What Is the Retail Sector?
Retail is supply chain management with a dose of marketing, real estate, HR, and accounting. Manufacturers produce goods and find wholesalers to purchase their products, who, in turn, resell them to you. A retailer adds a profit margin to the wholesale price, and then sells the products and services to their customers for more than he or she paid.
But the retail sector is not a simple business of intermediaries or middleman activities. The reality is that retail is a dynamic sector requiring a careful combination of creativity, business theory, skilled practice, and technology to create value for customers. Retailers find ways to create value in the form of experiences, convenience, service, and more. The value-creating functions described by author Michael Levy in his definitive, widely used retail textbook, Retailing Management, are as follows:
- Providing an assortment of products and services
- Breaking bulk
- Holding inventory
- Providing services
Creating value is important, and the examples Levy provides are the foundations of successful retailers around the world. However, the retail sector is undergoing rapid change and expectations regarding the role it plays in society are increasing beyond the traditional retail model. Customers scrutinize retailers today under a new set of value standards, including social responsibility, environmental impact, workplace safety and diversity, and the forces of globalization and trade.
Digital disruption has been and continues to be harsh on the retail sector. Amazon is in the news daily, and, fairly or not, many see the e-commerce giant as a symbol of this disturbance. How will retailers avoid being “Amazoned” out of business? According to The Wall Street Journal, Amazon controls 20 percent of online retail in the U.S., and 90 percent of U.S. consumers choose Amazon as their online retailer of choice. Like Costco and others, the company started selling its own products — AmazonBasics — and the recent acquisition of Whole Foods shores up a large competitive weakness the company had in the grocery category. Amazon has 800 approved or pending trademarks. An investigation by Quartz uncovered that Amazon features 19 brands that it does not clearly identify as its own. The company merely states that these products are “exclusively for Prime members.”
The Journal article highlights some good news for aspiring retailers and those already in business. Author Ruth Simon features companies that are fighting back against digital disruption with sound retail strategy. For example, Luxottica brands Oakley and Ray-Ban are moving to enforce strict minimum advertised prices (MAP). MAP is a hot topic in the retail industry and a useful tool against the threat of slimmer margins and e-commerce advantages. Manufacturers and distributors enforce pricing to keep smaller, local retailers loyal and competitive with online competitors.
The in-store customer experience is also an effective retail tool and source of strategy to combat e-commerce disruption. Running gear manufacturer Brooks partners with retail management to help cover the cost of using a treadmill-connected iPad to provide customers with a custom footwear recommendation based on a runner’s biomechanics. To succeed in the world of retail, you have to combine the right mix of business theory and sound retail management strategy. So, you will have to compete with technology and the retail giants.
A New Retail Industry in The Making
The world of retail is changing, not dying. Despite the disruption and constant change associated with digital technology and online retailing, physical stores are here to stay. According to a report from A.T. Kearney, a global management consulting firm, the retail industry is thriving at the intersection of digital and physical retail. Stats from the report "On Solid Ground: Brick and Mortar Is the Foundation of Omnichannel Retailing" highlight the growth of — and customer preference for — in-store retail experiences. According to the report, two thirds of consumers used a physical store before or after purchasing online. Surveys from the research show that customers overwhelmingly prefer a shopper’s journey that involves a brick-and-mortar presence. The results indicate that retailers with a physical presence capture 95 percent of all retail sales. That’s not to say that retail management strategy isn’t evolving or that you don’t need to pay more attention to the new rules of the retail playing field. On the contrary, it is evolving, and it’s crucial that you pay close attention to those new rules of the retail road.
Today, you must combine sound in-store retail strategy with digital strategy, or “physical with digital,” to compete. Retail sales grew almost four percent in 2016, and the National Retail Federation (NRF) predicts similar growth for 2017. (First quarter sales for 2017 are up four percent.) Existing retailers, new entrepreneurs, and those aspiring to careers in retail management must understand that change is upending the businesses that were slow to adapt or outmaneuvered by retailers that adjusted quickly to shifts in customer behavior and technological disruption. In the current digital era, retail management is all about business transformation. Today, the retail management strategies you use to succeed embrace technology and e-commerce.
The Strategic Challenges of Retailing
The challenge for retailers is responding to the economic, technological, and customer disruptions with sound retail management strategy. E-commerce is the component of today’s retail management strategy that garners the most media coverage. But technology and online customer behavior are not a threat to retail management; they’re simply a part of the overall picture. So, even if you choose to avoid the online channel for your retail business, the competition and economic trends from e-commerce still impact your ability to succeed.
Underperforming retail businesses close every year. Shifting retail management strategy to account for lower sales, changes in customer preferences, or economic recessions has always been, and will always be, a necessary part of retail. The good news for aspiring retailers is that, despite challenges to retail success, there is an opportunity in retail management regardless of whether the business operates online or in person. The NRF reports that 90 percent of all retail purchases still occur in brick-and-mortar stores. New retail space grew in 2016 despite the continued growth and transformation of online retail. Physical retail space increased by 87 million square feet, and companies invested billions of dollars in brick-and-mortar expansion.
