7 Technologies Improving Retail Operational Efficiency
Efficient retail operations are essential to a store's profitability because they are often one of the few business areas a manager can control. Retailers, particularly grocery retailers, operate on notoriously thin profit margins. Their profits are essentially based on the difference between the prices they pay for items and the final sale prices of those items, minus operating costs.
These margins are squeezed even tighter by suppliers charging higher prices to cover their own costs or boost their own profits and consumers demanding sales and lower prices. This leaves store managers to operate in the middle and do what they can to keep costs low, ensure efficient retail operations and-above all-deliver an enjoyable in-store experience that keeps shoppers coming back. However, because efficient retail operations require multiple processes, technologies, staffers and more, exerting control over this business area is particularly challenging.
How Much Does Subpar Retail Operational Efficiency Cost?
A lack of control in just one retail operations area can impact the bottom line. For example, improper inventory management can cost grocery stores 3-5% of their margins. In the case of stockouts, retailers lose potential sales, which could cost them at least 4% of their margins. Maintaining sufficient inventory in stock is critical to ensure a positive customer experience. Multiple stockouts throughout a store can inconvenience shoppers, who may take their business elsewhere in the future, resulting in even more lost sales. A similar effect happens if items are not placed on the proper shelves or if they are hidden behind other items, which makes it harder for consumers to find and buy them. Overstocks, on the other hand, tie up the company's money in stagnant merchandise - which could cost another 3-4% of store margins - and take up valuable shelf and warehouse space.
Employee turnover is another aspect of retail store operations that cuts into profit margins and can negatively impact the customer experience. Although the average turnover for all industries is about 18%, the average turnover rate in retail is slightly over 60%.
Because unemployment is so low, retailers often have difficulty attracting and retaining good talent. When an employee leaves the company, the store loses operational efficiency until a new employee can be hired and trained. On average, it costs a retailer $3,328 (16% of an employee's annual wages) to find, hire and train a replacement. While stores are operating with a limited amount of fully trained staff, customer experience could be negatively affected. Shoppers expect stores to have sufficient staff to ensure items are stocked, assist customers with finding products and deliver a quick and pleasant checkout experience. Gaps in this service could reduce customer satisfaction.
Retailers also lose money from audit penalties, which typically are incurred when a store fails to deliver on promised promotions negotiated with a specific brand or product manufacturer, and shrinkage from theft, loss or breakage. Although capital expenditures, such as for the latest technology, are important, they also temporarily squeeze margins. Once the planned technology is fully implemented, however, it can help boost profits, reduce retail operations costs and even deliver improved and more consistent customer experiences.
How Seven Technologies are Improving Retail Operational Efficiency
When asked about technology investments to improve retail operations and efficiencies, 96% of the survey participants said they are implementing or considering the following technologies:
- 67% are implementing or considering inventory accuracy systems
- 53% are working toward theft reduction
- 52% are investing in analytics to optimize channel and product inventory strategies
- 49% are introducing self-checkouts
- 45% are streamlining processes with auto-replenishment
- 29% are innovating with smart packaging
- 17% are collaborating with autonomous robots
1. Inventory Accuracy Systems are Saving Retailers Money
Because profits are based on sales, it is crucial that stores optimize their inventory management. As the retail environment switches to an omni-channel model, consumers expect to be able to visit a store's website and check if an item is in stock before they visit the location. This means that retailers need to be able to accurately track all their inventory and even predict potential in-store and click-and-collect sales for that day to ensure that the promised amount of inventory is accurate and available to customers.
In general, software can help the retail operations manager determine how much stock to order and when, so that the store can maintain the right amount of stock to service customers. An auto-replenishment feature can even automate some of this work for the manager and automatically order additional stock when inventory levels reach a certain point.
However, tracking the exact amount of available inventory is a more challenging task. Because stores tend to be chaotic environments with products moving around the store in consumers' baskets and shopping carts and being restocked by employees, it is difficult to monitor the exact amount of available inventory. In a low-tech environment, store staff manually count on-shelf items or scan barcodes to monitor inventory levels.
