to greater

success, while those who roll the dice and hope that customers show up are the

ones who will struggle or go into administration.

I hate to be the one breaking this type of news to the retail industry but I guess

someone will have to do it: the internet is not going away. This means that retailers


are not only competing with one another, they are also competing with factory

owners in China whose name they have never heard. Shoppers are now ordering

directly from warehouses and distributors, for example an individual can log on to

eBay and order a pallet load of goods.

Here is the good news: the majority of people still prefer to shop from physical retail

outlets. The question is how does an individual retailer ensure that shoppers are

attracted to their store? It can be done by adopting the concept of the “Blue Ocean”

strategy.

Adopting the “Blue Ocean” strategy is the only salvation for book, DVD, music and

furniture retailers.

What is “Blue Ocean” strategy? Blue Ocean strategy is “the simultaneous pursuit of

differentiation and low cost” which results in the creation of a new market space

making the competition irrelevant.

The concept of “Blue Ocean” is practiced by the most successful businesses

organisations whilst struggling businesses pursue what is described as the “Red

Ocean” strategy. “Red Ocean” strategy is fighting to compete in the existing market

place.

The “Red Ocean” strategy is adopted by many of the book, DVD,

music and furniture retailers. They are trying to compete against

the internet and it is just not possible. A brick and mortar store can

never go head to head with the internet and win. It can never be

cheaper that the internet.

However, to drive customer traffic to their stores they must become more innovative

and creative. For example a book store could arrange more book signings; of course

authors want to sell their books so it is a win-win situation for all parties concerned.

In order for the book signings to be a successful marketing platform for the book

stores it would be advisable for retailers to work in collaboration with the publishers

from the onset in order for the book signings to be better promoted.

Promotion of the book signings could take various formats such as making effective

use of social media sites, local press and captivating signage in and outside the

store.


Another idea could be to arrange book clubs for various genres of books, this would

entice a variety of customers in to the store, these book clubs would also need

promoting in a similar way as described for the book signings promotion.

The trick is to be innovative.

Richer Sounds is a classic case of a retailer that has adopted the “Blue Ocean”

strategy. They understand that people still prefer to interact with other people. So

whilst other electronic retailers focus on price, they focus on excellent customer

service and staff product knowledge. Their “Blue Ocean” is excellent customer

service and superior product knowledge.

For book, DVD or music retailers to compete in Amazon country, they need a “Blue

Ocean” strategy that goes beyond price discount. They need soul. They need

understanding of the perception of their target market.

• What do they want?

• What are their hopes and fears?

• What is their perception?

I can order a book or DVD from Amazon and receive it the following day. I can

download music instantaneously from iTunes. There are millions of “me” in the world.

What kind of “Blue Ocean” strategy can WH Smith or HMV devise to get me away

from my laptop? It takes me half an hour to drive to the city centre, pay for parking,

spend another half an hour in WH Smith or HMV and another half an hour to drive

back home.

The 64 million dollar question is:

What can WH Smith or HMV do to make it worth my while?

Let me give them a clue, I could order my groceries online, however, I choose to go

to the supermarket. My reasoning? That is for book, DVD, electronic and furniture

retailers to figure out. They probably need to visit Starbucks, it might just hold the

keys to unlocking their creativity.

The only point of differentiation that most retailers know is price

reduction. Price reduction is not a business strategy, it is a death

wish.


Lack of Trained Staff

A friend of mine is a manager at Tesco. He knows the profit margin of each and

every product in his store. Why does knowing these profit margins matter? For a

number of reasons. Firstly business is about making profit and secondly it highlights

the significance of “training” to retail success.

As a manager at Tesco, my friend receives frequent periodic training on every

aspect of running a retail business. Little wonder Tesco is the second most profitable

retailer in the world and the third most profitable business in the UK.

Tesco, like most successful retailers, understand the significance of staff training to

the success of their business. Subsequently, they ensure that their staff are

constantly trained.

It never ceases to amaze me how an individual will open a retail

store worth millions of pounds only to have the store managed by

someone they are unwilling to spend a few hundred pounds to train.