Types of Retailers
Before you start developing a retail strategy, you must understand the competitive landscape of your market. The North American Industry Classification System (NAICS) lists more than 1.6 million business establishments in the category of retail trade (code 44-45). This category includes a variety of types of retailers based on the types of products and services they sell (e.g., food retailers, men’s clothing, shoe stores, and motor vehicle and parts dealers). The four main categories of retailers are:
- Hardlines: Cars, appliances, furniture, etc.
- Consumables: Clothing, shoes, cosmetics, etc.
- Food: Bakeries, coffee roasters, butchers, etc.
- Art: Bookstores, musical instruments, arts and crafts supplies, etc.
The variety and assortment of products and services play a role in categorizing the types of retailers. Understanding locations, pricing, promotions to attract customers, and the unique merchandise mix within categories helps retail managers unpack the strategies of their competitors. Ownership is a retail category for retailers: independent retailers, single-store establishments, corporate retail chains, and franchises. To compete in retail, start by understanding the retail markets and the competition within your category, and learn to differentiate between the products and services a company provides and the types of customer a company targets.
The Top 10 Retailers of 2017
According to Stores, the magazine of the NRF, the nation’s top 10 retail power players in 2017 are:
- The Kroger Co.
- The Home Depot
- CVS Caremark
- Walgreens Boots Alliance
- Lowe’s Companies
- Albertson’s Companies
(Ranking data provided by Kantar Retail)
Examining the nation’s largest retailers at the highest level of operation sheds light on strategies and trends that retail management needs to understand. These retail behemoths survive and thrive in the new era because they have embraced the digital transformation and implemented a retail strategy to address the changing needs of their customers. Target recently announced that cost-cutting measures and improved digital operations led to an increased profit forecast for 2017.
According to Ray Gaul, Vice President of Research and Analytics at Kantar Retail, the top performers deliver increaed profit per square foot because of the transformation of the physical retail environment to address two new “shopper missions.” These missions — “buy online and pick up in store” — join the original customer missions of discovering products in the store, selecting the right one, and transporting the goods home to form a new economic model. Gaul predicts retailers will undergo a further transformation with a balancing act of store closings and remodels to address the new shopper missions.
The Changing Face of the Retail Business and the Origins of Retail Management
To understand the importance of retail management today, it is important first to understand the origins of the industry. The retail industry evolved from antiquity to present times, laying significant historical foundations for modern economies and influencing the development of vital technology. Ancient merchants conducted commerce by bartering for goods and services. The introduction of money (in various forms) transformed the exchange of goods and paved the way for specific locations to ply your trade as a merchant. The term retail is derived from the French word retail — a noun that means “piece cut off, shred, scrap, paring,” according to the Online Etymology Dictionary. The practice of selling goods in small quantities (or “by the piece”) dates back thousands of years before French merchants and vendors lined the open-air markets in Paris.
In the U.S., retail’s history is one of westward-bound, European entrepreneurs settling in the country and setting up shop. Large stores and retail chains opened in the late 19th century to provide staples for pioneers headed west. Private merchants were unable to compete on price and convenience. Supermarkets opened in the 1930s, benefiting from bulk buying and the convenience of electric freezers and refrigerators that allowed mass storage. People could make ice at home and store more groceries, so business was good. Retail stores prospered as shipping and selling goods became more economical, and cheaper transportation created more growth opportunities. Markets and Main Street evolved into centers of commerce vital to the survival and prosperity of Americans during the period known as the Second Agricultural Revolution. The success of capitalistic markets and the economic prosperity of the U.S. introduced variety (and, as a result, competition) into products and services.
As retail outlets grew in size and capabilities, employed more people, and created more sophisticated business processes, retail management became an essential job. Retail managers were hired to oversee store management functions. Eventually, retailers empowered and trusted retail managers to make strategic decisions about their goals and policies. The retail sector is now the largest industry in the U.S. and employs millions, and many of the top publicly traded companies and wealthiest citizens started in retail. Today, the economic impact of retail is global and cannot be understated. The economic significance of retail management, the need for qualified talent in careers tied to the industry, and the importance of sound retail strategy and technological innovation have never been greater.
Retailing Trends and New Developments
It is critical for retailers to pay attention to and learn from trends in society, culture, and technology. Even if these trends originate with large, national retail companies, there is a real potential for a trickle-down effect on small and medium-size retailers. Proactively identifying retail trends is an opportunity to create unique customer value before the competition does. The primary force behind successful retail management operations is the customer value proposition. Creating value is the main function for retail businesses. It is also the component most critical to the industry’s long-term success. Paying attention to, learning from, and managing retail trends all create value.