The advent of radio-frequency identification (RFID) technology has improved this. A store employee can point an RFID reader at a shelf and gather data about all the items on that shelf, which dramatically reduces the time spent counting inventory. According to Accenture, 98% of RFID adopters have reported an ROI of at least 5% for at least one use case.
Since RFID is widely adopted, some stores are testing drones and self-guided robots to handle inventory management and also help ensure that items are placed on the proper shelves and positioned with their labels facing out. While roaming the store, robots and drones also can ensure that promotional displays are in place as promised to help cut down on audit penalties.
Inventory robots also can assist with safety. As they patrol the stores, they can monitor for fallen, broken or leaking inventory that can cause trip or slip hazards for shoppers and staff. They also can ensure that items are safely positioned on shelves so that they don't pose a fall hazard. This frees up store employees to focus on more value-added tasks. I'll elaborate more on the capabilities of autonomous retail robots later.
2. Sensors and Tags Reduce Retail Theft
Shrink-or inventory loss caused by shoplifting, employee theft, administrative and paperwork errors, vendor fraud and errors, and other unknown causes-saps about 1.33% of sales on average, according to the 2018 National Retail Security Survey by the National Retail Federation. Shoplifting makes up more than a third of this loss.
To curb theft, retailers are investing in special sensors or tags that can be added to each item and deactivated at checkout. These tags give the item a unique serial number that is encoded into the store's inventory management system. When the item is scanned, the inventory management system knows the item is being removed from the store and has been paid for. This information can be confirmed by the security system as shoppers exit the store.
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3. Optimize Channel and Inventory Strategies with Analytics
I've already elaborated on the scope and ramifications of inventory mismanagement. Given the magnitude of the problem, it is no wonder that more than half of retail decision-makers are investing in analytics to optimize channel and inventory strategies.
By its very nature, the retail environment is highly chaotic. Between the time a product is put into a box and rolled out of the factory to the moment it's put in a cart and rolled out of the store, it passes through numerous hands. Not only does it go through the manufacturer and transportation but once it's placed within the store, multiple customers may be picking it up, examining it and placing it on the wrong shelf.
This is further complicated by omni-channel retailing. Websites need to be constantly updated to ensure accurate inventory records; if someone sees online that an item is in-stock, only to arrive at the store and discover that the item or the particular color or size they want is sold out, the experience has become both inconvenient and frustrating for the shopper. Since customer experience is pivotal to the store success, this is an especially concerning problem, and an effective analytics package can help to bring order to the chaos and improve the customer experience.
4. Packaging is Getting Smart
In the past, a package had to look appealing. They were strategically designed and carefully tested to make sure customers would notice them as soon as they looked down the aisle and pick them off the shelf. But in the future, it won't be enough for a package to be pretty; it will have to be smart.
Smart packaging links the physical and digital world. It's typically broken into two categories: active and intelligent packaging. Active packaging focuses on improving the contents by monitoring and controlling factors like the temperature and moisture level. Meanwhile, intelligent packaging incorporates features that indicate status or communicate product changes and similar information.
In the future, connected packaging will become crucial to satisfactory customer experience, especially as people become more and more dependent on online retailers. In fact, a McKinsey study found that while the mail-to-parcel ratio was 13:1 in 2005, the disparity was reduced to 4:1 in 2015, and by 2025, the amount of packages people receive will be equal to the number of letters they receive.
5. Self-Checkout is Improving Customer Experience...In and Outside the Store
Self-checkout kiosks can create a quicker, smoother checkout experience for consumers. For example, stores could add multiple small self-checkout kiosks in place of just one checkout line, which can reduce the amount of time a shopper has to wait to pay for his or her purchase. Because consumers are increasingly time-poor and desire fast shopping experiences, this can be a huge benefit.
