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Retail Operational Efficiency: Technology to the Rescue

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. 

What’s Holding Back Retail Operational Efficiency? 

A lack of control in just one retail operations area can impact the bottom line. For example, improper inventory management can cost retailers 3 to 5 percent of their margins. In the case of stockouts, retailers lose potential sales, which could cost them at least 4 percent of their margins. Having 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 to 4 percent of store margins — and take up valuable shelf and warehouse space.  

Employee turnover is another aspect of retail operations that cuts into profit margins and can negatively impact the customer experience. U.S. retailers typically experience about 65 percent employee turnover, according to research by the Hay Group division of Korn Ferry. 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. The Center for American Progress calculates that it costs a retailer on average $3,328, or 16 percent 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.  

Seven Technologies to Improve Retail Operations 

According to Jabil’s 2018 Future of Retail Technology survey, 95 percent of retailers predict an increase in technology investments in the next two years. While nearly half (49 percent) expect an increase of more than 10 percent, another 38 percent expect an increase of 5 to 10 percent. Ninety-eight percent of survey participants also agree that to be competitive, retailers must invest in technology that increases their efficiencies. The question is: what are those technologies and where do you begin? Download Jabil's Future of Retail Technology Report.

retail technology investments in the next two years

When asked about technology investments to improve operations and efficiencies, 98 percent of the survey participants said they are implementing or considering the following technologies: 

  • 69 percent are implementing or considering inventory accuracy systems 
  • 57 percent are investing in analytics to optimize channel and product inventory strategies 
  • 56 percent are working toward theft reduction 
  • 46 percent are introducing self-checkouts 
  • 42 percent are streamlining processes with auto-replenishment 
  • 24 percent are innovating with smart packaging 
  • 11 percent are collaborating with shelf-stocking robots.  

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 store managers 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 percent of RFID adopters have reported an ROI of at least 5 percent 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.  

These 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.  

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 percent 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.  

Self-checkout kiosks can not only help reduce staff costs but also create a quicker, smoother checkout experience for consumers. 

Self-checkout kiosks can not only help reduce staff costs but also 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. Human cashiers might be tired, sick or stressed from a previous encounter with a customer or just not paying attention, which can lead to mistakes and a subpar 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 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.   

Evolving Retail Staff Responsibilities 

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.  

For now, retailers are relatively immature on the technology implementation curve, so this shift toward human-robot collaborations is still a few years away. At most, some retailers are trialing robots and other new technologies to see how they can benefit stores. In these trial periods, retailers should monitor how customers and employees interact with the robots to ensure that they are accepting of this new technology.  

A common challenge in the industry is that retailers want or need technology, but they do not know how to implement it properly. 

In addition, 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 industry is that companies want or need technology, but they do not know how to implement it properly. In fact, only 17 percent of retailers from the Jabil survey said they were fully confident that their team had the knowledge and resources to successfully incorporate new technology. 

retail technology in-house capabilities for operational efficiency

Investing in and implementing new technology is a large commitment, so retail leaders need to truly 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 store the greatest return on investment.  

Technology will continue to develop, and trials will continue, allowing retailers to hone in on the benefits of 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.