The Consolidation of Retail Businesses
The consolidation of national retail businesses transforms the retail industry as a whole. Store closures and cost-saving labor cuts impact retailers within specific geographic regions of large companies undergoing mergers and bankruptcy. Local consolidation activity that results in new store openings and real-estate developments affects retailers on multiple fronts. Traffic concerns, changing customer demographics, and access to a qualified workforce are some of the reasons to track consolidation-related trends. In addition, the consolidation of different categories of retail business trickles down to retailers of all sizes as they compete for value propositions and customers. For example, Walmart purchased Jet.com to grow e-commerce business and compete with Amazon on shipping logistics and category expansion. Amazon responded by purchasing Whole Foods, a move to capture the grocery category, Walmart’s strongest category of growth.
The Use of Data and Analytics in Retail Strategy
Although the term big data is ubiquitous these days, it can be an incomplete approach to retail strategy when smaller retailers are trying to learn from the trends of the major omnichannel retailers. (That’s not to say you should disregard data analytics altogether - it is certainly a trend worth watching.) In the book Small Data: The Tiny Clues That Uncover Huge Trends, author Martin Lindstrom points out that “Big data is often compromised whenever humans act like, well, humans.” He makes the case that big data is accurate in generating correlations between millions of data points but often fails to provide the information necessary for, say, small retailers to pivot around successfully. Why? According to Lindstrom, big data fails to highlight why humans have certain habits and desires and, therefore, you “might find it hard to find meaning or relevance” without human insights.
Lindstrom highlights comments from Tom Adamski, CEO of Razorfish Global, at the 2015 Cannes Lions Festival. Adamski proclaimed that digital media and big data contributed to a “global decrease in brand loyalty” and that “brands are not treating us as individuals.” Adamski believes the failure to “market to me” is a result of “archaic” and “flawed” segmentation processes. Lindstrom notes that big data is behind the preoccupation with incomplete insights that fail to value the human touch. A combination of big-data analysis and small-data observations is preferable. For example, you can gather a small group of loyal and new customers and ask them about their in-store shopping journey, or you can survey online customers regarding their experience shopping on your website.
Generational Retail Customers
In the book Style and Statistics: The Art of Retail Analytics, author Brittany Bullard makes the case that retailers need to understand the importance of how different generations (baby boomers and millennials) mix. Bullard emphasizes the role that millennials like herself have played in the retail workforce, where retail management leverages analytics, automated business processes, and creative means for increasing efficiencies. By 2020, millennials will make up 50 percent of the retail workforce (70 percent by 2030). The direct impact that different generations have on retail stems range from how they perceive technology to how they might drive changes in retail management processes. Customer trends from generation to generation are important as well. Millennials and their predecessor, Gen Z, value individualism, creativity, and purchasing experiences over products. According to Bullard, the customer-centric retail strategy is more effective with millennials. They prefer to spend money with retailers who are engaged in social responsibility efforts, and they track the societal implications of retailer’s business decisions.
Mobile Is Key to Retail Strategy
On an average day, American consumers check their phones 45 times and spend more than three hours on mobile devices. That said, consumers still do more browsing than purchasing via mobile browsers, as desktop browsers still dominate conversion rates, according to the NRF. With the rising influence and purchasing power of millennials and Gen Z consumers in particular, retailers must account for the multichannel customer experience trends. Retail management strategies need to account for the click-to-brick trend (customers who research products and shop the competition on their phones) without losing focus on enhancing the in-store shopping experience. The rise of mobile retail channels places more emphasis on effective social media strategies for advertising and communicating with customers on the move.
What Is Retailing Management Strategy All About?
According to Retailing Management, “Retail strategy indicates how the [retailer] plans to focus its resources to accomplish its objectives.” Levy defines retail strategy with a three-part statement that identifies the following factors:
- The target market(s) in which a retailer focuses its resources
- The retail “format” (products and services, pricing, communications, location) that satisfies the needs of the target market
- How the retailer will build a sustainable (long-term) advantage over competitors
A thorough operating plan is necessary to accomplish the objectives of the retail strategy. Retail management requires ongoing strategic planning and incorporates the ideas and feedback of stakeholders at all levels before leadership decides on the final direction based on profitability. According to Levy, the retail strategy plan includes a sequence of seven steps:
- Defining the mission
- Conducting a situation audit
- Identifying strategic opportunities
- Evaluating the alternatives
- Establishing specific objectives and the allocation of resources
- Developing a retail mix to implement strategy
- Evaluating performance and making adjustments
Levy defines retailing as “a set of business activities that adds value to the products and services sold to consumers for their personal or family use.” Managing this activity involves leveraging business processes and strategy that add value to the customer and the products or services they desire. In order to cover costs and earn a profit, retailing management requires an understanding of the customer, their needs and wants, the goods and services they desire, and the preferred customer experience.