The two common excuses retailers give for not training their staff are:

1. It is expensive.

2. Absentee cover.

I‟m probably the only person who doesn‟t get it, just imagine this scenario:

Someone, somewhere, is leaving his multi-million pound retail store in the hands of

an individual and he says it is too expensive to spend a few hundred pounds to

provide that person with the requisite training to manage his store well, can you

imagine that?

What am I missing?!

And these same retailers complain that the reason why they have to call in the

administrators is because of harsh trading conditions.

No it is not!

It is because they did not provide their staff with the requisite training to run their

retail organisation well.


Lack of Sales Training

According to a survey commissioned by Blue Martini Software; retailers could be

losing up to £8bn per year as a result of inadequate staff training. The survey

revealed that 84% of potential customers who left stores without buying said they

were going to buy from another retailer.

This means that the store they entered was unable to sell them on yes so they sold

them on no.

As many as 95% of retail employees have never received any form of sales and

marketing training. As a result of their inability to sell, most retail staff just stand by

the sidelines as customers examine merchandise and cross their fingers hoping they

will decide to buy.

Retailing is about selling. This means that anyone in retail should be, at the very

least, given basic sales training.

If retailing is about selling and 95% of retail staff have never received any form of

sales training, surely there is a linear relationship between lack of sales training and

retail businesses going bust?

It is like a medical doctor who has never been to medical school, how many people

in this world would want an untrained doctor to treat them?


Lack of Product Knowledge

Covert sting operations, conducted by „Which?‟, the consumer organisation, in 2011,

revealed that many retail employees lacked knowledge of the products they sold.

Just 8 out of the 154 stores investigated, scored an excellent mark. Surprisingly, not

a single well known High Street brand was amongst those eight.

In this information age where consumers have access to vast amounts of information

at their fingertips, one would expect retailers to realise the importance of product

knowledge for their staff.

Nowadays, many shoppers search on the internet for products prior to stepping foot

in a shop. They read information such as product specification, where to get the best

deal and customer reviews. They visit shops to basically clarify what they have

already read. If the store staff are unable to answer their questions, there is no

chance that they will be able to sell to them.

Here is the secret, despite the fact that people conduct research on the internet, the

large majority still don‟t trust information found on the internet. That is why books are

still highly rated even though the information in most books can be found on the

internet.

People still trust other people and prefer to interact with people. This is the reason

why despite the internet, bricks and mortar retailing will still survive. However, there

is a new dynamic and retailers need to understand this.

The consumer of today is better informed than the consumer of ten

or twenty years ago. Consequently, today‟s retail staff needs to be

better informed than the retail staff of ten or twenty years ago. One

cannot navigate the 21st century with a 19th century skill set – it

will not work.

Hence the reason why even though many electronic retailers are going bust, Richer

Sounds has been featured in the Guinness Book of Records for the past 20 years as

having the highest sales per square foot of any retailer in the world.

Coincidentally, they continue to top the „Which?‟ survey for excellent customer

service and product knowledge.


I have always argued that if anyone was to open another DIY store in the UK ,that

was in direct competition with B&Q; they would put them out of business within a few

months. Every time you enter a B&Q store and ask the staff about the location of a

product, their favourite line is always: they have just rearranged the store. They have

no idea where their products are located in the store let alone what the products do.

This is a trade store and many of their customers are tradesmen, therefore you

would expect B&Q to provide its staff with sufficient product knowledge to be able to

improve their customer experience in their stores.


Bad Customer Service Provision

These days, the only reason I visit my local PC World store is to buy ink for my

printer. This is due to the fact that it is the only retailer in my locality that sells the

type of ink cartridge suitable for my printer.

Every time I enter a PC World store I encounter a similar level of service. I am

always forced to queue up for a long time at the checkout, waiting for staff to serve

me. Even when the store is empty I have to wait to be served, whilst there will be a

group of staff chatting a few meters away from the vacant checkout.

