In This Chapter

Deciding whether starting and running a retail store is what you really want to do requires that you learn what retailers do. You also need to know how today’s retail has been shaped by the way it used to be and how it will change in the future.

Retailers must do a little bit of everything today. They need to wear many different hats—a business strategist, a store designer, a marketer, a merchandiser, a buyer, a financial wiz, a personnel officer, a coach, a trainer, and anything else that comes about when you run your own business.

It’s impossible for you to know if retail is for you without knowing what it used to be, what it is today, and the prospects for retail in the future. In this chapter, we take a walk through time and then gaze into the future.

In the 1950s and 1960s, customers were almost like buses—if you missed one there was another coming along in a few minutes. You didn’t worry about customer service because you knew that if a customer didn’t like your service or product, someone else would walk into the store soon afterward who would be okay with it.

That’s why many retailers got into the business in the 1950s, 1960s, and 1970s, because it was very easy. They believed the line from the movie Field of Dreams— “If you build it, [they] will come.”

You could count on a 20 to 30 percent sales increase every year in the 1950s and 1960s. As a matter of fact, if you opened your store in the 1970s or the 1980s and weren’t getting 20 to 25 percent sales increases every year, something was wrong.

Well, those days are over. Customers don’t come that easily any more. Retailers have to earn their customers’ business every day. And today, we are in the single digits of sales increases and retailers have to work very hard to get even that level of sales increase.

What’s different? Competition and consumers’ expectations that if they can’t find what they want, how they want it, where and when they want it in your store, they have plenty of other options. There wasn’t a lot of competition until about 1985, but times have changed a lot in the past 20 years. Today competition is everywhere. It’s unrelenting and cannot be ignored even for a minute.

Becoming a retailer today is a challenging and complex choice. Technology, for example, is changing the way we must do business. The Internet continues to have a tremendous and ever-changing impact on retail, including challenging retailers to always look for new and more exciting ways to sell their products in their stores and give a reason to customers to shop brick and mortar (in the store) instead of from the comfort of home (online). Also, shoppers have been trained over the years to look for discounts—the bigger the better. If 10 percent off used to be a big deal a few years ago, today, unless it’s 50 percent off and sometimes even 70 percent off, shoppers don’t even look.

When the Internet first came on the scene, it was mainly used by young technologically savvy people. They were the ones buying from CD NOW, Amazon.com, and all of the other virtual retail stores.

Today, the fastest-growing segment on the Internet is senior citizens. The second fastest-growing segment is middle-aged Americans with average incomes in the six digit range. These new web customers are not buying only from virtual retailers. They are shopping at stores where they can purchase items in person, online, by telephone, or from a catalog. This new world of retail is called multichannel retail, and the winners are the retailers who give their customers the ability to shop 24 hours a day, 7 days a week—when it’s most convenient for them.

As an independent retailer, today and even more so in the future, you too need to structure your business so that you can do business with your customers any way your customers want to do business with you. So if customers don’t want to come into your store and want to call you, you had better be at the other end of that phone. If customers want to shop from a catalog, you had better be prepared to offer that as well as a website they can buy from at 2 A.M.

Eighty-four percent of households with incomes over $70,000 shop at discount stores regularly. What does this tell us? Even high-income shoppers are looking for bargains. That high-income shopper is no longer blindly loyal to high-end specialty stores.

Wal-Mart, over the years, has become the absolute juggernaut of the world. It’s not just the world’s largest retailer—it’s the world’s largest company—bigger than ExxonMobil, General Motors, and General Electric. Wal-Mart sold $344.9 billion worth of goods in 2006. In its category of general merchandise and groceries, Wal-Mart no longer has any real rivals. It does more business than Target, Sears, Kmart, JCPenney, Safeway, and Kroger combined. Wal-Mart wields its power for just one purpose—to bring the lowest possible prices to its customers—and the customers love it.

Having a low-price strategy and trying to compete with the Wal-Marts of the world would be foolish for an independent retailer. Where you can win is with customer service and everything you do in store design, product selection, product presentation, staff training, etc., that make you stand out from the low price-only marketers. Even price-conscious customers reach a point when service trumps price, and you need to be there to fill that gap for them. In this book, you learn how you can build better relationships with your customers, how you can create a store environment that will excite them, and how you can deliver to them a shopping experience that no other store will ever be able to match. So you can join the ranks of the truly great retailers.

Small retailers will clearly have to change the way they do business to thrive in the future. They have to go back to the good old days of being local merchants, who knew their customers personally and knew what their customers needed. But they also need to keep up with the technology of the future and master the basics of multichannel marketing.

They will have to become much more customer centric, more environmentally sensitive, and better at serving their target customers be they women, minorities, seniors, teens, or whatever group retailers choose to focus on. And that focus will be the key to their success. In the past, it was said that great retailers are students of their customers, and this is truer today than ever before.

