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The 2012 Retail Store: In Transition

2012 Benchmark Report

Paula Rosenblum and Steve Rowen, Managing Partners

May 2012


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Executive Summary

Even as retailers struggle to improve the in-store customer experience and combat the phenomenon

known as showrooming, it has also become apparent that the land-based channel isnt going away

any time soon. Until computing can offer the tactile and immediate satisfaction of a store visit, a

majority of consumers will continue to consummate their purchases there. And until some retailercracks the code on grocery home delivery, supermarkets will remain consistent destinations. In any

case, customers need storesas part of their path to purchase.

This leaves us with a fundamental question: How can technology, which has been a mixed blessing

for land-based retailers, support the next generation of retail stores? Retailers have been pretty

consistent in RSRs annual store technology benchmark surveys: in-store technologies are critical to

maintaining and improving the customer experience by putting actionable information into the hands

of managers, educating and empowering employees, and controlling costs. This year, however,

weve seen some dramatic differences in the point of view of sales over-achievers (who RSR call

Retail Winners) and their underperforming counterparts (who we call Laggards). Overall, Retail

Winners are far more interested in improving their in-store workforce than laggards, who look to in-

store technologies to help them gain new customers, but seem challenged to understand exactly howthat will occur.

Business Challenges

Retail Winners have a very different perception of the business challenges they face than laggards.

They are most often concerned about their keeping their own houses in order: improving store

execution and employee productivity. Laggards are much more fixated on the competition. They are

overwhelmingly troubled over consumer price sensitivity, since they have a hard time finding other

ways to differentiate from their competitors. Lack of technology investments in the store, particularly

in a modern POS system, also hamstrings Laggards far more than their retail peers.

Opportunities

When describing RSRs BOOT methodology, we always talk about Opportunities as the way anenterprise can turn lemons into lemonade. So its logical that Retail Winners who are most

concerned about consistency and execution, would look at ways to improve that consistency and

execution as their greatest opportunities. And it is so. Retail Winners overwhelmingly cite educating

and empowering employees using technology as a top-three opportunity, along with improving

customer service by making corporate inventory visible (and saleable) to all stores. Laggards know

they want to make the in-store experience more convenient, but havent quite settled on ways to do

so beyond finding more interesting products to sell.

Organizational Inhibitors

In RSRs view, the lack of a wireless infrastructure on the selling floor in more than half our

respondents stores is the single biggest inhibitor to improving the in-store experience. However, the

ability to take data gathered from stores in near real-time and turn it into actionable information is

another significant liability for laggards. And because the store is no longer an island, the tangle of

back office technologies has become the top self-identified internal inhibitor to moving forward with

new capabilities. Theres general agreement among respondents that pilot programs and smaller

projects with quicker ROI are good ways to get moving. There is also general agreement that

retailers dont have a lot of choice the customer is demanding a better experience.


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Technology Enablers

Depending on current performance levels, retailers have different views of the potential for

technologies to deliver value to the store. Laggards still focus on self-service touch points, while

winners are moving on: they look to technologies like cross-channel inventory and customer

synchronization, and better employee scheduling tools to support customer-centricity. While current

technologies in use are staples like in-store rewards and coupons, the future seems bright for

technologies that deliver information to store and customer-owned devices, and of course, more

cross-channel synchronization.

BOOTstrap Recommendations

First and foremost, its important to recognize the activities stores perform as a new node in the retail

supply chain. Stores really should be compensated for filling orders placed through other channels.

Why else would they do it quickly and efficiently? Self-service options are useful, but must be only a

part of a total plan that includes educated and empowered employees and managers on the selling

floor or doing prioritized scheduled tasks that create a better customer experience. A modern POS is

critical for the 21st

century store, as is a wireless infrastructure on the selling floor most especially

for managers and employees, but ideally for customers as well. Customers will be more likely to

check with their friends on the look of an item than they will to price check with other locations.


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Table of Contents

Executive Summary .......................................................................................................................... iiBusiness Challenges ................................................................................................................. iiOpportunities ............................................................................................................................. iiOrganizational Inhibitors............................................................................................................ iiTechnology Enablers ................................................................................................................ iiiBOOTstrap Recommendations ................................................................................................ iii

Table of Contents ............................................................................................................................ ivFigures .............................................................................................................................................. vResearch Overview ......................................................................................................................... 1

Why This Study Was Conducted ................................................................................................. 1Defining Winners and Why They Win, and Why Laggards Fail ................................................... 2How Winners and Laggards View In-store Technologies ............................................................ 2Mobility: Source and Solution ...................................................................................................... 3RSRs BOOT Methodology .......................................................................................................... 4Survey Respondent Characteristics ............................................................................................ 4

Business Challenges ....................................................................................................................... 6Laggards and Winners with Very Different Points of View .......................................................... 6Concerns about Out-of Stocks and Competitive Pricing and Differentiation ........................... 7

Investing in Store Associates ....................................................................................................... 7The Point-of-Sale Story ................................................................................................................ 8