PC World and her sister company Curry‟s are struggling and their management

wonder why? I am sure if they were to go bust the CEO would blame harsh trading

conditions. The fact that his store rank at the bottom of many customer satisfaction

surveys would not be seen as a factor in their demise.

In this “Long Tail” retail environment where consumers are constantly presented with

endless choices, one would think that retailers, especially High Street retailers would

realise the importance of excellent customer service and try to instil it as a

fundamental part of their business strategy.

30 to 40% of people will buy solely on price. The majority 70% of people will buy on

quality and convenience. Even though the retail industry is in crisis, the luxury sector

of the industry is still growing strong. This is because no matter what the economic

situation is people will still shop. The only question is where will they shop.

Luxury retailers understand this fact and train their staff in excellent customer service

provision.

I have noticed in my local Asda that when staff are asked for information, they do not

just point, they walk customers to the location and ask them if there is anything else

they can do for them.

People go to restaurants where the food is terrible but never complain because of

the attitude of the staff. However, if it was the other way around and the food tasted

great but the service sucked, they would be highly unlikely to return to that

restaurant.

Good customer service is a key component to the success of many of the most

successful retailers whilst bad customer service provision has been one of the major

contributing factors for the failure of many retail ventures.


Low Wages

A friend of mine, who is a retail consultant in the US, said that in his office they

always joke that one day they might write a book on, „How to get out of retail‟; he is

convinced it would be a bestseller!

Why does my friend believe that a book on „getting out of retail‟ would be a

bestseller? Answer: many retail employees want to get out of retail.

They view retail as a „transitional job‟. As a matter of fact many retail employees are

part-time workers. Many are students who view retail as a means of getting „pocket

money‟ whilst in college or university. With the exception of those who are actually

studying retail, the majority hope they will leave retail as soon as they complete their

studies to find a „better job‟.

One of the reasons for this is a result of low wages in the industry. I know that I am

touching some raw nerves here, but bear with me as I try to make the case for why

low wages are neither good for the staff nor for the retail business owners

themselves.

Low wages encourage:

• Staff dishonesty

• Disloyalty

• Unprofessionalism

…This results in bad customer service and poor productivity.

One of the key factors responsible for the failure of most retail businesses is the

incompetency of middle management. I do not use the word incompetency to mean

any disrespect to middle retail managers, but the fact is the large majority of them do

not have the slightest idea about the concept of running a business.

The main reason for this is that many middle managers rise through the ranks

without the appropriate training just to „avoid low wages‟.

One of the major reasons highlighted for the demise of „Safeway‟ was it had more

managers than store staff. Imagine an army with more Generals than Infantry

soldiers. The manager to store assistant ratio was about 4:1. It has been suggested

this occurred as managers would promote their friends to managerial positions to

avoid low wages.


When I worked at Tesco, all of us dreamt of becoming a manager because it was the

only way we were going to be able to get good wages. The managers get double pay

for working bank holidays and are offered more shift days than the store assistants.

I am not suggesting that the retail industry increase staff wages. All I am saying is

low wages have an adverse effect on the industry and it is one of the reasons many

retail businesses go bust.

Low wages grant retail employees reasons to engage in dishonesty. When

employees feel that they are not being treated fairly there is the tendency for

increased dishonesty. If you are a retail store owner who expects your staff to

manage millions of pounds on your behalf and you pay them a few hundred pounds

a month, chances are they might be tempted to steal from you.

Therefore, it is vital, if you are going to be entrusting people with your assets, that

you provide them with sufficient incentives to make them want to protect it on your

behalf.

Disincentivized staff, as a result of low wages, will not be inclined to provide good

customer service. When people work because they have to, they will not provide

your customers with the level of customer service they deserve. When your

customers do not receive the level of customer service they believe they deserve,

they will choose to take their custom elsewhere.

Retailers are trying to adopt the McDonald‟s model of employing high school

dropouts and training them to be successful in retail. There is nothing wrong with this

principle. However retail does not have the same system as McDonald‟s.

