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Perspective Paul Leinwand

Karla Martin
Marcelo Tau
Aurelie Viriot

Winning in Retail
With a Targeted
Store Service Model
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Chicago San Francisco
Paul Leinwand Marcelo Tau Karla Martin Aurelie Viriot
Partner Senior Associate Partner Senior Associate
312-578-4573 312-578-4576 415-263-3712 415-627-4279
paul.leinwand@booz.com marcelo.tau@booz.com karla.martin@booz.com aurelie.viriot@booz.com
WINNING IN RETAIL Executive Summary consumer experience in the store
In a competitive retail without a clear strategy regarding
WITH A TARGETED
environment, with numerous which services to emphasize. This
STORE SERVICE players trying to reach the confusion is especially endemic
MODEL same pool of consumers, it’s among the retailers that find
important for retailers to be able themselves in a middle position
to differentiate themselves to keep in terms of service—between
attracting customers to stores. New the model of factory outlets and
products, competitive prices, and warehouse clubs, which have
convenient store locations have virtually no service, and the
traditionally been elements critical full-service model of some high-
to rousing shoppers’ interest and end retailers, which may offer
driving them to stores. These personal shopping, concierge
factors continue to be important, services, product setup, alterations,
but in-store service has become layaway, and gift wrapping. The
a vital dimension for retailers retailers in this no-man’s-land tend
that want to deliver a superior, to jump on trends they observe
differentiated experience that among competitors and offer
customers will remember the next the same services without a clear
time they shop. understanding of which ones
matter most to their customers.
In the pursuit of such memorable
service, many retailers have tried This confusion has often yielded a
to address all aspects of the mediocre overall service experience
as resources have become stretched
in too many directions. Clearing
up the confusion and getting
in-store service right is critical. In
this article, we review the services
that really matter to customers,
dissect the hidden costs of trying
to be all things to all people, and
offer a framework for choosing the
best service approach.

Booz & Company 1


Service Is a Key Driver of Exhibit 1
Store Success Importance of Attributes for Those Selecting a Specialty Apparel Retailer

Shoppers have more options


and show less loyalty than ever The Store Looks Neat and Clean 31%
before. The challenge for retailers
Good Mix of Styles 28%
increasingly revolves around their
ability to turn customers into Staff Is Available When I Need Help 21%
repeat buyers instead of one-time
Always Has Something New 21%
shoppers. Delivering a differentiated
and appropriate service proposition The Store Is Close to Where I Live/Work 21%
is critical to addressing this
Has the Best Sales/Coupons 20%
challenge and creating a convenient
and positive shopping experience Carries Brands that Are not Sold Anywhere Else 17%
that customers will remember the
next time they shop. Priced Below the Average Retailer 14%

An annual customer service survey Carries Recognized National Brands 11%

conducted by the National Retail 0% 5% 10% 15% 20% 25% 30% 35%
Federation (NRF) highlights the Percent of Respondents Ranking
importance of in-store service in Attribute as “Very Important”

bringing customers back to the


Service-Related Attributes
store and driving sales. According
to the survey, 99 percent of
Note: Stores in sample: Abercrombie & Fitch, Banana Republic, J. Crew, The Limited, Ann Taylor, Bebe, Caché,
shoppers said that customer service Chico’s, Talbots.
Source: Booz & Company
was at least somewhat important
when they were deciding whether
to make a purchase. “Consumers
are beginning to demand more from
retailers and are making conscious Several retailers have used in-store PetSmart is another example
decisions about where to shop services as a way to differentiate of a retailer that has leveraged
based on their expectations for themselves and create a sustainable the service dimension to better
good service,” said NRF President competitive advantage. For compete in the marketplace. As
Tracy Mullin. instance, Best Buy has begun many supermarkets and mass
aggressively marketing installation merchandisers began expanding
In a recent study conducted by and product setup and other more aggressively into pet food and
Booz & Company for the specialty services alongside flat-panel TVs supplies, PetSmart started to offer
apparel retail segment, shoppers and PCs. The company has invested pet grooming and kennel stays,
highlighted service-related attributes in training its sales associates to creating a difficult-to-imitate service
as being among the top factors that provide product information and proposition for pet owners who
drive them back to stores. Among sales support to customers, which now see PetSmart as a one-stop
the attributes that shoppers feel are has translated into a major point shop to take care of their pets.
“very important” when selecting of differentiation between Best Buy
a specialty apparel store, store and Wal-Mart, whose atmosphere Approach to In-Store Service
neatness and cleanliness comes first many shoppers perceive as hurried Has Often Been Scattershot
and staff availability third, placing and impersonal. Despite Wal- As retailers have set out to enhance
these service-related attributes Mart’s attempt to push consumer customer service and attract repeat
ahead of many product, price, and electronics heavily earlier in the buyers, many have attempted to
location attributes (see Exhibit 1). decade, the retail giant still struggles address every aspect of in-store
to sell big-ticket TVs. service. For example, common