Opportunities ................................................................................................................................... 9The Make or Break Factor ........................................................................................................... 9Winners Walk the Walk .............................................................................................................. 10Further Customer Enablement................................................................................................... 11

Organizational Inhibitors ................................................................................................................ 12Frozen In Time: Whatever Happened to Wireless in the Store? .............................................. 12and Speaking of Persistent Broadband Connectivity ............................................................. 12Cant Process the Data through Antiquated Systems ............................................................... 13Pilots, Smaller Projects, and Accepting the Inevitable .............................................................. 14

Technology Enablers ..................................................................................................................... 16In a Changing World, Retail Winners Look to Different Tools ................................................... 16 Larger Retailers Still Hold Out Hope for Customer Self-service ................................................ 17 So Whats Actually In Use? Whos Doing What with Technology? .......................................... 17

BOOTstrap Recommendations ..................................................................................................... 19The Store as a Supply Chain Node: Compensate Accordingly ................................................. 19Self-service Options are Useful Tools, but Not Your Only One ................................................. 19Follow the Lead of Retail Winners: Nurture the Employee Asset .............................................. 19Dont be Ham-strung by an Antiquated Back Office System ..................................................... 19The POS Refresh: If You Havent Done it Already, Nows the Time ......................................... 19Wireless in the Store: Its Time, Even Past Time to Get it Done .............................................. 19

Appendix A: RSRs Research Methodology .................................................................................... aAppendix B: About RSR Research .................................................................................................. b


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Figures

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


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Research Overview

Why This Study Was Conducted

Consumers no longer use stores in any kind of predictable fashion. Just a few years ago,

operating a retail store, while fraught with its own unique challenges, was about competing with

other stores. For as long as products have been bought and sold, buyers needed to visit

physical locations to obtain the goods required to fulfill their specific needs. Questions were

relatively simple: Were the prices, selection, or service across town better or worse?

On the retailers side there were also fewer questions to answer. Abnormalities in sales and store

performance sent retailers looking at macro-economic and seasonal trends, and then to take a

look at what competitors were doing. Finally, theyd look within, and examine their own store

operations. If shoppers werent buying in your store, you could generally be assured they were

buying in someone elses; perform a bit of competitive research and youd have some good ideas

on how to adjust accordingly.

Today, however, all of that has changed. For most retailers, competition comes from places they

dont even know about, and often for reasons they cant easily understand. Thanks to the internet

and mobile technologies ability to put the global marketplace in the hands of virtually any

consumer at all times, it is very difficult to gauge not only who and where your competitor is, but

what makes them a competitor in the first place. What component of the retail experience does a

specific customer care most about in at any given moment? In fact, what motivates one customer

to take the time and effort to visit a physical store is likely to be very different from that of the

next customer coming through the door. Consumer expectations are very different than they

once were. Technology is, of course, part of the in-store experience, and we therefore ask

retailers to self-identify the top uses of technology in their stores today (Figure 1).

Figure 1: Technology the Key to Customer-Centr ici ty

Source: RSR Research, May 2012

20%

8%

26%

51%

26%

39%

29%

32%

69%

10%

14%

24%

29%

30%

41%

41%

43%

52%

Help us keep up with the competition (avoidcompetitive disadvantage)

We view in-store technologies as utilities like lightand heat: its just part of the cost of doing business

React quickly to changes in the business environment

Make our employees smarter and better informed

Create competitive advantage and new sources ofrevenue generation

Increase revenue while holding down operational costs

Help the company win new customers and retaincurrent customers

Put actionable information into the hands of managers

Maintain and/or improve the customer experience

What are the TOP THREE (3) uses of in-store technologies?

2012 2011


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While technologys ability to help maintain/improve the customer experience and increase

revenue while holding down operational costs remains of utmost importance, retailers

increasingly recognize that technology also provides a chance to arm their managers with

actionable information (up from 32% to 43% this year).

At first glance, we were disappointed to see the number of retailers citing technologys ability to

make their employees smarter and better-informed drop off so drastically: but when digging intothe response pool, we see that this is really a story influenced by retailer performance:

50% of high-performing retailers agree that new in-store technologies can help

improve their workforce, compared to only 6% of underperformers

It is also worth noting that the drastic increase in retailers citing technologys ability to help

them win new customers (41% in 2012, up from just 29% one year ago) is largely driven by

under-performers (56% vs. 35% of over-performers).

Defining Winners and Why They Win, and Why Laggards Fail

At this point, it seems appropriate to introduce RSRs concept of Retail Winners. Our definition of

Retail Winners is straightforward. We classify retailers based on their year-over-yearcomparable store/channel sales improvements. Assuming industry average comparable store/

channel sales growth of three percent in 2011, we define those with sales above this hurdle as

Winners, those at this sales growth rate as average, and those below this sales growth rate

as laggards.

Why do these comparisons matter? It turns out that over-performance is more than an accident of

selling more stuff. RSRs research findings consistently show that Winners dont merely do the

same things better, they tend to do different things. They think differently. They plan differently.