You can pluck someone off the street and place him in a McDonald‟s to work and he

will be fully functional within a few minutes. The reason for that is the system will

make up for his weaknesses. Retail does not have a system comparable to

McDonald‟s, therefore, cannot practice a similar recruitment process.

I cannot stress this enough: having the right people is a key element in the success

of every successful business. Any business that does not have the right people will

either languish in mediocrity or fail. Recruiting and retaining good staff is one of the

largest expenditures for many businesses, getting it right can pay dividends.

Part of the process of recruiting and retaining good staff is ensuring they are fairly

compensated and incentivized.

As the saying goes, you get what you pay for.


Harrods’ Success Secret

Harrods is one of the most successful retailers of all times. In January 2011, despite

the global economic downturn, the retailer‟s sales were in the region of £1bn. What

is it that makes Harrods more successful than most retail organisations?

Harrods success can be attributed to the following three factors:

1. Good store design.

2. Attractive visual merchandise display.

3. Effective loss prevention strategy.

Harrods‟ store design is in a class of its own. It is unique, innovative and clever. One

important element of their store design is the concept of the stores inside stores. The

store is designed in such a way that as customers move from one department to the

other, it gives the feeling of moving from one store to the next in a shopping mall.

Whoever conceived that design concept provided Harrods with a huge competitive

advantage over it competitors.

Harrods‟ visual merchandise displays are as attractive and inviting as merchandise

displays can get. As customers enter one designer outlet to another, they observe a

completely different display representative of that designer. It is as if the designers

themselves went into Harrods to arrange the displays.

Store design and visual merchandise displays need to serve four objectives:

1. Attract potential customers as they pass by the store.

2. Entice those potential customers to enter into the store.

3. Maintain their interest whilst they are in the store.

4. Persuade them to buy.

I believe Harrods‟ ability to effectively utilise these four principles in their store design

and visual merchandise displays has been responsible for its phenomenal success.


In his book “Blink”, author Malcolm Gladwell introduced the concept of think without

thinking. “Blink” "the power of thin slicing” and “rapid cognition” is the type of thinking

process that occurs in the blink of an eye.

In his first book “Tipping Point”, Mr. Gladwell introduced the concept of the tipping

point where little things make a huge difference.

As one walked around Harrods it is evident that their success does not derive from

their „Made in China‟ products, that can be found in most stores in the UK. Their

success derives from their ability to apply the principles from “Blink” and the “Tipping

Point” to their store design and visual merchandise displays.

Harrods success stems from little things making a big difference like having lots of

store associates within easy reach of every customer and extraordinary use of

mannequins.

Why do people buy? We all buy for diverse reasons. The human thought process is

complex and irrational. Even though we try to rationalise our actions based upon

artificial environmental factors, the reality is we all do things for the same three

reasons:

1. Status.

2. Survival.

3. Sex.

The ability to design a store or create visual merchandise displays that incorporate

all these elements is one of the determining factors for the success of Harrods and

many of the world‟s most successful retailers.

The key factor to Harrods‟ success though is its ability to remain profitable. Profit is

king in business. In retail the formula for making profit is to increase sales and

reduce shrinkage.

Increasing sales requires good store design and attractive visual merchandising.

Reducing shrinkage requires an effective loss prevention strategy.

This is what Harrods and the most successful retailers have over the rest of the retail

industry, their ability to simultaneously increase sales and reduce shrinkage. Most

retailers know how to increase sales, however when it comes to reducing their

shrinkage, they are challenged.

Getting these two right is the fundamental principle of retail success. No retailer can

succeed without simultaneously increasing sales and reducing shrinkage.


Why do shrinkage reduction or loss prevention measures fail in most retail

organisations?

• Lack of understanding of the subject.

• Senior management‟s failure to prioritise.

• Outsourcing loss prevention without a mechanism for accountability.

• Inexperienced loss prevention managers.

• Ineffective use of loss prevention technology.

Harrods is the first retail store that I have ever entered that has no visible blind spots.

I am not saying that there are absolutely no blind spots as I managed to spot a few.

However, the difference with other stores is that they are not visible to

unprofessional eyes.