Self-checkout kiosks also offer a consistent customer experience. Self-checkout kiosks offer each customer the same greetings and instructions and are designed to reduce errors like giving an incorrect amount of change or forgetting to give a customer his or her receipt. When consumers receive consistent excellent service coupled with a quick checkout experience, they are more likely to return to the store, thus driving repeat sales and higher profits for the retailer.
Furthermore, self-serve kiosks can allow brands to sell their products in strategic, non-store locations. For example, a name-brand sunglasses retailer can set up a kiosk next to the beach, meeting people at their natural place of need. Our survey shows that 55% of retail decision-makers now believe that self-serve kiosks are broadly accepted as a point-of-sale (POS) for high-end solutions.
6. Auto-Replenishment Increases Customer Loyalty
In the future, shopping will not necessarily be an activity we do, like swimming or going for a walk. It will be something that automatically happens, a background activity as we go about our normal lives.
We've seen that people want their retail experience to be as convenient as possible. While customers may enjoy going to the store to select a new outfit or browse the book section, few people enjoy lugging heavy bottles of detergent, bags of diapers or coffee refills or the hassle of going to the store for products that they know they will need to restock on a regular basis. Enter auto-replenishment services.
By 2025, there will be more than 75 billion devices connected to the Internet of Things. The options of connected devices will be almost limitless: refrigerators, coffeemakers and more. As Doug Stephens explains in his blog Retail Prophet, these devices will become consumers themselves.
"Retail is entering into what I call 'the replenishment economy' where our cars, appliances, connected packaging and even products themselves will begin to re-order themselves and be purchased with our approval," he writes.
Auto-replenishment diminishes or eliminates two large benefits: never running out of a product and not having to spend the time to go to a store to buy it. Although this will decrease consumers' need to go to a store, providing this highly convenient service will boost customer loyalty to new levels.
7. Retail Staff Responsibilities are Evolving with Autonomous Robots
In the past two years, we have noticed a 6% increase in retailers' investments in autonomous robots. These machines are transforming and improving vital areas: retail operations, customer experience and analytics. They are being used to check inventory, ensure the removal of floor hazards, offer easily accessible information to customers, track previously uncollected data and more.
As robots and other technologies step in to support more efficient retail operations, the role of store employees will shift to more value-added tasks.
For example, while robots take on some of the more mundane retail operations tasks, human technology managers will program the robots to handle these jobs, oversee their progress and conduct robot maintenance. In addition, robots and other new types of technology have the capability to collect tons of consumer data. Humans are needed to analyze this data to uncover actionable insights that can boost store operational efficiency and enhance the customer experience.
Although some early robots, such as Badger Technologies' autonomous retail robot, have been implemented with initial success and may have contributed to the increase in robotic investments, retailers have barely embarked on the technology implementation curve; the standardization of human-robot collaborations is still a few years away. For now, retailers should monitor how customers and employees interact with the robots to ensure that they are accepting of this new technology.
Challenges to Implementing Technology for Operational Efficiency
As retailers begin to incorporate various technologies to improve store operations, customer experience and analytics, store managers will need to conduct analyses to ensure that they are using technology effectively. As new technology becomes available, retailers may feel pressured to implement all the technology as soon as possible to stay competitive. A common challenge in the retail industry is that companies want or need technology, but they do not know how to implement it properly. In fact, only 16% of retailers from the Jabil survey said they were fully confident that their team had the knowledge and resources to successfully incorporate new technology.
Investing in and implementing new technology is a large commitment, so retail leaders truly need to consider all the costs and implications before starting a technology initiative-and that just can't be done without a technology roadmap. In addition, they should thoroughly evaluate the different types of available technology to determine which will offer a given physical store the greatest return on investment.
Technology will continue to develop, and trials will continue, allowing retailers to refine the benefits of autonomous robots, retail software and more. As suitable solutions are implemented, stores will be able to make their retail operations more efficient, their employees' jobs easier, their customers' experiences more consistent and enjoyable and their businesses more profitable.
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Insights from 306 global retailers on their technology investments, omni-channel strategies, technology implementation experiences and more.