They respond differently.

Laggards also tend to think differently. They may have spectacular vision, but often fail on

execution. They may forget the power and breadth of choices todays customer has. They fail tore-invent themselves when it becomes obvious their existing business model is no longer

working. They dont change their business processes in an effective manner, and so they either

eschew technology enablers, or dont gain expected Return on Investment on those they DO buy.

In good times, they skate by: in tough times these weaknesses come back to haunt them.

How Winners and Laggards View In-store Technologies

The behind-the-scenes data from Figure 1 appears to be a classic case of laggards blind

optimism: they do not know what technologies would best serve customers in their stores, but

assume any technology must be better than what they have now. They grasp at straws, and

without understanding the new consumers mindset, can easily find themselves implementing

technologies which bring little value-add to the shopping experience. You have to understand theproblem before you design a solution to it. And then architect a step-wise approach to reach that

solution.

We will examine the specific technologies retailers believe will help them facilitate a better in-

store experience in the Technology Enablers section of this report, but as you will see in the

coming pages, Winners have very different technology priorities.


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Winners prize technologies that provide insight into the modern consumer: who she is, what shes

trying to accomplish, and how the retailer can be of service to her while shes in the store.

Laggards are more likely to look sideways first at their competitors.

Mobility: Source and Solution

For many retailers, the lopsided nature of the customer-store technology balance has resulted in

countless missed opportunities to be of real value: too many customers have become conditioned

to the phone in their purses being more helpful than anyone with a nametag in the store. Mobile

technologies in the hands of consumers are exactly what have put stores in the pickle theyre

currently in; arming those working in stores with the same technologies equals the odds and

gives them a fighting chance to be able to converse with the new consumer at her level.

As always, those whose sales are outperforming their competitors are doing so for a reason.

Retail Winners understand that mobile technologies play a vital role in returning the store to

relevance at a much higher rate than do their underperforming competitors.

As weve already seen, Winners value improved people power more highly, and the 36% of

Winners who have had mobile touch-points in store managers hands for longer than a year (vs.

the 0% of laggards, Figure 2), clearly understand that the store managers proper role is to be a

brand advocate out on the floor, overseeing employees, helping with customer service not

tethered to a PC in the back room mapping out employees work schedules. The staggering 46%

of laggards who report no plans to give store managers mobile access are missing a vital

opportunity to improve overall store performance.

Figure 2: Winners Wel l Ahead in Store Manager Mobi l i ty


8%

46%

23%

23%

0%

17%

26%

26%

9%

22%

7%

14%

21%

21%

36%

Project planned, not yet budgeted

No plans

Less than 1 Year

Budgeted project

Longer than 1 Year

How long has your company been actively involved in adding

MOBILE technology-enabled touch-points for STOREMANAGERS within your store?

Winners Average Laggards


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RSRs BOOT Methodology

RSR uses its own model, called the BOOT, to analyze Retail Industry issues. We build this

model with our survey instruments. Appendix A contains a full explanation of the methodology.

In our surveys, we continue to find differences in the thought processes, actions, and decisions

made by retailers who outperform their competitors and the industry at large Retail Winners.

The BOOT model helps us better understand the behavioral and technological differences that

drive sustainable sales improvements and successful execution of brand vision.

Survey Respondent Characteristics

RSR conducted an online survey from February April 2012 and received answers from 72

qualified retail respondents. Respondent demographics are as follows:

Job Title:

Senior Management (e.g.,CEO, CFO, COO, CIO) 20%

Vice President 11%

Director/Manager 48%

Internal Consultant 14%

Staff/Other 7%

2010 Revenue ($ Equivalent):

Less than $50 million 29%

$51 million - $999 million 27%

$1 billion - $5 billion 34%

More than $5 billion 10%

Year-Over-Year Comparable Overall Sales Growth Rates (assume average growth of

6%):

Worse than average (laggards) 28%

Average 42%

Better than average (Winners) 31%

Headquarters:

USA 66%Canada 7%

Latin America 0%

UK 3%

Europe 12%

Middle East 2%

Africa 5%

Asia/Pacific 5%


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Functional Responsibility:

Channel Management 5%

Merchandise Management 9%

Store Operations 26%

IT 30%

FinanceLogistics/Supply ChainHR

5%2%5%


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Business Challenges

Laggards and Winners with Very Different Points of View

The differences between Winners and laggards are sharply evident in Figure 3: When it comes to

their stores, the two groups are not even facing the same set of business challenges.

Figure 3: Different Lens, Different Picture


Winners recognize their employees need help. But they also recognize the challenge isnt just in

giving their associates access to more product information; its in getting more out of them all the

way around. People come to stores for a reason, and improving store execution and making it

more consistent coupled with the ability to make better use of associates time during off-peak

hours is Winners top challenge (68%, Figure 3). As expected, Winners are also more sensitive

to out-of-stocks and the unnecessary time their store managers spend in the back room.