Anyone deciding to shoplift in Harrods would have to be:

• A professional shoplifter or part of an organised retail crime syndicate.

• Really brave.

• Really stupid.

Products are displayed in such a manner that each department seems wide open.

Store staff can stand in one end of a department and have a clear view of the entire

department.

There is CCTV in every corner of the store; in addition to store assistants buzzing

like bees, making it difficult for anyone who might intend to shoplift.

I am not saying that it is impossible to shoplift from Harrods because shoplifting

prevention requires the implementation of a combination of strategies. However, by

designing their store in the way that they did, displaying their products in the manner

that they are displayed and taking other loss prevention measures, Harrods has

drastically reduced the possibility of shoplifting.


To increase sales yet fail to reduce profit draining activities is false

economy. Many retailers feel loss prevention is something that they

could do if they had the resources. The reality is: it is something

that they cannot afford not to do because no retailer can become

profitable without implementing effective loss prevention measures.

90 to 95% of retail loss prevention department managers are ex-service personnel.

As a result of their law enforcement background, they take the law enforcement

approach to their work. They focus mainly on arresting shoplifters and dishonest

employees.

While it is true that shoplifting and employee theft accounts for almost 70% of retail

shrinkage they are not the sole cause of shrinkage. Furthermore, shoplifting and

employee dishonesty cannot be tackled by solely arresting individuals. Preventative

measures such as good store design and visual merchandise displays, as I

mentioned in the case of Harrods, are required to make any preventative measure

effective.

However, due to the fact that the majority of retail loss prevention managers know

little to nothing about store design and visual merchandising, they are unable to

incorporate those aspects into their loss prevention strategies. Hence the reason

why most loss prevention measures fail, resulting in the failure of most retail

organisations.

The average retailer makes a 1% net profit out of each dollar and the average

industry shrinkage percentage is 2.6%. This means that shrinkage is almost three

times the average retailer‟s profit margin. By reducing retail shrinkage to 50% - from

2.6 cents to 1.3 cents, a retailer could more than double his profits: from 1 cent to 2.3

cents. (Crosset Company newsletter. June 2010).


Some retailers outsource their loss prevention department to outside contractors. As

laudable as this may seem, it is a seriously flawed idea because retailers are

incapable of clearly articulating their expected outcome.

When a job is outsourced, there is usually an expected outcome. However, if the

retailer outsourcing the job cannot articulate their expected outcome, it is difficult to

hold the contractor accountable.

The ineffective use of loss prevention technology is another reason for the failure of

most retail loss prevention measures. Prior to purchasing loss prevention

technologies, the following questions need to be answered:

• What problem(s) will the technology solve?

• What are the functionalities of the technology?

• What policies and procedures need to be modified to accommodate the new

technology?

• Is the technology future proof?

To increase sales without simultaneously combating profit draining

activities is false economy. Wal-Mart founder Sam Walton once

described retail shrinkage as a “profit killer”. He was right. High

shrinkage is responsible for the death of many retail organisations.


Prescription: How to Turn Retail Failure into Success

I once worked as a store detective for one of the UK‟s top ten retailers. Many of the

incidents of shoplifting that took place during my time at this retailer were not the

result of shoplifters outsmarting us, rather they were a result of the store design or

the policies and procedures that the retailer had in place.

I remember working in stores where the toilets were located outside the store. This

meant that a shoplifter could literally walk out of the store with a trolley full of

merchandise and could not be legally arrested because he could claim he was going

to the toilet. On many occasions I was the only security personnel assigned to the

30,000 sq. ft. store with multiple exits.

On Sundays, we opened the entrances at 10:30 to allow customers to start

browsing. However, we were scheduled to start at 11:00. When we started at 11:00,

we would notice people pushing trolleys full of merchandise out of the store.

Someone in the head office, in their infinite wisdom, decided it was more cost

effective to leave the store at the mercy of shoplifters than make a half an hour

payment for security. This retailer is one the top ten retailers in the UK, yet senior

management were unable to devise a coherent strategy for profit protection.