Customers have ever-increasing expectations about service, price, brands, companies, time, and many other components of our retail stores. You need to know how customers feel when they do business with you. You need to understand the kind of experience you are providing for them. The future is about emotions and excitement.

Small retailers will need to become masters of multichannel retailing—dealing with a customer any way the customer wants to deal with you. That means you’ll need to be able to serve your customers in person, by phone, on the web, and even on their cell phones.

While e-consumers may seem like a nuisance to you—they have ever-increasing expectations about service—their numbers are growing and the average transactions on the Internet reportedly are higher than the average transactions in retail stores. As customers become more time poor, they are also more inclined to use the web for its efficiency, that’s why e-consumers are often called efficient consumers. For example, they want to know two minutes after they placed an order if the order was received and when it’s going to be shipped. They want it shipped the next day. They want to be able to return it easily. And you need to meet all these ever-increasing expectations if you are to succeed. I discuss the basics of setting up a website in Chapter 20.

In the world of brick and mortar, if your competitor is five miles away, your customers aren’t likely to take the time to drive those five miles to save a few dollars. But on the Internet, the competition is a mouse click away. That’s a big difference. So these customers are not afraid to switch if they’re just shopping price and convenience. Loyalty is not a factor for them. Often they are much more fragmented than customers who come to your store, because they come from all over the country and not just your local area.

In the future, multichannel marketing will become one channel. Kids growing up today will see no difference between using a computer or using a telephone. Multichannel communication will be part of their lifestyle. And they won’t find any difference between ordering something on their cell phones, on their computers, or by walking into a store. It’s going to all be one shopping experience to them.

The problem with this is that a large percentage of multichannel retailers remain unable to track customer’s behavior across those channels today. So they don’t even know when they have a multichannel customer. Some of the most successful multichannel retailers in the United States can not track the same customer who shops both in their retail stores and on their websites. What we have to do is use our technology to see each of them as one customer not as two separate customers. I talk more about using your customer database strategically in Chapter 26.

We’re seeing an urban revival in the United States. Inner cities are being reborn. Baby boomers—people born between 1946 and 1964—who ran out to the suburbs back in the 1960s and 1970s are now leaving the suburbs and coming back downtown. Residential building is booming in downtowns across the country. People are moving back into the cities. Walking to shop will replace driving. This can have a real impact on where you may choose to locate your store. I talk more about picking the right location for your store in Chapter 10.

Women are driving real changes in retailing. More and more women are in or will soon be in the workforce. These women won’t waste their time with inefficient stores—they just don’t have the time. It is also estimated that almost 80 percent of all purchases in retail stores are made or directly influenced by women. The opportunities for growth are tremendous if you design your store and merchandise it with products in a way that will appeal to the female shopper. I talk about designing a store to meet your customers’ needs in Chapter 13 and about filling that store with the right products in Chapter 11.

Boomers are redefining aging. This baby boom generation is experiencing at least a $10,000 increase in discretionary income when their kids leave the house. After the kids leave, these boomers have money to spend, and they spend it on the most amazing things. Every minute from now until 2014, seven boomers in the United States will turn 50. So we have a huge population going into not quite middle age. Middle age used to be 40 but today it is closer to 60. Remember, no matter what age you are as you read this, you are at least 10 years younger than your parents were at the same age. The boomers represent an incredible market for at least the next 30 years. And remember, they are the wealthiest generation in the history of this country.

Not all customers are created equal. We talk about customer loyalty, but loyalty is a two-way street. We expect customers to be loyal to us, but they will not be unless we are loyal to them. And by being loyal to them, I mean that we reward and do something for customers who shop in our store on a regular basis. These loyal customers cost us less to maintain. They produce high margins and we make more money from them.

Smart retailers are learning that they have to get rid of customers who do not meet their financial contribution threshold. Learn to recognize customers who don’t produce profits for you.

For example, I would argue that to succeed in retail today, a store should be able to produce a list, by name and address, of their 100 most profitable customers. That’s still a major challenge for most retailers, but it will be a necessity in the future. Once you’ve compiled this list, focus on those customers. They are the ones upon whom you can build the future of your store. Go back to the good old days of personal service and get to know these customers who believe in you.

Sophisticated consumers, consumers with three out of four of these characteristics— high education, work experience, high income, and/or access to technology—are changing the way we have to practice retail. They are very demanding. Think of this as an opportunity for growth by satisfying their demands in a way no one else can— going that extra mile (see Chapter 18).

This book discusses how you can build your retail store to respond to these trends and satisfy the customer of the future. It gives you the tools you need to build a successful retail business with your top-100 loyal customers and move the next 500 into the same group.