For laggards, however, these issues take a back seat to competitive concerns. To them,

customer price-sensitivity has become all-encompassing. We saw this in our recent pricing study,

where laggards have pre-determined that price has re-emerged as an important concern to

customers, without any substantial evidence to support their theory. From our 2012 Retail Pricing

Benchmark report:

11%

0%

28%

6%

50%

78%

22%

11%

17%

39%

33%

5%

5%

16%

16%

21%

21%

26%

32%

37%

47%

68%

Consumer complaints about their in-store experience

Need to control and streamline the returns and exchangeprocess

Consumers know competitor prices for the sameproducts

Need to reduce shrink

Difficulty differentiating ourselves from our competitors

Price is re-emerging as an important customer concern

Customer dissatisfaction caused by lack of integrationbetween the store and other selling channels

Lost sales due to store out of stocks

Store managers lack information they need on the selling

floor too much time spent in the back room

Need to improve customer service while holding the lineon payroll costs

Need for more consistent store execution/employeeproductivity

Please select the TOP THREE (3) business challenges you face

in your retail stores:

Winners Laggards


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Almost twice as many Winners cite consistency in price across channels as a top three

business challenge than laggards, while 1/3 more laggards are focused on consumer

price sensitivity and increased promotional intensity of competitors.1

Concerns about Out-of Stocks and Competitive Pricing and Differentiation

For the entire response pool, out-of-stocks are more of a challenge this year than last (25% in

2012 vs. 15% in 2011). Retailers recent tendency to under-inventory stores - coupled with theirreliance on supply chains whose points of origin are thousands of miles away - is not without

peril.

The largest retailers seem to have the weakest handle on out-of-stocks: 40% of those whose

annual sales exceed $5 Billion identify out of stocks as a primary business challenge: for mid-

market retailers ($51 - $999 million dollars), that number is only 14%.

The smallest retailers are the least sensitive to consumers knowing competitors prices (only 18%

of retailers under $50 million annually report it as a challenge). For those without the size and

leverage to boast low cost pricing, this seems counterintuitive at first. However, assuming these

mom and pops compete on a service-based business model, this data speaks to a faith in

peoples willingness to reward knowledgeable, helpful staff with a slightly higher-cost sale.

Nearly twice as many retailers are challenged to differentiate themselves from their competitors in

2012 (29%, vs. 15% in 2011). As products become more readily available, the need for a

revitalized store experience only becomes that much more important.

Investing in Store Associates

While payroll-to-sales ratios have normalized recently (after having gone haywire when retailers

slashed payroll in the years directly following the Great Recession of 2008-2009), Winners have

shown the greatest willingness to put that money back into manning their stores (Figure 4).

Figure 4: Winners Invest ing in their Workforce


1Retail Pricing in a Post-channel World: Benchmark Report 2012, April 2012

37% 37%

26%

21%25%

54%

22%

33%

44%

Increased Decreased Remained the same

Changes to Payroll-to-Sales Ratio Over the Past Three (3)

Years



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Even though sales have stabilized, laggards are still forced to cut or stay steady. Its particularly

interesting that, when viewed by revenue, these payroll-to-sales numbers are heavily influenced

by the behaviors of the mid-market retailer ($51-$999 million annually). Thirty-six percent of these

retailers have increased their payroll as a percentage of sales, as have 29% of small retailers.

They are adding staff faster than they are adding sales in recognition that they must meet the

new consumers evolving needs.

The Point-of-Sale Story

One prerequisite component to a satisfactory customer store shopping experience is a modern

Point-of-Sale (POS) system. And while Figure 5 shows the somewhat glacial adoption from year

to year, the real story is in which retailers are leading the charge.

Figure 5: Slow but Steady Progress


Sixty-two percent of Retail Winners have been using a modern POS for longer than one year: for

laggards, that number is only 25%.

Winners recognize that if a customer has taken the time and effort to choose your brand, visit

your store, browse your inventory and select items to purchase, the absolute last thing you want

to do is frustrate her at checkout. Further, new POS systems offer data capture, cross-promotional and save the sale opportunities that are vital to navigating the brave new world of

channel-less retail.

Laggards do seem to be catching on though: 33% have budgeted POS projects for the next 12

months, and mid-market retailers have even greater plans: 38% of retailers in the $51 - $999

million revenue band will be buying POS systems in the coming year.

40%

48%

20%

17%

17%

14%

14%

7%

9%

14%

2011

2012

How Long Have You Had a Modern POS System in Your Stores?

Longer than 1 Year Less than 1 Year Budgeted Project

Planned, Not Yet Budgeted No Plans


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Opportunities

The Make or Break Factor

When it comes to the opportunities that arise from the challenges retailers face, Winners again

demonstrate their understanding that employees hold the key to an improved store experience.

Figure 6: It s Al l about Employees


While only 35% of laggards identify the ability to educate and empower in-store employees via

new technologies as a means to make the store more alluring to increasingly educated

consumers, 65% of Winners cite it as their top opportunity.