I once consulted a $25bn retailer. As I perused the company I noticed that not a

single person in the company knew their shrinkage figure therefore not even the

financial director knew the profit margin of the company.

According to Dunn and Bradstreet “Of the small businesses that fail, 90% do so

because of a lack of skills and knowledge on the part of the owner”.

Based upon my experience in retail, I believe it would not be too

much of a fat claim to make that 90% of retail failures are the result

of a lack of skills and knowledge on the part of senior retail

management.

There are circumstances beyond the control of the individual retailer that they can do

nothing about. There are circumstances in which location and demographic changes

affect the retail organisation. Yes it is true that people would rather go to Asda or

Tesco to buy meat than to their local butcher because of price difference.


It would not be fair to suggest that all retail failures are the result of bad leadership or

incompetency. However, what I have tried to point out is that in the majority of cases,

especially in the case of High Street retailers, the failure can be directly linked to

their inability to embrace change.

The problems of major book, DVD, music and electronic retailers do not rest solely

on difficult trading conditions, rather they rest on their inability to grasp the concept of

the “Long Tail”.

The “Long Tail”, a concept popularised by author Chris Anderson in his book, “The

Long Tail: Why the Future of Business Is Selling Less of More”, examines the

changing consumer behaviours based upon the changes in distribution curve.

The proliferation of niche markets brought about by the internet has completely

altered the factors of distribution. Consumers are exposed to more choices than ever

before in the history of mankind.

While writing this White Paper, I decided to test the “Long Tail” theory. I keyed into

Google: “how many types of breakfast cereals are there”. Result: thousands. They

were arranged in alphabetical order and it was from A to Y. The average

supermarket carries thousands of different product lines.

Furthermore, with the internet consumers are becoming more and more

overwhelmed with choices. Amazon and its distributors carry more inventory than a

lot of High Street retail organisations combined.

In the “Long Tail” century, how can retailers survive? They can survive by adapting

to their environment.

In the “Evolution Theory” Charles Darwin introduced the concept of “Survival of the

fittest”. The fittest in Mr. Darwin‟s lexicon is not the strongest or the fastest but those

who are better equipped for survival or those who are better adapted for their

immediate, local environment.

We are already witnessing the “Evolution Theory” at play in the

luxury market. Despite the downturn in the economy, luxury

retailers are still raking in profit. Even in Spain where the country is

on the brink of collapse, the luxury retail sector is booming.

The excuse might be because the rich are getting richer so of course the luxury

market will continue to boom. This is partly the case but the main reason is luxury

retailers are more adaptive to the changing retail environment.


Luxury retailers run their organisations like a real business with good system, good

people, good leadership and effective marketing system. The luxury retailers that are

failing are those that have both luxury brands and non-luxury brands and they bring

the non-luxury culture into the luxury market.

In order for the retail industry to survive, firstly retailers need to understand that their

problem is not somewhere out there, it is right in their board rooms.

Secondly, the industry needs to come to the realisation that there is now a new

problem on the horizon and they cannot solve a new problem with old solutions.

What is the new problem?

The new problem is technology and the internet. Just as technology changed the

manufacturing and automotive industries, technology is changing the retail industry.

Online shopping grew by 14% in 2011 whilst bricks and mortar retail

sales grew by just 1.4%. According to research, conducted by food

and grocery analysts IGD, online grocery shopping is expected to

rise to £11.2bn by 2016. The research also revealed that more than

44% of adults will be shopping online for their groceries in the next

ten years.

The internet is here to stay and it is going to have a tremendous effect on the

industry. As new technologies make our lives easier, it also produces an adverse

effect on the world around us.

The High Street is in ruins, retailers big and small are going out of business,

however, instead of the industry screaming “Chicken little the sky is falling” it needs

to respond to the threat by coming up with innovative “Blue Ocean” strategies.

The difference between the few successful retailers such as Tesco, Wal-Mart, The

Body Shop, Harrods, Ann Summers, Holland & Barrett and struggling retailers such

as La Senza, Jane Norman, Mothercare, JJB Sports, Clinton Cards, Thorntons and

HMV is that successful retailers understand that change is constant, therefore, they

are constantly evolving to stay ahead of change while the struggling retailers remain

static hoping that change will not last.