Surviving The Retailing Jungle
Coping with Retail Giants: Gaining an Edge over Discounters is author A. Coskun Samli’s manifesto for small independent retailers surviving the “retail jungle” full of behemoths. In the book, he advises following a “carefully constructed game plan” that is flexible enough to accommodate changing customer behavior. In the retail jungle, smaller independent businesses cannot win the “survival of the fattest” contest. Thousands of retailers try to do so without the competitive advantage that a flexible, strategic operating plan provides, and many end up disappearing in the jungle. Samli calls this effect “retail Darwinism.” To avoid getting swallowed whole by retail Darwinism, the competitive advantage, according to Samli, should generate customer value and brand loyalty. The retail advantage is not an “all things to all people” effort that sacrifices customer well-being and compromises your business - it is a retail management skill developed with a real strategy and a customer-centric approach.
Human Resources Retail Management Strategy
Retail is a labor-intensive industry driven by activities (buying, designing, marketing, engaging in customer service, and selling) performed by people. Employees play a significant role in retail management strategy and planning via decision making, entrepreneurial endeavors, and creative risks. Samli advocates developing human resources activities as a strategic tool. His argument for leveraging retail’s identity as a “people business” is based on the theory that large retail giants have a poor HR image. Large retailers consistently grab headlines for unfair compensation practices (Walmart), frequent burnout and high turnover (Amazon), and unsafe workplace conditions (Uber), providing the evidence for this perception bias strategy. Hiring the right people, training them well, and generating loyal, enthusiastic employees help modern retail managers succeed in the retail jungle.
Levy dedicates two chapters in Retailing Management to HR management. He views HR strategy for retail as a competitive advantage because of the cost-savings of low turnover and increased productivity, the benefits that happy employees have on the customer experience, and the difficulty competitors have duplicating these advantages. Levy highlights the use of technology in the workplace as an excellent opportunity to leverage the competitive advantage of HR strategy to create superior training programs. Smart retailers use technology like customer relationship management (CRM) software to identify, manage, and develop loyal customers. CRM technology is only as useful as the user, so invest in ongoing training for your sales force, and empower retail management with advanced analytics training to identify valuable trends in CRM data. Learn more about the basics of CRM, and find information on certification and training here.
Location, Location, Location: The Golden Rule of Retail Strategy
In what amounts to the golden rule of retail stores, physical location often ranks first, second, and third on the list of most important retail strategy decisions. There are a variety of options available for retail locations; for instance, a historical building that a retailer renovates into a hipster coffee bar/butcher shop/beard salon concept. Airport, shopping mall, town center, warehouse district, food truck — the options for strategic placement and demographic segmentation are vast. The location type must support the retail strategy. This means that the location must be consistent with the target market, the product and service mix, and competitive positioning.
Levy suggests that choosing a retail location is part science, part art. It involves a series of trade-offs including cost, customer traffic, environmental and economic factors, legal obligations, and more. Profitability is at stake, and retail management decisions don’t stop once the retailer selects the location. There are steps to evaluating the particular site location after selecting the area or region. The Huff Gravity Model predicts the probability of customers choosing a retail store, with convenience and selection size factored into the equation. Find more step-by-step information on how to calculate this consumer behavior.
Locations in Online Retail
Location strategy is equally important for online retailers and e-commerce businesses. Where you choose to host your site, the partner websites and online brands you collaborate with, and the economic and legal obligations for global commerce are just a few considerations. Retail occurs at the intersection of physical and digital spaces. Where you choose to conduct your business online must fit in with your overall retail management strategy and business processes. For example, inadequate bandwidth, slow page loads, or, worst of all, security breaches of customer data, can all have a detrimental effect on your customer value and your ability to compete.
There are numerous hosting platforms and e-commerce technology providers to consider. According to its website, Shopify "is the leading cloud-based, multichannel commerce platform designed for small and medium-sized businesses.” The company took advantage of the demand for an online platform that could manage more than just digital marketplace transactions. Since Spotify released its platform in 2006, more than half a million businesses have sold $40 billion worth of merchandise through the site. Carefully consider your options for online retail locations, and partner with qualified technology consultants to decide where to host your site. Location-based strategy is crucial for omnichannel retailers who sell online.
Omnichannel Retail Management Strategy
The term channel describes a mechanism (such as catalogues, mobile apps, or kiosks) for reaching customers and connecting with them. The two retail channels that get the most attention are in-store and online. An omnichannel retailer seamlessly engages with its customers across multiple channels. One example of omnichannel retailing is the “buy online, pick up in-store” method of customer interaction. Digital technology expands the omnichannel experience and provides retailers and customers with a variety of channels to interact, including social media, mobile games, audiobooks, and podcasts. Customers are less loyal, and technology encourages a greater level of competition.
Omnichannel retail strategy is a way of combating this challenge, but it also presents its own set of difficulties. For example, the variety of options that customers have creates competition that impacts a retail manager’s inventory. For example: Where do you stock your products, and where do you invest capital to enhance customer experience and services? Will your target customer prefer the in-store experience of the brick-and-mortar location, the comfort of shopping at home and having the product transported by third parties, or a combination of buy online, pick up in-store? For some retailers, an effective omnichannel retail strategy is the difference between survival and success.