Data doesnt speak much more clearly than this: while few retailers sales-per-square foot can

justify an Apple Store employee model (a supremely knowledgeable associate every which way

you turn), the best performers know they must with whatever means that they have learn from

and emulate it as best they can. Customers expect more from store associates than most

currently provide, and those who are already leading in sales are investing in increased employee

pre-screening, product training, and for those customer questions which cant be anticipated the

tools and technologies to access the answers required to save the sale.

Digging deeper into the data we yielded the following findings:

18%

29%

12%

29%

41%

29%

59%

41%

35%

28%

20%

12%

36%

40%

40%

48%

32%

36%

6%

6%

18%

29%

41%

41%

47%

47%

65%

Provide more specific/localized direction to store

managers

Its all about our product mix. If we build it, they

will come.

Improve performance reporting to store

management

Add self-service customer-facing technologies

More personalized attention from our employees

Find ways to make our employees more productive

Focus on a more convenient customer experience

Provide ability to locate and sell merchandise from

anywhere in the company

Educate and empower our in-store employees

using technology

What are the TOP THREE (3) opportunities for improving the

in-store experience?



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One hundred percent of mega retailers (over $5 billion in annual sales) cite the ability to

educate and empower their in-store employees via technology as a top-three

opportunity. To them, it has become fundamental to staying relevant.

The largest retailers also have an increased appetite for technologies which allow them to

locate and sell inventory from anywhere in their company; as retailer size increases,

so does the need to treat inventory as a shared resource: using stores as distribution

centers, and online inventory for in-store fulfillment. Eighty percent of mega retailers and

47% of those with $1-$5 billion in annual sales cite this as a top-three opportunity,

compared to only 24% of small and 31% of mid-sized retailers.

Mid-sized retailers are most intrigued with the ability to provide more specific and

localized direction to their store managers (46% - second only to their interest in

providing a more convenient customer experience). This may be a byproduct of the mid-

markets growing pains; they can only scale for growth once they are confident their

store managers are properly positioned to do so.

Winners Walk the Walk

It comes as no surprise that Winners arent just talking the talk: they have been actively providing

their employees with technology-enabled touch points in stores longer than have any of theircompetitors.

Figure 7: Investment Backs Bel ief


These touch points include computer-based product training, self-service HR, and computer-

assisted selling tools within the store walls. Winners previously told us that one of their biggest

challenges is increasing store consistency and employee productivity: tech-enabled self-serve

23%

15%

15%

15%

31%

24%

5%

5%

24%

43%

0%

7%

7%

21%

64%

No plans

Budgeted project


Less than 1 Year

Longer than 1 Year

How long has your company been actively involved in addingtechnology-enabled touch-points for EMPLOYEES in your

store?



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systems are an effective way to help meet such challenges, made all the more valuable by their

opportunity to improve the workforce during down times; it is far better to have an associate

learning about product features at 3 pm in the absence of shoppers than standing around looking

for some menial task to re-perform.

The largest retailers have an even higher propensity to use these tools: 100% have utilized self-

service employee touch points for more than a year (compared to only 33% of small retailers).

Further Customer Enablement

While providing employees with knowledge remains the bailiwick of Retail Winners, all retailers

have solidified their use of customer-facingtechnology touch-points this year.

Figure 8: Strange Brew


This is an interesting tactic to employ: the customer already has an unparalleled amount of

information at her fingertips. She has already tipped the scales in the technology equation, but

retailers, in the absence of ubiquitous Wi-Fi in stores (more on that in a moment), see real value

in tapping into her tech-savvy nature with touch-point offerings of their own. In some ways, this

speaks to retailers lack of confidence in their existing workforce: perhaps if the store is full of new

tech toys to play with, consumers will be more likely satisfied.

However, many of these installations, which include kiosks, price-check scanners, and product

recipe displays, are easily replicable on a customers own device. With digital signage (which

greatly improves a stores overall look and feel) serving as the exception, wouldnt it be cleaner

and more cost-effective for retailers to provide these services in a strong, positive engagement

with the customer on the device she already knows and loves?

Clearly fear of what she might also do on that device stands in their way of moving forward with

such opportunities, and its now time to discuss what is driving that (already-obsolete) fear.

0%

16%

19%

32%

32%

6%

9%

11%

19%

55%

Budgeted project

No plans


Less than 1 Year

Longer than 1 Year

How long has your company been actively involved in addingtechnology-enabled touch-points for CUSTOMERS in your

store?

2012 2011


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Organizational Inhibitors

Frozen In Time: Whatever Happened to Wireless in the Store?

Its hard to talk about internal challenges that keep retailers from improving the in-store

experience without mentioning the elephant in the room lack of a wireless infrastructure.

We fully expected the roll-out of wireless in the store to follow soon after broadband connectivity

to the home office was complete. Yet almost a decade after persistent broadband connectivity

became ubiquitous, more than half of our respondents still do not have wireless available on the

selling floor, either for employees or customers (Figure 10).

