WHITE PAPER Aligning the Labor Model with the Customer Experience Part 1 of a 3-Part Series: Measuring the Success of a Retail Labor Model Stephen Strohecker, Kronos Retail Strategic Advisor See the other white papers in this series, “Part 2: How Traditional Methods for Gauging the Customer Experience Fall Short” and “Part 3: Best Practices for Measuring the Customer Experience and Success of the Labor Model.” WHITE PAPER | Aligning the Labor Model with the Customer Experience UNDERSTANDING THE RETAIL CUSTOMER EXPERIENCE Retailers know that a key driver of customer loyalty is their ability to deliver a unique, compelling customer experience. It’s the success or failure of this experience that differentiates retailers from the competition. The influence of customer experience on retail success is not new. You could argue that the importance of the retail customer experience dates to the origins of retail itself. And over the past 100 years, the customer experience has evolved significantly. Retail innovators like Clarence Saunders, Bernard Kroger, Sam Walton, Arthur Blank, and Bernie Marcus have changed how customers shop for products and services, and built successful retail enterprises by driving loyalty through the experience. Take grocery as an example. Clarence Saunders, the founder of Piggly Wiggly grocery stores, is credited with creating the first self-service grocery store in 1916.1 Prior to self- service, customers wrote out a shopping list and handed it to their grocer, who then picked all the items on the list for the customer. Self-service changed the industry by allowing customers to experience the store, walk the store floor, and self-select items like produce, meat, and deli. Today, grocery, like all retail, continues to innovate and challenge the traditional shopping experience. Grocers use promotions, merchandising displays, in-store signage, decor, aromas, and other techniques to lure customers into the store and drive more items into the basket. Retailers like Stew Leonard’s and IKEA provide shoppers with an experience unmatched by competitors. These stores are destinations, and many customers plan their trips days in advance. Costco, the second-largest U.S. retailer, attracts customers from miles away because shoppers know they will experience a warehouse feel while buying everyday items in bulk at reduced prices. Entire families climb into minivans to head to Costco to taste samples, push oversized shopping carts, fight crowds, and grab a $1 hot dog on their way out. You could argue that these customers are more interested in the value of the experience of buying goods than they are in the value of the goods themselves. The shopping experience is so powerful that it can even override potentially negative aspects. In a Costco warehouse, customers might have to stand in line at checkout, yet they never complain because their perception tells them that the value of the experience is worth the wait time. Conversely, in the local grocery down the road, customers may balk at waiting because they perceive the delay as an interruption in their day. SUCCESS AND FAILURE ARE TIED TO THE CUSTOMER EXPERIENCE Retailers succeed and fail Retailers succeed and fail on their ability to deliver a relevant, competitive customer experience. In daily business journals, we read the stories of long-standing retailers on their ability to deliver a struggling to drive traffic into stores. In 2016 and 2017, a number of major retailers closed relevant, competitive all of their stores while others reported a significant number of closings. These retailers customer experience. had all been successful at one point in time; some were billion-dollar organizations. But faced with declining foot traffic, pricing pressure, online competition, product mix, and other challenging store conditions, they eventually closed. While there can be many reasons for the exodus of customers, if a retailer is unable to offer a compelling, loyalty- driven customer experience, it will always struggle. 1 Piggly Wiggly, Where It Began…, found at www.pigglywiggly.com/about-us. 2 WHITE PAPER | Aligning the Labor Model with the Customer Experience While some retailers fail, others continue to thrive, grow, and introduce new retail innova- tions. Wegmans, a destination for grocery and made-to-order items, is a long-standing retailer that continues to grow and innovate in order to stay relevant and drive traffic. And despite the rise of retailer bankruptcies, we still see retailers like Five Below and Harbor Freight expanding rapidly and creating successful formats for delivering arguably the same products as other, failing retailers. Retailers realize that the customer experience is key to success. And more retailers are recognizing that the customer experience is one differentiator that can help protect them against competition from traditional and online