Financial Retail Management Strategy
Retail finance is a broad topic beyond the scope of this introductory article. At its core level, financial strategy in retail management starts with understanding the profit model of your business and the relationship to the other retail strategies presented in this article. Different retailers have different financial attributes. A variety of activities and factors based on a retailer’s type of operations determines financial performance in retail management. To get started, retail management professionals should understand standard retail math formulas, how to use them, and what they measure. According to The Balance, a financial website, retailers use standard formulas to track merchandise, measure sales performance, determine profitability, and help create pricing strategies.
Common Retail Math Formulas
Retail math formulas are crucial to the understanding and mastery of retail strategy. We’ve listed the most common ones here:
- Acid-Test Ratio = Current Assets - Inventory ÷ Current Liabilities: This formula determines credit-worthiness and helps investors determine risk based on liquidity. If sales stopped, how would a retail business cover short-term financial obligations?
- Average Inventory (Month) = (Beginning of Month Inventory + End of Month Inventory) ÷ 2: This calculation involves the price of merchandise minus discounts, plus freight and taxes. Find the average by adding the beginning cost inventory for each month in the period to the ending cost inventory of the last month in the period. To calculate seasonal inventory, divide by 7. To calculate annual inventory, divide by 13.
- Break-Even Analysis ($) = Fixed Costs ÷ Gross Margin Percentage: This calculation represents the junction where sales equal expenses. There is no profit or loss for your retail business.
- Margin Percentage = (Retail Price - Cost) ÷ Retail Price: This formula determines the amount of gross profit a business earns when it sells an item.
- Gross Margin = Total Sales - Cost of Goods: This is a formula to determine the difference between an item’s cost and the price it sells for.
- Gross Margin Return on Investment (GMROI) = Gross Margin $ ÷ Average Inventory Cost: This formula helps buyers evaluate whether they’ve earned a sufficient gross margin on the products that customers have purchased, compared to the inventory investment they require to generate the gross margin.
- Contribution Margin = Total Sales - Variable Costs: This represents the difference between total sales revenue and total variable costs. In retail, the contribution margin is the gross margin. This formula helps you decide which products to add or remove and at what price.
- Cost of Goods Sold (COGS) = Beginning Inventory + Purchases - Ending Inventory: This is the price paid for a product, plus additional costs, such as shipping and handling, to move the merchandise into inventory and have ready to sell.
- Initial Markup (IMU) Percentage = (Expenses + Reductions + Profit) ÷ (Net Sales + Reductions): This formula determines the selling price on an item in the retail store.
- Inventory Turnover (Stock Turn) = Net Sales ÷ Average Retail Stock: This calculates how many times a business sells and replaces inventory in a given period of time.
- Net Sales = Gross Sales - Returns and Allowances: This means revenue minus any returns and allowances. Net income is the income that remains after subtracting taxes, interest expenses, and depreciation.
- Open to Buy (OTB) = Planned Sales + Planned Markdowns + Planned End-of- Month Inventory - Planned Beginning-of-Month Inventory: This is the difference between the inventory needed and the inventory available. It includes inventory on hand, product in transit, and outstanding orders.
- Sales per Square Foot = Total Net Sales ÷ Square Feet of Selling Space: Retail managers use sales-per-square-foot data for planning inventory purchases. It is a rough calculation for return on investment, and managers use it to determine a retail location’s rent. It does not include storage or any areas where you do not display products.
- Sell-Through Rate = Units Sold ÷ Units Received: This is a formula to compare the amount of inventory a retailer receives to inventory sold.
- Stock-to-Sales Ratio = Beginning-of-Month Stock ÷ Sales for the Month: This formula calculates the quantitative relationship between the beginning of the month inventory and the amount sold that month.
Communications Mix Retail Management Strategy
Retail communications include the messaging, marketing, and advertising efforts to inform customers about brand image or the products and services a company offers. According to Levy, retail communications programs have long and short-term implications. An effective communications strategy builds a retail brand’s image over time and helps differentiate the brand from the competition in the long term. The short-term objectives of retail communications include the promotion of products and services through advertising and content marketing to increase sales over a particular period.
In his book Smart Retail: Winning Ideas and Strategies from the Most Successful Retailers in the World, Richard Hammond advocated keeping your retail communications strategy simple (2017, 4th Edition). “Marketing is about understanding who your customers are, where they can be found, what they need, and how much they will pay to satisfy those needs,” Hammond writes. He believes that answering a series of questions improves your decision making concerning promotions and advertising:
- Who might want to shop at a store like ours?
- What might they like about us?
- Which products would excite them?
- What kind of promotions do they like?
- Where can I find these people?
- What should I tell them?
You can’t just answer these questions with social media and digital marketing efforts. Hammond acknowledges that today, digital trends impact a retailer’s communications strategy. He’s optimistic that technology is finding its place and that “real and digital” are working together to “make life easier to enjoy.” Hammond’s theory that technology enhances the experience - but is not the experience itself - is consistent with his view that physical retailing and retailing online are not different.