Figure 9: A Dearth of Wireless Avai labi l i ty in Stores


Retail Winners show a slight edge in implementation overall, with 29% reporting wireless

available to customers and 36% reporting wireless available to sales associates and managers

throughout the store. Yet Winners are also most likely to have no wireless in the store at all

(29%).

Based on the traffic we saw around mobility vendors booths at this years NRF show, we can

only assume that absent economic calamity, this number will change significantly within the next

year. We certainly hope so. Hamstrung sales associates and store managers face over-educated

consumers, and absent a wireless signal, customers and guests may choose other locations not just for showrooming, but to ask their friends opinions on the items they might like to buy.

and Speaking of Persistent Broadband Connectivity

We live in a real-time enabled world. TV commercials for mobile carriers say things like Oh, that

was so 29 seconds ago to illustrate how fast their networks are compared to their competitors.

And as we mentioned, research indicates at least 95% of retailers have persistent connectivity to

their home offices. Heck, even food truck retailers can process a credit card transaction through

applications like Square in real-time.

26% 26%29%

19%

No wireless network

available in store

Wireless available only

for receiving and other

inventory control

related tasks

Wireless available

throughout the store

for performance

management, POS and

product related tasks

Wireless available for

customers

Which of the following statements best describes

the technology your company uses to supportwireless networking in the store?


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But that leads us to the next logical question: What happens to that data once it has been

pushed back to the home office? Here, the responses are not so encouraging. While almost all

Retail Winners are processing this data in near real-time (whether through flash systems or

directly into Systems of Record), this capability declines with performance (Figure 11).

Figure 10: Data Processing: Time to Process Varies with Perfor mance


We are most concerned about delivering near real-time actionable information into the hands of

those who need it. Winners have made significant progress over the past few years. Clearly it is

contributing to their continued high performance.

Cant Process the Data through Antiquated Systems

Theres no doubt that retailers often turn to data warehouses and appliances to overcome the

limitations of their existing transaction processing systems. In fact the data from Figure 11 above

clearly illustrate that truism. But its also true that in-store technologies cant be an island

anymore. The store is now implicitly part of the supply chain, deeply involved in processes like

buy on-line, pick-up in store and distributed order management or inventory as a shared

resource.

And so this year, for the first time in our store reports four year history, we find the existing

technology infrastructure taking its place as the most frequently cited inhibitor to moving forward

to new store technology initiatives. This problem narrowly trumps challenges to prove ROI andlast years biggest issue: just getting the working capital to do the project (Figure 12).

77%

8%

15%

47%

35%

18%

25%

42%

42%

Batch updates to all back-office systems

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

Near real-time updates to data warehouse and

other flash systems (batch updates to systems

of record)

How Does Your Enterprise Process the Data

Delivered from Store to Headquarters Systems?

Retail Winners Average Performers Laggards


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14

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


We also added a new response option this year and found it resonated with almost 30% of

respondents. Specifically, we wanted retail opinion on this: As we add technologies into the

store, will they actually help improve customer service, or are they just bright shiny objects that

will serve as distractions?

Its a fair concern, really. In an era of rapid technology change, and very short customer and

employee attention spans, what technologies will really stick? What will actually add to our

portfolios? Ironically, Retail Winners are the most concerned about this issue, with 43% reporting

it a top-three concern, vs. only 14% of laggards. They (Winners) have the money to spend, but

may not have to time to waste on costly distractions that might get in the way of existing success.

Pilots, Smaller Projects, and Accepting the Inevitable

Winners and laggards are relatively consistent in both their overall notion of their internal

challenges and the ways they believe those challenges can be overcome. The notion of in-store

pilots is a standard for most of our retail respondents. Laggards are more prone to start with

smaller projects to prove the ROI, and half of Retail Winners agree. More than half of all

respondents generally agree that where the customers go, they must follow. When the customerdemands something, they have no choice.

Winners are slightly more likely to ask for client success stories from vendors, or to use Managed

Services to help reduce distractions in the store and cut costs. But as we can see from Figure

13, theres a lot of concurrence among retailers of all types to start small and then go big.

12%

28%

43%

32%

40%

66%

50%

22%

32%

39%

15%

61%

54%

49%

20%

20%

24%

29%

35%

39%

55%

59%

Management believes stores should be able to just

do what we tell them

The TCO of in-store technologies makes it hard to

justify many of the newer technologies

We generally dont want to be an early adopter of

new technologies

Were conflicted as to whether new technologies will

be tools or distractions

We are trying to simplify our in-store technology, not

make it more complex

Overall Capital Requirements we never even get to

the subject of ROI

Hard to quantify technology return on investment

The existing technology/infrastructure is preventingus from moving forward with new solutions

Top Three (3) Organizational Inhibitors

2012 2011 2010


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15

Figure 12: Start Smal lthen Go Big


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

14%

7%

21%

14%

64%

71%

79%

14%

14%

21%

21%

57%

57%

71%

Gain sharing programs with vendors

Managed services

Merchandising vendor funding for in-store

projects

Asking vendors to provide success stories and

references

The customer is demanding it we have no

choice

Start with smaller projects, buying basic system

functions, and using ROI to drive additional

Pilot programs in specific stores or regions

Top Three (3) Ways to Overcome the Inhibitors You

Identified

Retail Winners Laggards


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16

Technology Enablers

In a Changing World, Retail Winners Look to Different Tools

The early 2000s brought an array of self-service technologies into the store. In many ways, it was

a financial analysts dream: remove payroll and its associated financial and human resource

issues, and replace it with self-service tools instead. After all, consumers were using pure self-

service when shopping on the web and it appeared as though airline travelers were embracing

self-service tools as quickly as the airlines could roll them out.