Albert Einstein once said “Problems cannot be solved by the same level of thinking

that created them.”


The retail industry cannot navigate the 21st century with 19th century thinking or skill

sets. It would be like riding a horse on the motorway. I don‟t need to tell you what

would happen to anyone who decided to ride a horse to London on the motorway.


Retail Blue Ocean Strategy Framework

RED OCEAN STRATEGY BLUE OCEAN STRATEGY

Selling to a broad demographic market. Selling to a segmented market.

Focus on only increase sales. Simultaneously focus on increase sales and reduce shrinkage.

Ignoring profit draining activities. Focus on acquisition and protection of profit.

Untrained employees Implementation of periodic training of employees.

Not prioritizing customer service Implementing excellent customer service as a marketing strategy.

Not providing store associates with sales training

Store associates are trained on how to close sales.

Professional retail leadership Professional retail and business leadership.

Loss prevention managers lack business skills.

Loss prevention managers possess excellent business skills.

Loss prevention strategy focuses on shoplifting and employee theft.

Loss prevention strategy focuses shoplifting, employee theft, policies and procedures, low staff productivity, procurement error, administration error.

Ignoring store design as a sales and marketing strategy.

Store design plays a key role in sales and marketing strategy.

Ignoring visual merchandising as a sales and marketing strategy.

Utilising visual merchandising as a key component of sales and marketing strategy.

Focus only on price reduction to drive sales.

Increase value proposition to drive sales.


The Retail Success Hexagram

Listed below are the best retail success strategies used by the most successful

retailers in the world.

There are six steps for success in retail. These are the same steps successful

retailers use time and time again to remain at the top of the retail ladder. Those

retailers who have failed, or are struggling, are the ones who have not mastered the

retail success hexagram.

The steps are as follows:

1. Effective sales and marketing strategies.

2. Excellent customer services.

3. Great employees.

4. Quality merchandise.


5. Attractive yet secure store design & visual merchandise display.

6. Trained Employees.

Effective Sales and Marketing Strategies:

Retail success formula 101: Know thy customer.

Marketing 101 is identifying your target market.

Marketing is about branding. What is branding?

Branding is the story of your retail store, your customer experience and the image

you want to be associated with.

• Body Shop: ethics.

• Harrods: class and elegance.

• Holland & Barrett: health.

La Senza, WH Smith, HMV…ah what was the question again?

Excellent Customer Service:

Retail success formula 102: Redesign service provision.

I know a sportswear retailer that advertises on billboards all over the UK. Heaven

knows how much they are spending on those advertisements in prime locations all

over the country. Yet when customers frequent their stores, there is always fewer

store associates to serve them. Furthermore, the store associates on duty lack any

knowledge about the merchandise in the store.

When you enter Harrods you think you are in communist China, with their store

associates visible in every corner of the store. People go to retail stores because

they want to interact with other human beings. When they enter the fitting rooms to

try on clothes they want to know that there will be another human being there to tell

them how beautiful they look on them. They want to know that when they need help

they can speak to somebody.


Great Employees:

Retail success formula 103: Recruit great people.

I relayed the story of my Tesco Manager friend who knows the profit margin of every

product in his store. I consulted a large multi-billion dollar retail organisation. As I

ploughed through their books I noticed that they had a profit margin of about 10%

and a shrinkage level of 0.8% or something around that figure.

I thought to myself: this company has pretty impressive figures; better than the best

retailers in the world. However, as I investigated further, I came to realise that not a

single individual within the entire organisation knew how to calculate their shrinkage

percentage which rendered their profit figures inaccurate.

When a retail middle manager is incapable of calculating figures as essential as

profit margin and shrinkage level, that organisation is in serious trouble. No business

can succeed without great people, the industry needs to recognise this simple fact

and get to work on recruiting the right people for their organisations.

Quality Merchandise:

Retail success formula 104: Stock good quality products.