2 Booz & Company


elements of the shopping experience offering the same mix of services, of which service activities make a
at most specialty apparel retail even though their value proposi- real difference in traffic, conversion,
locations include being greeted tions to customers are quite differ- and transaction size. Trying to
upon entrance, being given advice ent. This approach is symptomatic enhance in-store service without
on the latest product trends, being of their confusion, in many cases, a clear focus is both costly and
offered help from store associates about which services to emphasize. confusing. Increasing the level of
on the sales floor or in the fitting A scattershot approach to service is service across all customer-facing
room (to carry items, help in endemic to the retail industry. activities (e.g., providing product
product selection, or find sizes), and information and suggestions,
being bid farewell on departure. In Trying to Do Everything Is helping to locate items, offering
a Booz & Company study of many Costly and Inefficient opinions and advice, greeting
specialty apparel retailers, labor Although in-store service is key customers upon entrance, and
distribution across all the customer- to retailers’ success, trying to ensuring neat product presentation)
facing activities in the store was do everything is not the answer. translates naturally into more work
found to be quite similar (see Many retailers have embarked for store associates and managers to
Exhibit 2). on a journey to deliver a wide perform. This generates huge costs
array of services without a clear for the retailer in two major ways:
The fact that competing retailers
understanding of what service really (1) directly through increased labor
show similar store labor deploy-
means to consumers or a knowledge costs, and (2) indirectly through the
ment indicates that they are all
cost of added complexity.

• Increased Labor Costs: Multiply-


ing the number of service activi-
Exhibit 2 ties to be performed in stores or
Customer-Facing Labor Deployment in Specialty Apparel Stores increasing the degree of quality
with which they are performed
often translates into additional
Abercrombie & Fitch 12% 50% 11% 27%
labor requirements—and hence
American Eagle 7% 55% 10% 28% into additional labor costs. Store
Ann Taylor 6% 55% 9% 30%
labor represents the second-
largest cost for retailers after
Banana Republic 5% 52% 11% 32% cost of goods sold, typically
Bebe 10% 47% 12% 32% accounting for 10 to 15 percent
of total sales. In the case of a
Chico's 10% 47% 7% 36% large specialty retailer, adding one
Gap 1% 48% 14% 37% full-time associate in each store
could affect the bottom line by as
H&M 1% 41% 17% 41%
much as 1 percent. Investing in
J. Crew 5% 49% 15% 32% enhanced service levels across all
dimensions of customer service
Wet Seal 3% 43% 21% 33%
without a clear understanding of
Zara 1% 54% 14% 31% their expected costs and benefits
can thus weigh significantly on
0% 20% 40% 60% 80% 100%
operating results. Therefore,
Percent of Customer-Facing Store Labor
understanding the service
elements that create the most
Entrance Dressing Room
Sales Floor Cash Register
value for their particular cus-
tomers is critical to eliminating
Source: Booz & Company Store Labor Survey (2007), Booz & Company unnecessary services and making