To be fair, some of these technologies have proven very useful. Automated price check

machines located in mass merchant and department store aisles eliminate a lot of wait time,

looking for employees who might be standing at cash registers. And for the most part, if youre in

a hurry at a home improvement or grocery store, zipping through a self-checkout aisle might be a

better choice than waiting for a poorly trained clerk to ring up sales on the express line.

But as an industry, we overstated the value of self-service technologies. As the web became

ever-more convenient, the in-store experience became ever more frustrating, The reality that the

airlines were not creating anything like a customer-friendly experience sank in, and, as we

pointed out earlier in this report, retailers started putting payroll back into the stores

We now see payroll to sales ratios stabilizing, and we see the technologies retailers perceive as

high value changing as well. Winners have dramatically changed their points of view (Figure 14).

Figure 13: Differ ing Points of View on Potential Value


6%

12%

35%

12%18%

24%

71%

29%

47%

53%

29%

77%

53%

19%

31%

13%

25%

50%

44%

6%

31%

50%

38%

31%

56%

69%

Dual displays at POS

KPIs and alerts to store managers on mobile devices and tablets

Personal scanners, self-service scales, product information

Software to assign actions in response to underperforming KPIs

Software that schedules the right mix of labor

Employee selling tools on the sales floor

In-store rewards and/or coupons

Deliver information to customer-owned devices

Distributed Order Management

Modern POS Hardware and Software

Deliver information to store-owned devices

Customer facing self-service touch points in the store

Cross-channel customer and inventory synchronization

Top Five (5) Technologies with the Potential to Deliver Value

in the Store

Retail Winners Laggards


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17

Laggards still generally seem to hold out hope for technologies from that era. By a wide plurality

they are more likely to cite new customer-facing self-service touch points as having potential to

deliver value. Seventy-one percent believe in store rewards and coupons still hold great potential

(vs. only 6% of retail winners), and they still eagerly hope that personal scanners and self-service

scales will help drive more customer value.

Winners see things differently. They are extremely bullish on cross-channel synchronization,employee selling tools and software that improve their labor scheduling capabilities as critical to

their success. They want to bring KPIs and alerts to their newly mobile store managers. They

recognize, more than their peers that the world has changed again.

Larger Retailers Still Hold Out Hope for Customer Self-service

Interestingly, the larger the retailer, the more he is likely to believe customer self-service touch

points have potential value in the store (Figure 15).

Figure 14: Larger Retai lers More Bul l ish on Potential of Customer Self-servi ce


In many ways, this makes sense, particularly for large retailers with a large store footprint. We

used price check machines as one example of a self-service technology with legs. We can

envision others that may not yet be ready for prime time (smart fitting rooms, augmented reality

product images, etc.) but as we can see above, very few of those technologies have actually

driven any actual value into the store.

So Whats Actually In Use? Whos Doing What with Technology?

Now that weve looked at what retailers perceive as valuable and the technologies they have

actually gained value from, where do we go from here? What are retailers actually using, and

what are they planning to at least try?

Ironically, the technology that is most frequently in use is one whose value has already been

extracted: in-store rewards and coupons, while the ones most frequently on retailers to-do lists

are the newest potential seems clear, results, unknown (Figure 16).

47%42%

68%80%

31%22%

29%20%

Less than $50

million

$51 million - $999

million

$1Billion to $5

Billion

Over $5 Billion

Customer Self-service Touch Points. Do

they Enhance the Customer Experience inthe Store?

Potentially Actually


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18

Figure 15: Technology Usage, Exist ing and Planned


We expect that in-store rewards and coupons will indeed live on, but delivered to store and

customer-owned cell phones, tablets and PDAs. We can also see huge potential in distributed

order management an application that has already delivered telephone number sized results

to retailers in the form of saving what would have been a lost sale, and allowing retailers to

reduce their overall pool of inventory significantly.

Labor scheduling and task management have already added value to the enterprise, and as

retailers continue to refine and tweak the amount of labor they put into their stores, we can expect

these applications to become more valuable in maximizing the customer-facing utilization of that

labor force while meeting the promise of having the right product on the shelf at the right time.

Self-checkout has proven to be of some value (as mentioned earlier). We dont expect it to go

away, but given the changing times, we also dont expect it to be adopted in as many segments

as we originally expected. It may very well be usurped (even before its arrival) by mobile POS in

department stores and other apparel retailers.