retailers. The focus has become so important that many retailer organizations have added Customer Experience as a dedicated business support function structure led by a C-,E-, or VP-level executive within the organization. ...customer experience DEFINING THE CUSTOMER EXPERIENCE refers to the “day in the life” So what is the customer experience? We hear the term frequently in the retail industry. of a customer who enters a Used in both traditional and online forms of retail, customer experience refers to the “day in the life” of a customer who enters a store or an online shopping site. It represents the store or an online shopping sensory perception a customer feels as they navigate the shopping environment. Let’s site. It represents the walk through a typical grocery shopping example. sensory perception a • Jill, our example shopper, pulls into the parking lot of her favorite grocery store and customer feels as they is pleased to find a wide-open parking lot, free from all the previously used shopping navigate the shopping carts and cleared of snow and debris from last night’s snowstorm. environment. • Jill parks her car and walks to the front entrance, which is treated with deicer for her protection, and selects a shopping cart that is dry and free of snow and ice. • She enters the store and grabs the weekly flyer — and is driven to hunger by the smell of rotisserie chicken coming from the deli in the back of the store. • She puts the flyer in her cart and turns to walk through the produce section where she finds apples and oranges piled high in neatly formed pyramids, with all the apple stems pointing in the same direction. • She walks through the produce section without slipping and falling because the produce clerk just finished picking up loose debris from grapes that were dropped by another customer. • She stops at the blueberries and puts two containers in her cart because the signage informs her of a buy one, get one free promotion. • She then goes to the deli and orders one rotisserie chicken, one pound of deli ham, and one pound of cheese. The deli clerk slices a piece of ham and presents it to Jill for her approval on the thickness. The clerk then slices the cheese and adds a layer of cellophane between each slice to prevent the cheese slices from sticking together. • Jill finishes her shopping by stopping in the dairy department to pick up milk and yogurt. She finds her favorite yogurt is out of stock on the shelf, but lucky for her, a dairy clerk is nearby to walk to the back room to bring out a new case for her. 3 WHITE PAPER | Aligning the Labor Model with the Customer Experience • Jill then goes to the checkout where she finds all lanes are open and only one customer is waiting at each register. She chooses a lane and places her items on the conveyor and waits. Soon, she is greeted pleasantly by the cashier, who asks her for a loyalty card, reminds her about a charitable program that she can donate to during the payment process, and begins scanning items. As the cashier scans, the bagger steps to the end of the checkout and begins bagging Jill’s items. Jill pays, is thanked for shopping at the store and heads back to her car. She is greeted at the sidewalk by a lot attendant who asks if she needs help loading her purchases into her car. She declines the offer of help and finishes her trip. Although many factors have contributed to the customer In this example, we see that many factors contribute to Jill’s shopping experience. The retailer has set standards for operations, merchandising, in-store signage, and customer experience, there is service that, when executed consistently, provide Jill with an experience that she enjoys one element that is and that captures her loyalty. Although many factors have contributed to the customer common to all — experience, there is one element that is common to all — store labor hours. store labor hours. Associates in the store are responsible for ensuring that the parking lot is free of stray shopping carts, the sidewalk is deiced, and shopping carts are clean and usable. Associates set out the weekly flyer, put up the signage, cook the chicken to create the aroma, and slice the deli meat to the proper thickness. Without coverage in the dairy department, Jill might have walked away without making a yogurt purchase. And with fewer checkouts opened, Jill might have been irritated by the wait and motivated to try a competitor next time. DEFINING A SUCCESSFUL CUSTOMER EXPERIENCE Successful retailers have well-documented operating, merchandising, marketing, and customer service standards. Store managers and associates are trained on these standards and aware that they need to execute best practices and procedures. Many retailers define metrics and manage performance to these metrics to ensure that the customer experience is executed in a standardized manner across all stores.