It goes without saying that having quality merchandise is fundamental in retail. One

of La Senza‟s biggest sins is the design of their lingerie. Their products are so boring

and tasteless it makes you wonder who would want to buy them.

People buy emotionally and justify their decision logically. A piece of lingerie that is

attractive and pleasing to the eyes provides women with the confidence that it would

look good on them. When you have lingerie that is not very attractive you are already

out of business.

Jane Norman got into trouble because they kept recycling their product lines every

season. Instead of refreshing their stores by displaying new product lines each

season, they store old stock, that is then displayed the following season.


Attractive Yet Secure Store Design & Visual Merchandise Display:

Retail success formula 105: Retailing is showbiz.

Most retailers forget that retailing is about sales and marketing. The most effective

marketing strategy a retailer has at his disposal is a well-designed store and

attractive merchandise displays. When there are two or three hundred stores in a

shopping centre, the difference between someone deciding to enter or pass by a

retail store can rest on the storefront design.

When customers are in the store there needs to be reasons for them to stay longer

in the store because the longer they are in the store the higher the chances are of

them purchasing. The three main aspects of a store that keep customers engaged

for longer are:

1. A store design that enables good customer flow.

2. An attractive and good lighting system.

3. Overall atmosphere of the store.

Apple stores are always packed as customers just love hanging out in their stores.

The Early Learning Centre is a children‟s toy store. I have been to a few of them and

noticed there is no space for the children to sample toys and play with them. You

cannot have a toy store that is compact; you lose the potential for sale.

Trained Employees

Retail success formula 106: Business is not common sense.

To leave a store in the hands of an untrained person and hope that they will use

common sense to manage it well is not a particularly smart move. Simply because

everyone can kick a football does not mean that everyone can play football.

Business is a skill and like any skill, it must be learnt. Selling is a skill it cannot be

learnt by osmosis. There is nothing like a natural born salesman. The best salesmen

have some form of training in addition to their talents.

The retail industry is at a crossroads. A lot of changes are going to be forced upon

the industry in the next few years. The industry can either master those changes or

be a victim of them. We can reinvent our industry, or we can decide to go the way of

the manufacturing and automotive industries.


I have given the retail industry cement and a bucket they can choose to build a

stepping stone or a stumbling block. It is my hope that we make the right choice.

One thing I can absolutely guarantee is those retailers that choose to implement my

recommendations, will be celebrating at the end of 2012 and those that don‟t will

hear the fat lady sing for their organisation.


About Romeo Richards

Romeo Richards is the founder of The Retail Education Center, a division of The

Business Education Center. The Retail Education Center provides the most in-depth

and comprehensive retail profit protection training.

He is also the creator of the Retail Success Hexagram, a framework that teaches

retailers how to:

Increase sales

Increase staff productivity

Reduce shrinkage

And ultimately increase profit.

He is the author of:

84% Most Effective Strategies for Increasing Retail Profit

48.8% The Most Effective Strategies for Reducing Retail Receiving

Shrinkage

43.5% The Most Effective Retail Profit Protection Strategies

27.9% The Most Effective Retail Shrinkage Reduction Technologies

27.8% The Most Effective Retail Employee Theft Reduction Strategies

24.5% The Most Effective Non-Perishable Shrinkage Reduction Strategies

15.6% The Most Effective Perishable Shrinkage Reduction Strategies

14.3% The Most Effective Shoplifting Reduction Strategies

12.24% The Most Effective Retail Employee Error Reduction Strategies

Romeo has also written numerous articles, whitepapers and best practices on retail

loss prevention and profit protection. In addition to more than one hundred

instructional videos on retail profit improvement that can be found online.

Romeo has worked with some of the UK‟s largest retail organisations such as Tesco,

Marks and Spencer and Brantano. He has provided training and consultation to the

largest retail organisation in the Middle East.


His forthcoming books on store design, Store Design Blueprint – How to Design an

Attractive But Profitable Store, and visual merchandising, Visual Merchandise – How

to create a Beautiful yet Profitable Display, will be published in February 2012.

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