“They’re the same thing,” writes Hammond. “All retailing is about customers, engaging people, creating experiences that make them want to shop, supporting these experiences after the sale, and putting ourselves into the customer’s consideration.”
Promoting to Endure in Retail
In Coping with Retail Giants, Samli makes the case that, especially for small, independent retailers, the communications process is essential for survival. “Being a well-kept secret in the marketplace is almost deadly for a retailer,” writes Samli. You must promote your retail store’s image, and Samli emphasizes a communications strategy focused on name recognition. The goal of this retail strategy is stimulating a “positive attitude in the marketplace toward the retailer . . . and as a result, reinforce or improve the attitude of the target market toward, say, [the] store.” Retailers of all sizes use promotions as part of their retail communications mix, but one of Samli’s most important messages is the significance of promotional activity and consistent messaging activity for small retailers competing with retail giants.
Your communications strategy should leverage digital promotions via advertising and social media marketing as well as through live, promotional events, in-store promotions, and physical and emotional promotions of your brand image that utilize environmental strategy (music, scents, merchandise, location, etc.). In the Smart Retail chapter “Promote or Die,” Hammond recommends 30 promotions. Here are three promotions to consider for your retail communications strategy:
- Pop-Up Shops: Retail pop-up shops and space brokers, such as PopUp Republic, offer an innovative approach to your retail strategy by facilitating the creation of these concepts. Retailers use pop-up shops, restaurants, events, and other forms of physical marketing as a temporary and creative method to market their brand with a physical promotion of their product and service. The advantage — over strictly digital promotions — is a focus on the real customer experience that mimics the physical location and long-term brand image that the retailer is promoting, while providing a vehicle to sell high margin or featured merchandise over a given period. Or, as Constance Gustke put it in her New York Times piece on pop-up stores, “In cyberspace, goods can’t be touched.”
- Retail Collaboration: “Two brands are better than one,” says Hammond. He uses fashion and homewares as examples for the benefits of different brands (from different retail sectors) collaborating on promotions and messaging. H&M partners with designers and fashion icons to promote collections in their inventory and Target built their homewares reputation in partnership with Martha Stewart. The advantages of this promotional strategy are the essential role that technology plays in the collaboration. You can - and should - design digital advertising campaigns and social media marketing efforts around a shared audience to enhance the physical, in-store collaboration and overall results. If you are a small retail operation without an established audience online, or you are intimidated by social media and fear you don’t have the influence or recognition for active collaboration, consider leveraging a form of cooperation and communication strategy known as influencer marketing. Today, this type of collaboration plays a significant and often highly profitable role for smaller online retailers and distributors.
- Special In-Store Events: This type of promotion is a combination of Hammond’s suggestions, surveys and special nights. According to a report by Salesforce, 26 percent of survey respondents attended in-store events, and 58 percent reported they were more likely to make a future purchase in that store. Invite select customers (think strategically based on your target customer or the new market you wish to attract) to your location and promote the event with digital media. If appropriate for your market and customer, provide entertainment, food and drink, or a unique theme for the event that supports a charity or cause. Take advantage of the audience and your store environment to survey guests (offer an incentive) asking questions that answer the advice you seek or opinions that drive your future communication strategy. Soliciting customer insight based on the physical environment or your store, specific product merchandise, or customer experience is a promotional strategy that pays dividends on future retail communication activities (for example social media imagery or advertising sales copy).
Customer Experience Retail Management Strategy
Author Constant Berkhout encourages his audience to advance retail marketing to the next level of “shopper happiness.” In his book Retail Marketing Strategy: Delivering Shopper Delight, Berkhout covers different aspects of retail marketing (trade marketing, category management, and various models for shopper behavior). He concludes (“with no disrespect,” to previous achievements in the field) that achieving shopper happiness is the “ultimate goal of great retailing.” Recalling Hammond’s point that online and physical retail are the same, the “store” should apply to your website and the customer experience of your online operations, as well as the brick-and-mortar location. Berkhout advocates for customer-centric retail communications or “aligning everything retailers do . . . to delivering shopper happiness.”
To deliver a positive customer experience through retail marketing strategy, Berkhout uses an emerging trend in retail marketing: neuroscience research. He highlights two examples of retail marketing strategies retailers can apply that focus on the customer experience:
- Keep In-Store Marketing Simple: The store is not the ideal place to communicate complicated information. Neuro research suggests that sophisticated communications need to reach the customer before the shopping trip to connect effectively. Do not rely on signage, brochures, in-store videos, or your sales staff to communicate complex messaging. Use your retail communications mix (advertising, marketing, promotions, etc.) to craft proactive, intricate messaging before a new customer reaches your store. For example, an email drip campaign or monthly newsletter that communicates your overall mission to source products from socially responsible partners or profiles individual customer stories.