Booz & Company 3


the right trade-offs to balance through the multiplication of defined. For instance, although
costs and services. service activities that must be a commission-based system is
managed. Store managers are appropriate in a service model
• Cost of Complexity: The cost of
typically responsible not only strongly emphasizing customer
complexity is the other significant,
for tracking sales performance, interaction, it can create problems
albeit hard-to-measure, cost for
recruiting and training, scheduling in a broader service model—
retailers. Added complexity,
staff, ensuring efficient back- because it provides store associates
brought about by the proliferation
room operations and product little incentive to perform non-
of activities for store associates,
presentation, and monitoring cash sales tasks.
makes running efficient store
wraps, but also for managing
operations more difficult and Choosing the Right
all additional services such as
eventually leads to a costly loss Service Approach
sales support, concierge services,
of focus. For example, retailers To deliver the differentiated in-store
greetings, gift wrapping, and
are setting increasingly strict
product maintenance and setup to experience that customers seek
standards for both replenishment
ensure that all services are being without unnecessarily increasing
and merchandise presentation—
appropriately delivered complexity and costs, retailers have
which increases the time required
to customers. to focus their service enhancement
to fill the shelves. At the same efforts to invest where it really
time, they want store associates Beyond added costs, a poorly or too matters. Success comes with a
to provide increasing levels of broadly defined service model will service model that:
support to customers; they often typically create significant human
• Fits with the type of products or
services sold
“Understanding what customers really want • Aligns with the overall
is essential to identifying service activities corporate strategy and store
operating model
worth investing in.”
• Focuses on the services that
have a major impact on
customer behavior.
require associates to approach resources challenges at the store 1. Fit with the Type of Products or
customers and proactively level. For instance, recruiting is a Services Sold
offer help and drive more sales. difficult exercise when the required
Because of budget constraints, skills are not clearly defined or are The type of products or services
such increases in service levels defined too broadly. The risk is sold is a major factor for retailers
often have to be accomplished that retailers will bring employees to take into consideration when
without commensurate increases on board who are lacking the selecting where to invest in in-store
in staffing levels. Many stores appropriate broad skill set, and will service activities. Customers’ needs
have to deliver more without create frustration among employees for types and levels of support in
significant additional resources. who might end up performing their purchasing decisions vary as
They find themselves doing a activities beyond the ones for which widely as the product and service
little bit of everything moderately they were initially hired. Down categories. Complex products or
well—and nothing really well, the road, this worsens the chronic services, or those with which many
amid a general loss of focus. turnover issue many retailers consumers have a limited level
already face. of comfort and knowledge (e.g.,
Worse, this damaging loss of high-tech electronics and complex
focus typically extends beyond Additionally, compensation and financial products) will tend to
store associates to the broader incentive structures pose challenges call for a “high-touch” service
store operations leadership team when the service model is not well

4 Booz & Company


approach characterized by a high “Consumer surveys are often not designed
level of personal contact. Similarly,
products or services that represent
to help the company understand what
a major purchase for customers— customers really want.”
because they are expensive (e.g.,
a car) or emotionally important
(e.g., a wedding dress)—will
typically benefit from high levels of Zara is an example of a retailer 3. Focus on the Services That
interaction between store associates that has gotten all these elements in Have a Major Impact on
and customers. Finally, specific perfect alignment with each other. Customer Behavior
product or service constraints will Its overall corporate and brand
The third factor for retailers to con-
also have an impact on the optimal strategy is to deliver the hottest and
sider is the need to focus. Among
service level. For instance, the sale most up-to-date product trends
the range of possible services that
of eyeglasses typically requires a at accessible prices. Unlike other
could potentially be developed for
higher level of customer interaction specialty retailers, Zara builds its
the retailer to support its specific
given the need for sales associates assortment on individual items
strategy and value proposition, it
to go through all lens options with instead of collections. Markdowns
is vital to concentrate investments
customers, ensure that the lenses and promotions are very limited,
and efforts on those services that
fit the chosen frame, and make any compared to industry averages,
have the biggest impact on cus-
necessary changes to the frame for because Zara is able to get the
tomer behavior. The key challenge
it to be comfortable to wear. assortment right. Merchandise is
is to identify the services that make
displayed mostly on hangers to
2. Alignment with Corporate a real difference for each retailer’s
facilitate replenishment and to
Strategy and Other Store specific target customer base.
maintain neat product presentation.
Model Elements
The service model is focused on Focusing on the most critical
The second factor to take into ensuring that products are available services also means accepting
account is the overall strategy of the on the shopping floor and regularly that other areas of service are less
company. Within the constraints of replaced, given the short life of important—and getting out of the
a given industry segment, retailers most items. Limited sales support services that do not line up with
have many possible strategic is provided, unless customers ask one’s strategy and do not show
options based on target population for help. Other services, such as value for the money. For instance,
groups, brand image and value product or styling advice, support Zara’s service model leverages the
proposition, positioning versus in the fitting rooms, alterations, company’s ability to quickly bring
competitors, and distribution and greetings are typically not new trends to the store to attract
strategy. A retailer’s chosen strategy offered. The model is to deliver customers. The focus is to ensure
naturally has a direct impact on its the right product and make sure it that products are available on the
type and level of in-store service. is available on the sales floor floor, limiting the sales support
Overall, the objective for a retailer for shoppers. provided to customers. Bringing in
is to ensure that its in-store service knowledgeable sales associates to
This example shows that a good
model is strongly aligned with the support customers would definitely
in-store service model is one that
company’s overall strategy and enhance customer service but not
complements the other elements of
with the other elements of the store necessarily improve sales to the
the store model to deliver on the
model set up to deliver on this point where it would justify such
retailer’s specific strategy and meet
strategy—assortment, price, store an investment.
the needs and expectations of its
environment, and merchandising.
specific target customer segment.
There is therefore no single model How to Change: Research,
that will work for all retailers, in all Test, and Learn
product categories. Understanding what customers