24%

26%

27%

38%

38%

39%

45%

51%

35%

21%

53%

50%

40%

39%

36%

30%

40%

53%

21%

12%

21%

21%

19%

19%

Software to assign actions in response to

underperforming KPIs

Self-check-out

Deliver information to store-owned cell phones,

tablets and PDAs

Cross-channel customer and inventory

synchronization

Distributed Order Management

Deliver information to customer-owned cell phones,

tablets and PDAs

Software that schedules the right mix of labor

In-store rewards and/or coupons

How Long has Your Company Used the

Following Technologies in the Store?

Installed Budgeted or Planned No Plans


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19

BOOTstrap Recommendations

The Store as a Supply Chain Node: Compensate Accordingly

RSR has a core belief: people do what they are paid to do. As the store becomes a fulfillment

center for other retail channels, it serves retailers to compensate personnel accordingly. We

were rather surprised to find almost two-thirds of respondents do not give stores credit for sales

initiated in other channels. This number has barely moved since last years benchmark and

doesnt bode well for retailers who are relying on stores to help alleviate potential out-of-stocks

and improve customer service in a timely fashion.

Double bookkeeping can be complicated, but there is ample precedence for doing so: pre-internet

catalog/store retailers followed this practice. It really is appropriate for todays world too.

Self-service Options are Useful Tools, but Not Your Only One

Its time to recognize that self-service is not the be-all and end-all we once hoped/thought it was.

While self-checkout and automated price checks are useful options for consumers, they can

never replace the interaction with an educated and empowered employee or store manager. Wecertainly are not among those who say throw it outself-service can be a real time saver for

customers, But a differentiated in-store experience really does start with an empowered

employee.

Follow the Lead of Retail Winners: Nurture the Employee Asset

Weve seen through this benchmark that over-performers really do think of their employees

differently than their competitors. The employee is the in-store brand ambassador. It serves

retailers well to invest in technologies that both educate these employees, help schedule their

time in the most productive fashion, and insure the tasks they are given actually get done.

Dont be Ham-strung by an Antiquated Back Office System

Many of us have batch-oriented systems of record, and most of us have persistent broadbandconnectivity to our stores too. Instead of letting store-gathered data languish overnight, consider

implementing a data warehouse to provide rapid response to issues in the stores. Implementation

times are not onerous, and the opportunity should drive ROI in really short order.

The POS Refresh: If You Havent Done it Already, Nows the Time

First of all, we cannot promise that the current generation of POS hardware and software will last

as long as the last generation. Times just change too quickly. However, there is no longer time

to waste a modern POS system is the lynchpin to cross-channel connectivity, and concurrent

customer satisfaction. So.if you havent already done so, its time to get that modern system

selected and installed.

Wireless in the Store: Its Time, Even Past Time to Get it Done

Just as a modern POS is the lynchpin for cross-channel connectivity, a wireless infrastructure is

the lynchpin to real-time effectiveness. Wireless will get store managers back on the floor,

simplify employee-customer interactions, and Wi-fi for customers is becoming important as a tool

for customer engagement within the body of the store. Rather than fearing showrooming, it would

serve us to welcome customer interactions with friends within and outside the four walls of the

store.


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a

Appendix A: RSRs Research Methodology

The BOOT methodology is designed to reveal and prioritize the following:

Business Challenges Retailers of all shapes and sizes face significant external

challenges. These issues provide a business context for the subject being discussedand drive decision-making across the enterprise. Opportunities Every challenge brings with it a set of opportunities, or ways to

change and overcome that challenge. The ways retailers turn businesschallenges into opportunities often define the difference between Winners andalso-rans. Within the BOOT, we can also identify opportunities missed anddescribe leading edge models we believe drive success.

Organizational Inhibitors Even as enterprises find opportunities to overcome theirexternal challenges, they may find internal organizational inhibitors that keep themfrom executing on their vision. Opportunities can be found to overcome theseinhibitors as well. Winning retailers understand their organizational inhibitors and findcreative, effective ways to overcome them.

Technology Enablers If a company can overcome its organizational inhibitors it

can use technology as an enabler to take advantage of the opportunities it identifies.Retail Winners are most adept at judiciously and effectively using these enablers,

often far earlier than their peers.

A graphical depiction of the BOOT follows:


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Appendix B: About RSR Research

Retail Systems Research (RSR) is the only research company run by retailers for the retail

industry. RSR provides insight into business and technology challenges facing the extended retail

industry, providing thought leadership and advice on navigating these challenges for specific

companies and the industry at large. We do this by:

Identifying information that helps retailers and their trading partners to build more

efficient and profitable businesses;

Identifying industry issues that solutions providers must address to be relevant in the

extended retail industry;

Providing insight and analysis about a broad spectrum of issues and trends in the

Extended Retail Industry.

Copyright 2012 by Retail Systems Research LLC All rights reserved.No part of the contents of this document may be reproduced or transmitted in any form or by any means without the

permission of the publisher. Contact [email protected] for more information.

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