- In-Store Impulse: Some retail categories work great for impulsive shoppers, but overall, neuro research suggests a shopper’s overall impulsive behavior is low in store. Test which products work well on end-of-aisle locations, or “end caps.” Which products and services work well as “reminders” for your customer? Improve customer experience with expertise. Encourage your sales staff to guide the customer to products that enhance their purchase by asking questions and recommending items the customer may not have considered. Use “customers also purchased” suggestions and shopping cart tracking technology to send reminder emails when items are abandoned without purchase.
Berkhout cautions that neuro research is not a deterministic solution. Retailers should use findings about the customer’s subconscious brain and buyer behavior combined with traditional behavioral and psychological research to find insights on the customer experience.
Retail management is evolving to account for Berkhout’s emphasis on customer experience strategy. It is the “business of serving people” and not a pure managerial or logistical field of study or profession. Customers do not experience retail shopping, in-store or online, as a combination of individual categories. Rather, according to Berkhout, it is one journey. A mindset that “works towards shopper happiness and attempts to unravel the deeper emotional needs of the shopper” leads to “more human, sustainable, and fairer retail practice,” writes Berkhout.
What Is Retail Management?
The need for effective retail management is stronger than ever due to the disruption of technology, the retail giants, and shifting customer behavior. Retail management requires original analysis, organized and efficient planning, and control of valuable resources. Customers are less loyal than any time in history because of seemingly unlimited choices. Effective retail management is necessary in the world of omnichannel shopping and multi-billion dollar consolidation of technology and infrastructure by companies like Amazon and Walmart. This activity has a trickle-down effect on all aspects of retail management including real estate cost, pricing strategy, cost of goods sold, inventory availability, and logistics. Small to medium-sized retailers need to attract strong retail managers and implement effective strategies to overcome these disruptive forces.
Opportunities abound in the retail industry. According to the most recent census data, 1 in 5 U.S. workers are employed by retailers, and retail is the largest private employment sector in the U.S. Retail is also the leading source of employment for Americans age 16 to 24, and the unemployment rate of young Americans fell to its lowest level in 50 years in summer 2017. The size and economic impact of the retail industry create challenging and rewarding career opportunities.
Retail management is a dynamic career field. The popularity of retail management jobs makes sense once you understand the breadth of business expertise and knowledge required. For those looking to grow as well-rounded entrepreneurs, from small business to large corporate retail chains, retail management offers a unique path to becoming a business generalist. The retail management career field combines skills and attributes from HR, accounting, finance, creative design, information technology, and more.
Preparing for Retail Management Careers
According to the NRF, the retail industry offers retail management trainee positions for employees looking to advance. Large, well-known retail stores have formal training programs for managerial candidates and provide specific skill training required to excel within the company. If you don’t want to invest in school, consider growing your retail management career with a company offering in-house training and advancement. Keep in mind that without a college degree, however, you may need to start in entry-level sales or customer-service related positions.
It is easier to land a retail management job if you do have a degree. Here’s a sample of universities offering four-year undergraduate degrees in retail management (or related fields):
- University of Washington-Bothell: Retail Management, Bachelor of Arts, School of Business
- Syracuse University: Retail Management, Bachelor of Science, Whitman School of Management
- University of Arizona: Retailing and Consumer Science, Bachelor of Science, College of Agriculture and Life Sciences
- University of Arkansas: Retail, Bachelor of Science, Bachelor of Arts, Sam M. Walton College of Business
There are also alternatives to the traditional college degree route for working professionals or anyone interested in the flexibility and open participation of online education. Massive open online courses (MOOCs) allow students to explore retail management specializations in place of certification or degrees. MOOCs enable you to tailor your skill development and grow within the vast retail management field of study to address strategic issues, financial considerations, and store management related skills:
- Coursera: Course offerings include Marketing Mix Implementation Specialization and Channel Management and Retailing.
- Lynda: Course offerings include a Retail Manager Playlist and Data Fundamentals for Retail, Sales, and Marketing.
- Udemy: Course offerings include Fast Track Retail Buying and Merchandising and Retail for Business Analysts and Management Consultants.
Retail Management Career Opportunities
Retail is a competitive and challenging environment requiring a variety of skills and responsibilities. Retail managers engage in business activities such as capital allocation, purchasing, sales force management, accounting, warehouse management, and marketing activities such as advertising, promotions, and market research. Retail management professionals have a broad range of expertise and interests. Backgrounds in fields such as finance, accounting, human resource management, supply chain management, information technology, data and analytics, sales consulting, as well as marketing are well represented in retail management. In addition to retail management, a variety of related career opportunities exist. Some examples include:
- Retail banking consultants and analysts
- Retail salesperson
- Retail operations management
- Retail promotions, advertising, and marketing
- Loss prevention
- Retail store designer
- Commercial retail real estate
- Information technology for retail
- Warehouse distribution and logistics
- Human resources
Retail management is also financially rewarding. Indeed.com estimates an average annual salary of $47,000 for Retail Manager jobs in the U.S. There is a large growth opportunity in this field, and retail managers with more than five years of experience can expect considerably more earning potential depending on the size and pay structure of the company. Flexible compensation programs are standard for retail management jobs. Performance-based plans increase the earning potential of retail managers based on profit and loss related metrics or balance sheet management. It is also common for entrepreneurs from retail management backgrounds to start businesses that, if successful, provide significantly more financial freedom and earning potential. Some of the wealthiest people in the world made fortunes from retail management, including Phil Knight of Nike, Ingvar Kamprad of IKEA, and Jack Ma of Alibaba.