Booz & Company 5


“The in-store service model must evolve strategy to improve their in-store
service proposition on an ongoing
over time to meet changing competitive basis. The objective is to refine
dynamics and consumer preferences.” the in-store service model and
make it evolve over time to meet
changing competitive dynamics
and consumer preferences. For
really want is essential to identify- for improvement to the current some, such an analytical approach
ing service activities worth invest- service model. However, they are to service model decisions might
ing in. To this end, many retailers usually not sufficient for making be a significant departure from
have invested significant time and decisions about major service the way things have traditionally
money in a variety of consumer model changes. Customers can give been done, which comes with its
surveys aimed at tracking cus- insights about what they think is own challenges. Engaging in a
tomers’ opinions over time. This important to them, but they might test-and-learn approach to store
exercise is sensitive, however, and not be fully aware of what actually model definition with regular
involves two common pitfalls. The drives their purchasing behavior. in-store experiments calls for
first is that retailers often develop Moreover, they might find it a strong commitment to set up
consumer surveys that are not difficult to have an opinion on what appropriate resources internally.
designed to help the company could be versus what already exists. Notably, this means investing in
understand what customers want; the right analytical talent to design
Actual tests in physical retail
instead, they focus on measuring and analyze experiments, and
locations are necessary for
how the company is doing against potentially investing in information
companies that want to understand
the dimensions of service it thinks system upgrades where the current
the real potential of possible service
is right for customers. The second infrastructure cannot support the
model changes, and to select the
pitfall is that in many cases, compa- needs of the new strategy.
ones to be rolled out. Ideas to
nies are tempted to try to measure
improve the model will come from Seeing the value of the test-and-
and act on everything and can end
a variety of sources, including learn approach, some retail
up developing broad consumer
consumer research and feedback companies have already fully
surveys covering all aspects of the
from the field. Store pilots should committed to such a strategy. For
customer experience. Such lack of
be developed and implemented example, shoe retailer Famous
focus is detrimental. When surveys
to measure the benefits and costs Footwear has created a Test &
cover multiple topics, the resulting
of the most promising of these Learn group within the company in
insights tend to be overly general
ideas—filtered on the basis of order to build its retail optimization
and thus hard to comprehend and
their expected impact, cost, risk capability. “Famous Footwear has
act upon. Moreover, using con-
level, and fit with the company’s applied Test & Learn in virtually
sumer surveys to track a company’s
overall strategy and other elements every operational area of our
performance across a large number
of the store operating model. business,” commented Alan Sue,
of service variables often means that
Only pilots followed by rigorous Famous Footwear’s director of Test
the organization can lose focus and
analysis can provide a solid case & Learn.
incur unnecessary costs as it
for major changes to the current
tries to go after too many object- Some retailers have even taken
service model. They are a pivotal
ives at the same time without the approach one step further and
part of any retailer’s store labor
clear prioritization. have created specific physical store
optimization effort (see Exhibit 3).
testing locations. Bank of America,
Focus groups, another tool used to
Sustained success requires that for instance, has fully embraced
measure customer satisfaction, also
retailers actually embrace a service model experimentation in
have the benefit of providing ideas
continuous “test and learn” its retail branches.1 To go beyond
1
“R&D Comes to Services: Bank of America’s Pathbreaking Experiments,” Harvard Business Review, Vol. 81, No. 4 (April 2003).

6 Booz & Company


Exhibit 3
Case Study —Store Service Optimization at Leading Consumer Goods Retailer

Situation Store Service Optimization Initiative

Context Approach

• A consumer goods retailer decided to rethink its in-store • A cross-functional team was assembled to review existing
service model to better align it with what its customers wanted store processes and optimize the service operating model
• Its objective was to optimize store staffing levels and focus • The team developed preliminary hypotheses concerning both
store associates on the highest-impact service activities service activities and staffing levels that were based on:
• The company put together a task force to do some initial – Observations in selected stores
investigation into the current state of service across its stores – Additional interviews with store personnel
– Customer research insights
Major Challenges – Statistical analyses of store performance

• Interviews with store managers and associates combined with • The team then selected high-potential hypotheses that
financial analyses uncovered three major challenges: needed to be tested and structured in-store pilots—carefully
selecting the number and type of pilot stores, and timing the
– A major increase in the complexity of in-store activities had pilots to ensure statistically significant results
led to unnecessary labor costs and inefficiencies.
– The alignment of in-store service activities with customers’ Results
expectations and the brand’s strategy was unclear.
– Financial performance varied greatly across stores, • Pilot results confirmed significant store service model
suggesting significant opportunities for improvement. improvement opportunities involving:

Key Questions – Store staffing levels across peak/non-peak periods


– Staff deployment across service activities and areas of
• Addressing those issues required answering a set the store
of questions: – Service-oriented incentives offered to store staff

– Is store service aligned with our strategic vision? • Opportunities to eliminate, streamline, or automate
– What type of service do the brand’s customers expect? administrative activities were identified and implemented—
– How should store labor be allocated to deliver against those allowing staff redeployment to value-added service activities
expectations while minimizing labor costs?
– What is driving the workload of our store personnel?
– Have we overcomplicated their roles?

Source: Booz & Company Store Labor Survey (2007), Booz & Company

the constraints related to testing a the number of testing units (e.g., the service model within their own
wide array of ideas in traditional the stores) is limited and that the fleet are worth exploring.
branches, the company has created number of variables is significant
Adapting the service model by
a prototype center at its headquar- in an environment where human
geography and type of locations
ters to help plan successful experi- interactions are key. But it offers
can show significant potential.
ments and has set up a number of superior value in identifying
Demand pattern, shopping
specific test branches. These testing optimal service activities and service
behavior, and local culture can
capabilities are leveraged through levels that consumer research alone
vary significantly from region to
a structured test-and-learn process cannot bring.
region and even from store to
(see Exhibit 4, page 8), accompa-
store; a more tailored model can
nied by the relevant organization Differentiating Service Levels
potentially deliver better results.
(including a dedicated innovation within the Fleet
Differences related to store size and
and development team) and infor- A universal service approach is not
location are also worth exploring.
mation systems. necessarily the most efficient way to
Small stores, given the lower
maximize the opportunities across a
Testing in stores is clearly more traffic, may benefit from a more
given fleet of stores. For some retail-
challenging than it is in an online service-oriented model designed
ers, opportunities to differentiate
or mail environment, given that to create a boutique environment

Booz & Company 7


Exhibit 4 and other consumer electronics,
Test-and-Learn Process
service is much more limited.

These are all potential areas for


Rollout Hypothesis Generation
service differentiation that are
worth it for a retailer to explore
while maintaining its identity for
customers across the fleet.
Test Results Analysis

Hypothesis Prioritization
Conclusion
Store service is a key success factor
in the current retail environment,
but retailers have to carefully pick
and choose a select number of
Test Implementation
Test Design service activities in which to invest.
Trying to act on all aspects of in-
Source: Booz & Company store service is both costly and inef-
ficient, with distracting complexity
in store operations. Enhancing the
store service model does not mean
increasing the level of service in all
with a closer connection between associates and intentionally visit the dimensions of the customer experi-
customer and store associate; store when traffic is lower. ence. It means investing in a focused
meanwhile, large, high-traffic stores way in the service activities that
Another opportunity can be to most powerfully drive customer
might find a limited-service model
differentiate the service level pro- satisfaction and purchase decisions,
to be preferable. Street stores,
vided in the different sections of a and striving for excellence on these
which function as a destination
store—for example, shopping floor key levers. To achieve this goal, it is
for shoppers—usually returning
versus fitting rooms for apparel and critical to understand what actually
shoppers—can also benefit more
department stores. Shoppers in the determines the purchasing behav-
from a high-service model than mall
fitting room have already completed ior of consumers. In addition to
stores, where shoppers might be
the first major step in the purchas- targeted customer research focused
just passing by.
ing process by deciding to try on the on what customers want, retailers
In some instances, there are also product and might be more recep- must conduct in-store experiments
opportunities to differentiate the tive to product suggestions than to fully assess the benefits, costs,
service approach within a given customers browsing products on and risks of high-potential ideas for
store—e.g., by time of day or by the sales floor. There might be an store service improvement. If these
section of the store. For example, opportunity to deploy more store efforts are executed well and in
the characteristics of customers associates to the fitting room area alignment with other dimensions of
shopping during peak and nonpeak to drive additional sales. For exam- the retailer’s sales proposition, strat-
hours can be distinct. In some cases, ple, Best Buy increases sales staff in egy, and culture, they can have a
nonpeak shoppers might be looking areas such as TVs and home-theater major impact on store performance.
for more interaction with store systems, whereas in DVDs, games,

8 Booz & Company


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