Essential Skills of Effective Retail Managers
Whether you are starting your own small business or working for a large retail chain, as a retail manager, you may act as a business strategist, HR manager, financial advisor, store designer, and more. Here’s a list of important skills in retail management:
- Personality: Retail management involves working with people. Your customers need motivation to buy your products and services, and your employees need motivation to create the appropriate customer experience. A positive attitude, patience, and active listening skills are critical to success.
- Experience: The highest level of retail management careers and entrepreneurship opportunities require growth. Earning job titles and accomplishments while climbing the ranks of large corporate retail chains is one example. However, learning how to problem solve through periods of prosperity and recession with a small business represents growth and value of experience as well.
- Time Management: Successful retail managers have responsibilities in multiple disciplines: brand image and store design, profit and loss budgets, customer service and sales force management, administration, and community service relations. Time management and proper planning are critical to success.
- Leadership: Goal setting and reinforcing performance standards are essential in retail management. Effective leaders delegate important work and learn to coach for resultsto succeed in the performance-based retail industry.
- Teamwork: The retail industry is diverse and demanding. Most operations, large or small, serve demanding customers and require odd hours such as weekends and evenings. Active retail managers must foster teamwork to accomplish goals and create positive customer experiences. A strong team is crucial in the stressful environments of seasonal retail operations.
- Managing Change: Customer’s attitudes change rapidly. Product shortages and inventory problems arise frequently. Seasonal retail operations require frequent adjustments to product lines. Change can create chaos in retail management. The profession demands flexibility, problem anticipation, and strong leadership to reduce resistance to change.
- Educate and Train: Retail management careers sometimes require frequent relocation, new store openings, and implementing new technology. The ability to educate and train staff on the latest product trends, service expectations, and company-specific goals are critical.
Profit Is the Point: The retail industry is a performance-based industry built on cost control and profitability. Management should have familiarity with the standard formulas for measuring profit margins, inventory, customer acquisition, etc. A firm understanding of balance sheet principles and basic accounting functions is crucial to succeeding in retail management.
What Is a Retail Management System?
A retail management system (RMS) is a combination of applications within the existing point-of-sale (POS) platform that a retailer uses to manage their business. A future article in the retail management series provides more insight into strategy, providers, and analysis of this critical retail technology.
Recommended Reading: Essential Retail Management Books
Stay ahead of trends and learn strategies for surviving and thriving in retail management from business professionals, academics, researchers, and former retailers. Here’s a list of books every retail management professional should read:
- Retailing Management (8th edition), by Michael Levy and Barton Weitz
- Small Data: The Tiny Clues That Uncover Huge Trends, by Martin Lindstrom
- Style and Statistics: The Art of Retail Analytics, by Brittany Bullard
- Coping with Retail Giants: Gaining an Edge Over Discounters, by A. Coskun Samli
- Retail Marketing Strategy: Delivering Shopper Delight, by Constant Berkhout
- Smart Retail: Winning Ideas and Strategies from the Most Successful Retailers in the World (2017, 4th Edition), by Richard Hammond
- Retail 101: The Guide to Managing and Marketing Your Retail Business, by Nicole Reyhle and Jason Prescott
- Shopper Marketing: How to Increase Purchase Decisions at the Point of Sale, by Markus Stahlberg and Ville Maila
- Inside the Mind of the Shopper: The Science of Retailing (2nd Edition), by Herb Sorensen
- Cool: How the Brain’s Hidden Quest for Cool Drives Our Economy and Shapes Our World, by Steven Quartz and Anette Asp
- The Aisles Have Eyes, by Joseph Turow
Smartsheet Can Help Retail Managers Succeed
When it comes to retail management, there are many moving parts and people responsible for its success. One way to manage aspects like inventory, employee hours, store openings, and task assignments is to implement a powerful work management platform where everyone can collaborate. Smartsheet is a work management and automation platform that enables enterprises and teams to work better. Top retail leaders rely on Smartsheet to coordinate and manage store openings and renovations, omnichannel campaigns, store communications, audit and compliance, and more.
Use Smartsheet to enhance the in-store customer experience by ensuring store workers are informed and compliant, and improve efficiency with an auditable system of record. Boost effectiveness, streamline cross-channel collaboration, and increase stakeholder confidence by adopting an intuitive platform that gets teams out of email and static spreadsheets so everyone stays up to date in real time.
Discover how Smartsheet can help maximize your retail efforts today.